On July 9, 2014, the antitrust watchdog of the 28-member-state European Union imposed fines totaling €427.7 million (US$ 580 million) on French pharmaceutical company Servier and five generic drug manufacturers based on Servier’s acquisition of alternative technologies allegedly to block competitive access and certain patent infringement settlements between Servier and the generics, which allegedly had the effect of delaying entry of generic versions of Servier’s branded perindopril products in the European Union. This enforcement action highlights the Commission’s interest in perceived efforts by innovator companies to prevent generic entry by any means.

According to the Commission, Servier breached European competition law by acquiring alternative technologies that potential generic companies might otherwise have used to develop noninfringing products and by striking a series of deals with five generic drug manufacturers that delayed entry of less expensive drugs, all to the detriment of national budgets and patients, to protect its blockbuster blood pressure medicine, perindopril, from price competition. The five generic companies were India-based Niche/Unichem, Matrix and Lupin, Israel’s Teva and Slovenia-based Krka. Of the €427.7 million, Servier shall pay a fine of €331 million ($450 million), while the remaining fine of approximately €100 million shall be split among the five generics.

Perindopril was, like many compounds, originally patent-protected. Servier’s perindopril products were also protected by later obtained so-called “secondary” patents related to processes and forms. The Commission alleged that perindopril’s compound patent protection, expired in or around 2003, while Servier’s so-called “secondary patents” related to processes and forms continued.

The Commission further alleged that, from 2003 onward, several generic drug companies were intensively preparing to enter the market with generic forms of perindopril. The Commission alleged that the generic companies were seeking, in the first instance, to do so with patent-free technology which, according to the Commission, was only available from a few sources. In 2004 Servier allegedly bought the most advanced technology, effectively depriving the prospective generic competitors of access to it. Notably, from the Commission’s perspective, Servier never used the technology it acquired.

Perhaps as a result of Servier’s acquisition of noninfringing technology, the generic companies sought to challenge in court Servier’s outstanding process and form patents in order to enter the market with products and processes that might otherwise infringe those patents. As is often the case in such circumstances, a number of those disputes were settled, and those settlements formed the basis of the Commission’s second allegation of wrongdoing.

The Commission claimed that between 2005 and 2007, Servier paid large amounts of money to settle its patent disputes with a series of generic challengers each time they came close to entering the perindopril market. The Commission alleges that the settlements resulted in delayed generic entry in exchange for the payment of several tens of millions of Euros. In one case, the Commission alleged that Servier offered a license for seven national European markets and the competitor agreed to “sacrifice” all other European markets and to stop all efforts to launch its perindopril there. These claims are similar to the so-called “pay for delay” claims that the US Federal Trade Commission and private antitrust litigants in the US have brought, and which were the subject of the US Supreme Court’s decision in Federal Trade Commission v. Actavis, Inc., 570 U.S. (2013).

Finally, the Commission alleges that in early 2007, India-based drug maker Lupin sold certain patent applications and other perindopril-related intellectual property to Servier for approximately €20 million.

The Commission’s action here is consistent with its public statements regarding alleged efforts by innovator companies to “unlawfully” prevent or delay generic competition—i.e., to prevent or delay generic competition beyond the life or scope of lawfully obtained intellectual property rights. It is also consistent with other enforcement actions over the past decade. As a result, branded pharmaceutical companies seeking to protect their legitimate interest in reaping the benefits of their investment in innovation, research and development should expect Commission interest where certain strategies are employed.

The Servier matter also makes clear that a perceived strategy to buy up noninfringing technologies systematically for the purpose of denying potential competitors access to those technologies will almost certainly be challenged. Where, as was alleged here, the purchaser of the technology never intended to use it, the likelihood of anticompetitive intent being found is high. Such a scenario is not unique to pharmaceuticals, although the sector’s economic and social importance suggests that it is likely to remain a focus of interest for the foreseeable future.

Moreover, as the Commission’s allegations in the Servier case indicate, the Commission can be expected to look closely at settlements of patent disputes between brands and generics, and that settlements involving substantial payments to the generic challenger, coupled with a delay in entry, will almost certainly be challenged. It is less clear—in Europe, as in the US—whether other so-called “value” provided to the generic challenger would support enforcement action, given that, as the US Supreme Court recognized in Actavis, all settlements involve exchanges of value in both directions.

Thus, while it is lawful, legitimate and desirable to apply for and obtain patents, enforce them, transfer technologies and settle litigation, innovator companies are wise to consult with their experienced competition counsel when designing and executing their intellectual property and brand protection strategies.