The European Commission has imposed fines totalling €427.7 million on Servier and five producers of generic medicines (namely Niche/Unichem, Matrix (now part of Mylan), Teva, Krka and Lupin) for concluding a series of deals aimed at protecting perindopril, Servier's blockbuster cardio-vascular medicine, from price competition by generics in the EU. The Commission considered that Servier implemented a strategy to delay the entry of generic versions of perindopril through a technology acquisition and a series of patent settlements with its generic competitors, violating Articles 101 and 102 TFEU.

This follows other recent fines by the Commission in the pharma sector, namely its fining of Lundbeck and several generics, the first antitrust decision against "pay-for-delay" agreements, as well as its fining of Johnson & Johnson and Novartis for entering a "co-promotion agreement" (see our previous bulletin here). These decisions indicate that the pharma sector remains under high antitrust scrutiny in the EU.

1. Key points from Servier

  • As in the previous pharma cases, the Commission makes numerous references in its press release to statements it found in the parties' internal documents. These include Servier's comment on its "great success = 4 years won" in delaying generic entry after expiry of the perindopril molecule patent, and also statements by generics acknowledging that they had been "bought out of perindopril" or stating that "any settlement will have to be for significant sums", also referred to as a "pile of cash". Such wording in internal documents clearly makes it more difficult for companies to defend themselves and justify their actions.
  • As in the previous "pay-for-delay" cases, the transfer of value from originator to generics was again viewed as a determinative factor. In the present case, this included not only cash payments, but also granting a licence to a generic for a few national markets in return of which the generic agreed to "sacrifice" all other EU markets and stop its efforts to launch its generic perindopril.
  • As well as the fine under Article 101 TFEU for "pay-for-delay" agreements, the Commission also fined Servier under Article 102 TFEU for abuse of a dominant position. This is the first use of Articles 101 and 102 together in such circumstances. It is reported that the Commission considered Servier dominant on a narrow "molecule level" market excluding other drugs with different molecules that Servier claimed were competing with perindopril for the treatment of hypertension. The abuse consisted of acquiring a technology which generics would have used to enter the market, as part of its strategy to delay their entry.

2. Background - the Pharmaceutical Report and annual Monitoring Report

In 2009 the Commission published a report on the pharmaceutical sector, flagging a number of factors that could potentially delay the market entry of cheaper generic medicines including patent settlement agreements between originators and generics. The Commission underlined that B.II agreements (agreements that delay generic entry and also include a value transfer) are likely to attract the "highest degree of antitrust scrutiny".

On the same day that it published its final sector inquiry report, the Commission announced that it had opened a formal investigation into Servier and other generics which resulted in the Servier infringement decision.

Following the report, the Commission has monitored patent settlements annually. In its 4th Monitoring Report (December 2013, relating to agreements concluded in 2012) the Commission found that the total number of settlements has increased, while the percentage of B.II agreements has decreased; the Commission considers this means that the industry is increasingly aware of potentially problematic practices.

3. Background - the Citalopram and the Fentanyl case

In June 2013 the Commission fined Lundbeck €93.8 million and several producers of generic medicines a total of €52.2 million for delaying the market entry of citalopram, Lundbeck's blockbuster antidepressant medicine. According to the Commission, after Lundbeck's basic patent for the citalopram molecule had expired, it only held a number of related process patents which provided a more limited protection and therefore, generic producers of citalopram had the possibility to enter the market. However, instead of competing, the generic producers agreed with Lundbeck not to enter the market in return for substantial payments and other inducements. This case is currently under appeal.

In December 2013 the Commission fined J&J €10.8 million and Novartis €5.5 million for delaying generic entry of a generic version of fentanyl in the Netherlands. J&J's patent protection on the fentanyl depot patch expired in the Netherlands in 2005. According to the Commission, Novartis' subsidiary Sandoz was on the verge of launching a generic version, but in July 2005 the parties concluded a "co-promotion agreement" as a result of which Sandoz did not launch its product.

In both cases the Commission concluded that the agreements constituted violations of EU antitrust rules "by object" namely it was not necessary for the Commission to establish anticompetitive effects.

4. The Perindopril decision

According to the Commission, Servier held significant market power in the market for the perindopril molecule as no hypertensive medicines other than the generic versions of perindopril could constitute meaningful competitive constraints. Servier's patent for the perindopril molecule had expired (for the most part) in 2003 and there was only a number of "secondary" patents (relating to processing and form) that provided a more limited protection to Servier. Generic producers were therefore intensively preparing their market entry.

Acquisition of scarce competing technology in breach of Article 102 TFEU

In order to enter the market, generic companies sought access to patent-free products. According to the Commission, there were very few sources of non-protected technology and in 2004 Servier acquired the most advanced one, thus forcing a number of generic projects to stop thereby delaying generic entry. In internal documents Servier recognised that this acquisition merely sought to "strengthen the defence mechanism" and it never used the acquired technology for its own products.

"Pay-for-delay" agreements in breach of Article 101 TFEU

Generic producers also challenged Servier's patents before courts. However, according to the Commission, almost every time a generic company came close to entering the market, Servier and the generic in question settled the dispute with the generics agreeing not to enter in exchange for a share of Servier's profit. The Commission found that between 2005 and 2007 this practice occurred at least five times.

The Commission pointed to internal documents showing that generics agreed to stay out of the market in return for significant cash payments by Servier. Further, in one case, Servier granted a licence to a generic company for a few national markets and, in return, the generic company agreed to "sacrifice" all other EU markets and stop efforts to launch its generic perindopril there.

The Commission considered that the above patent settlement agreements delayed or limited generic entry and included a value transfer (either in the form of cash payments or in the form of a licence) and constituted therefore anticompetitive "pay-for-delay" agreements, prohibited under Article 101 TFEU. It reportedly considered this an "object" infringement (in line with the cases described above), however the apparent length of its decision suggests that it may to some extent have also considered the effect of the agreements on competition.

When announcing the Commission's decision, Competition Commissioner Almunia stated that "Servier had a strategy to systematically buy out any competitive threats to make sure that they stayed out of the market. Such behaviour is clearly anti-competitive and abusive. Competitors cannot agree to share markets or market rents instead of competing, even when these agreements are in the form of patent settlements. Such practices directly harm patients, national health systems and taxpayers. Pharmaceutical companies should focus their efforts on innovating and competing rather than attempting to extract extra rents from patients."

The Commission will publish its decision once it has dealt with confidentiality issues (this will probably take a number of months as the decision is reportedly 700-800 pages). The Commission's press release is available here.

Sevier has already announced that it will appeal, claiming that the Commission developed an "unprecedented theory" which weakened the use of intellectual property and stressing that the entry of cheaper drugs onto the market had not been delayed by its conduct.

5. Pharmaceutical companies likely to face more antitrust investigations

With regard to "pay-for-delay" agreements, speaking at a conference in June 2014 Commissioner Almunia emphasised that pharmaceutical companies are likely to face more antitrust investigations during the Commission's next mandate that is due to start in November 2014 making it clear that the Commission will remain vigilant in this sector:

“Intellectual property rights are also a very active sector […] Pharma cases […] will not finish with the end of this Commission.”

“We will continue to adopt decisions even before the end of our mandate. And in the future more pharma cases […] will be on the agenda for the next Commissioner for competition”

In addition to its annual monitoring of patent settlements, the Commission appears to have more cases in the pipeline, such as its investigation into Cephalon and Teva concerning the drug modafinil.

6. Patent settlements under the revised Technology Transfer Block Exemption Regulation ("TTBER") Guidelines

The Commission made it clear in its press release that the patent settlements in this case did not constitute an ordinary transaction where two parties decide to settle a patent claim outside of court to save time and costs. It made therefore a distinction between legitimate patent settlements which are accepted and desirable by the Commission and anticompetitive "pay-for-delay" agreements which are prohibited under Article 101 TFEU.

In March 2014 the Commission adopted a revised Technology Transfer Block Exemption Regulation (TTBER) together with associated Guidelines that came into force on 1 May 2014. The revised Guidelines include updated guidance on how the Commission will assess settlement agreements involving the licensing of technology rights and under which circumstances the Commission may consider these settlements as anticompetitive agreements prohibited under Article 101 TFEU (see our bulletinhere).

In particular, the new guidance states that settlement agreements which lead to a delayed or otherwise limited ability for the licensee to launch a product may be prohibited under Article 101 TFEU. The Commission states further that if the parties are actual or potential competitors and there was a "significant value transfer" from the licensor to the licensee the Commission will be particularly attentive to the risk of market allocation or market sharing, although there is no further comment on what the Commission would consider to constitute "significant value transfer", nor on how such agreements will actually be assessed.

The guidance also states that no-challenge clauses in the context of settlement agreements can be caught in specific circumstances by Article 101 TFEU, for example where an IP right was granted following the provision of incorrect or misleading information.