On January 15, 2008, the European Commission’s (EC) Competition Directorate launched a sector inquiry in the pharmaceutical industry and dawn-raided several companies in various EU Member States. As a follow-up to the dawn raids, the Commission sent extensive requests for information to companies involved in March. At the end of May, in an attempt to deepen its sector inquiry, the Commission sent out a second round of requests seeking clarifications and additional information.

The Commission launched the inquiry largely in response to allegations that fewer new drugs were being brought to market and the entry of generic drugs was delayed. The Commission is investigating whether the alleged lack of new products is the result of anti-competitive practices.

The second round of requests for information is focused more closely on patent litigation and dispute settlements over a seven-year period (2000-2007). The requests seek detailed information on the number of patents filed, the stage of R&D at which such patents are submitted to the European Patent Office (EPO), as well as the circumstances and conditions of patent litigation and settlement between these companies and generics.

At this stage of the inquiry, it appears that the Commission is focusing on whether certain patterns of conduct could be used as a strategy to delay generic market entry, such as vexatious litigation, or unduly restrictive conditions that could be imposed in the context of settlements or licensing/distribution agreements between patent holders and generics manufacturers. With respect to settlements, the Commission’s focus seems to be on compensation that could be offered to generics as a way to settle, probably to assess whether such compensation could amount to a payment to stay out of the market. As for licensing/distribution agreements, the Commission is investigating whether certain provisions such as non-competes or exclusivity could act as barriers to entry.

The inquiry could give rise to further individual investigations against certain companies for alleged breaches of EC competition law.

Reactions of the Pharmaceutical Industry

The Commission’s inquiry has come under blistering attack from the pharmaceutical industry. A group of companies and national associations have warned against the long-term consequences of the Commission’s excessive intervention in the patent policy of pharmaceutical companies. The concern is that the Commission’s actions will weaken protection for IP rights, which in turn could discourage innovation.

Another criticism voiced by the industry is that the inquiry is not seeking to establish whether the alleged delay of new molecules could be caused by factors other than anti-competitive practices. The pharmaceutical industry points to the role played by the different regulatory and pricing regimes in the Member States. By placing the entire brunt of generic slow market entry on the pharmaceutical companies alone, the Commission may have started its inquiry with the wrong premise.

Next Steps

The next steps of the inquiry will be as follows: the Commission will analyze the information gathered from both sets of questionnaires and a preliminary report is expected on November 28, 2008. Pharmaceutical companies should have the opportunity to comment on the preliminary report. The Commission may also organize a public hearing in Brussels after the preliminary report is published to allow companies and trade associations to express their views orally. The final report is expected by Spring 2009.