Last week I posted on the European Commission’s (EC) latest report into patent settlement agreements between originator and generic companies in the European Union (EU). The EC says each time it produces these reports that the limited number of prima facie unproblematic settlements entered into by companies active in the EU shows that they have a good awareness of potentially problematic practices and generally do not feel hindered from concluding patent settlements due to EU antitrust/competition law concerns.

Hard on the heels of the EC’s report (which covered calendar year 2014), on January 13, 2016, the U.S. Federal Trade Commission (FTC) produced a report on the same subject.  That report summarizes data on patent settlements filed with the FTC and the U.S. Department of Justice (DOJ) during fiscal year 2014 under the Medicare Modernization Act of 2003.  The conclusions are very similar to those set out by the EC.  Although (following the U.S. Supreme Court judgment in Actavis in 2013) the number of filed settlements increased slightly from 2013 to 2014, 160 in fiscal year 2014 as opposed to 145 in fiscal year 2013, the number of potential pay-for-delay agreements decreased.

It seems that competition/antitrust regulators on both sides of the Atlantic are generally happy with progress in this area. That may be so, but the elephant in the room on the EU side is continuing legal uncertainty.  This continues to cause issues for companies.  A former senior in-house counsel at a large EU-based originator pharmaceutical company recently said to me that the EC’s annual report is “becoming all too repetitive from year to year and the EC clearly continues to be in denial of the commercial realities of patent settlements”.  On the FTC report, he commented: “[The report] is not surprising as most companies do not wish to be litigious and are not eager to set legal precedents, so even if they believe that they are legally entitled to do something, they might not if this risks an FTC law suit and negative publicity etc. So in the end the FTC wins either way.”

In the EU, surely enough guidance is out there? Maybe, but uncertainty arises from the ongoing challenges in the EU General Court (the EU’s second highest court) to the EC’s decisions in the Lundbeck (June 2013) and Servier (July 2014) patent settlement cases (note that at the same time the EC continues actively to investigate the settlement of separate patent infringement disputes between at least two other players; not to mention the various national level investigations which are going on).  The GC’s eventual judgments in those two cases will be of crucial importance to guiding behavior in the market and originators and generics alike await the judgments eagerly.

The Lundbeck case was the first time the EC had imposed competition law fines for a pay-for-delay patent settlement.  The fines were €93.8 million on Danish pharmaceutical company Lundbeck and a total of €52.2 million on several producers of generic medicines.  According to the EC, after Lundbeck’s basic patent for its branded citalopram molecule (a blockbuster antidepressant) had expired, it only held some related process patents which provided more limited protection.  However, instead of taking advantage of this situation by starting to compete, the generic producers agreed with Lundbeck not to enter the market in return for substantial payments and other inducements from Lundbeck.  This gave them, in the EC’s view, the “equivalent of what they would have earned if they had entered the market” and the parties therefore “shared the monopoly rents among themselves.”  The EC saw this arrangement as a type of cartel and fined it accordingly.

The Lundbeck appellants have recently been appearing at the GC in Luxembourg and have raised various arguments against the EC’s decision.  These include general arguments that the patent system in the EU is dysfunctional and the courts in the EU do not adequately protect or compensate innovators for patent infringements, so patent settlements are needed.  The EC is also being accused of misinterpreting the nature and scope of the agreements in question.  These were, it is argued, genuine commercial settlements that avoided the need for an injunction.  Finally, the big one:  the parties say that the EC should not have treated the agreements as “object” or automatic infringements of EU competition law (thus making it much easier to show an infringement), but instead should have analyzed the anti-competitive effects in practice (making it much more difficult to show an infringement).

That position of the EC on the object issue may be undermined by later European Court of Justice (the senior court to the GC) case law on the “object” issue. In any event, whatever the result, the GC’s judgment, expected in 2016, will be of huge importance in the area.  Meanwhile, the uncertainty goes on.