On November 28, 2008, the European Commission’s Directorate for Competition published the preliminary findings from its ongoing inquiry into the pharmaceutical sector. The report is intended to be a factual analysis of the Commission’s findings. The Commission emphasizes that it has not yet reached any conclusions on whether companies have been involved in competition law infringements or even if any action on its part will be necessary. However, the report itself, and the Commission’s presentation of the report in a public hearing, suggest that the Commission will pursue further action against individual companies for suspected antitrust infringements which the Commission believes are delaying the entry of generics into the EU market.
The consultation process on the preliminary report ended on January 31, 2009 and the report has been subject to wide criticisms from the industry. The Commission intends to publish its final report in Spring 2009.
‘Tool-Box’ of Instruments used by Originator Companies to Delay Generic Entry?
The report states that originator companies have changed their patent strategies in recent years and now use a variety of approaches to extend the commercial life of their medicines for as long as possible. The Commission identifies a “tool-box” of instruments used by originator companies, which allegedly contribute to delaying the entry of generic products into the market. The Commission also claims that some or all of these instruments are used by certain originator companies with the sole or primary objective of blocking or delaying generic entry, and it quotes documents found in the course of the inquiry which the Commission believes confirm that intent.
The “tool-box” described by the Commission includes:
- The use of “patent clusters,” i.e., filing numerous patents (including sometimes allegedly weak patents) around the same medicine, which can lead to uncertainty for generic companies on whether and when they can start to develop a generic medicine without infringing one of the many (new) patents;
- Engaging in disputes and litigation with generic companies: The Commission points to some 700 lawsuits related to the medicines investigated, and indicates that the majority of those cases were initiated by originator companies and generic companies won 62 percent of those cases in which a final judgment was rendered.;
- Settlement agreements with generic companies: The Commission points out that in more than half of the settlements reported, the originator company did not impose any restrictions on generic entry. On the other hand, in 48 percent of the cases, the generic company’s market entry allegedly was restricted, including some cases where direct payments were made to the generic company as part of the settlement; and
- Intervening in regulatory approval procedures for generic medicines: The report refers to originator companies’ intervention when generic companies apply for marketing authorization and pricing/reimbursement status for their medicines, claiming that generic products are less safe, less effective and/or of inferior quality.
Competition Between Originator Companies Restricting Development of New Medicines?
The report also looks at strategies affecting competition between originator companies, including defensive patents, which allegedly may infringe antitrust rules when used for the sole purpose of blocking the development of a new competing medicine. It also considers patent-related exchanges and litigation between originator companies, noting how issues were resolved where there were overlaps in originators’ R&D poles (licensing, litigation and settlements).
The report summarizes comments from industry regarding the functioning (or mal-functioning) of the EU regulatory framework, particularly the patent system, marketing authorization procedures, and national pricing and reimbursement procedures. The Commission supports the adoption of a Community patent, but beyond this it does not advocate any other policy initiatives to improve the existing system. Perhaps more importantly, the Commission states that the sector inquiry has confirmed that generic entry often occurs “later than expected,” but it does not examine the extent to which the existing regulatory framework could contribute to this delay. The report reasons that, as a competition inquiry, it focused on companies’ behavior rather than on regulatory framework.
We expect that the Commission’s report will be followed by the launch of further antitrust investigations against individual companies for some of the practices identified. It also may be followed by litigation at a national level between generic and originator companies.
Many of the ‘questionable’ practices outlined in the Commission’s report result not from an agreement, but from the unilateral actions of originator companies (excluding settlement agreements). In this context, the Commission has to proceed under Article 82 of the EC Treaty (abuse of a dominant position) and therefore will first need to establish that the originator company holds a dominant position in the EU market before it can find an antitrust infringement for unilateral conduct. The discussion on dominance in the pharmaceutical industry falls outside the scope of the Commission’s report, but this question will be hotly disputed in subsequent Commission investigations.
In pursuing individual investigations, the Commission in some cases will be treading a fine line between permitting legitimate protection of IP rights and antitrust enforcement. What seems looming behind the inquiry is the general concept that some IP rights may not be ‘worth’ defending because they are allegedly ‘weak’ — this appears to be the basis for the Commission’s reasoning on patent litigation or clusters. This may set a dangerous precedent and one may wonder if DG Comp is the best authority to decide the strength and legitimacy of IP rights.
In the case of investigations of alleged abusive litigation, there is precedent in another sector which sets a high bar for the Commission to succeed in finding that an originator company has used patent litigation to abuse its dominant position. In the ITT Promedia case, the Court of First Instance concluded that litigation would only be found to be abusive in “wholly exceptional circumstances.” In particular, it must be shown not only that litigation was conceived as part of a plan to eliminate competitors from the market but also that the action is “manifestly unfounded.” It remains to be seen how the Commission will apply these principles in order to establish what it seems to perceive as widespread abuse.