In recent weeks, the General Court’s judgment on the discount practices of Intel Corp. and the European Commission’s decision on agreements between Les Laboratoires Servier and generic companies have both represented prominent restatements of a strict approach to EU competition law compliance. The Intel judgment is a landmark case of great relevance to companies in the lifesciences sector and the subject of the Servier decision is patent settlements in the lifesciences sector. This is therefore a good moment to assess the enforcement of competition law in the EU and the UK in this sector.
Intel – exclusivity rebates are inherently anti-competitive
In a long-awaited judgment dated 12 June 2014, the General Court dismissed an appeal by Intel Corp. against a 2009 decision by the European Commission (Commission) to fine Intel Corp. €1.06 billion for the abuse of a dominant position in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU). The judgment’s principal finding is that exclusivity rebates granted by a dominant company are, by their very nature, likely to be anti-competitive and that, as result, there is no requirement to demonstrate anti-competitive effect in the circumstances of an actual case. The Commission and other competition authorities have consistently defined pharmaceutical and other lifescience markets on a narrow basis with the result that it is advisable that the commercial policies of many companies in this sector comply with the abuse rules under Article 102. Such a strict statement of the law can be expected to have a major impact on the commercial strategy of companies with a strong market presence.
Please click here for our separate Law-Now assessing theIntel judgment.
Servier – another case about pay-for-delay arrangements
On 9 July 2014, the Commission announced it had imposed fines totalling €227m on Les Laboratoires Servier and five generic suppliers for concluding various deals, including patent settlements, aimed at protecting perindopril, a blood pressure medicine, from generic competition. In explaining the rationale behind its decision, the focus of the announcement is the supposed “buy-out” element of the patent settlements, whereby payments from the original brand owner (Servier) are made to the generic companies in return for an agreement to terminate litigation and delay marketing the generic products. The Commission believes that these payments are anti-competitive in that they delay or prevent the launch of cheaper products.
The Commission has recently released two other fining decisions relating to practices which involved the delayed launch of generic products.
- In June 2013, it fined Lundbeck and other companies for pay-for-delay arrangements, which it stated were infringements “by object”, i.e. not requiring evidence of anti-competitive effect. The Lundbeck decision has since been appealed by several parties.
- In December 2013, it fined Johnson & Johnson and Novartis for contractual arrangements which delayed generic entry (although this was not a patent settlement case).
The Commission has devoted considerable resource to the investigation of patent settlement agreements in the pharmaceutical sector since its 2009 Sector Inquiry. In its fourth monitoring report (also in December 2013), it found that patent settlement agreements were increasing, but were compliant in that they rarely now involve value transfers. Furthermore, since 2011, the Commission has been investigating another patent settlement case involving Cephalon and Teva.
Pay-for-delay – a controversial infringement
The Commission’s views on pay-for-delay cases have always been strongly contested. There is a widespread belief that few patent settlement agreements, even if they involve value transfers and could be called “pay-for-delay” agreements, have true anti-competitive effect. Some may be the reasonable result of a genuine patent dispute and will not leave anti-competitive impacts on the market, e.g. because they may avoid protracted litigation which could itself significantly delay generic entry. For this reason, many pharmaceutical suppliers and other parties believe that it is a fallacy to conclude that pay-for-delay agreements should be considered infringements of the competition rules by object and that the authorities should indeed consider the individual circumstances of each case.
UK enforcement – the new CMA
On 1 April 2014, the UK competition law regime was reformed with the introduction of the Competition and Markets Authority (CMA), replacing both the Office of Fair Trading (OFT) and the Competition Commission. The advent of the CMA has been widely reported as an indication of more proactive and rigorous competition law enforcement in the UK.
The CMA has already shown its focus on the lifesciences sector. On 24 June 2014, the CMA announced that it had opened an investigation into a suspected breach of Chapter II of the Competition Act 1998 and Article 102 of the TFEU, i.e. the UK and EU rules prohibiting the abuse of a dominant position. It has released no further details on this case, other than confirming it relates to the pharmaceutical sector, but has stated that it aims to decide whether to proceed or close the investigation in October 2014.
The CMA has two other ongoing investigations in the pharmaceutical sector, opened by the OFT.
- On 19 April 2013, the OFT announced that it had sent a statement of objections to GlaxoSmithKline (GSK) and three generic companies, alleging that agreements between these parties, entered into to settle patent infringement actions, breached the Chapter I prohibition of the Competition Act 1998 and Article 101 of the TFEU. The OFT's provisional view is that, under these agreements, the generic companies agreed, in return for substantial payments, to delay the launch of their generic versions of the drug paroxetine in competition with GSK's branded drug, reflecting recent EU cases on patent settlements (i.e. Lundbeck and Servier). The OFT is also alleging that GSK has abused its dominant position in the market for the supply of paroxetine.
- In May 2013, the OFT also announced on its website that it had launched a formal investigation into suspected breaches of competition law in relation to the supply of pharmaceutical products, but has since released no further details.
Finally, the OFT announced in March 2013 that it was conducting an investigation into alleged anti-competitive agreements in the supply of healthcare and medical equipment.
Conclusion – compliance in a strict environment
There can be no doubting that the commercial activity of pharmaceutical companies is likely to remain the subject of close scrutiny by the competition law authorities, with the recent Intel judgment and the recent Servier decision representing clear indications of the authorities’ continuing strict stance on two key infringements. Above all, the Commission and national competition authorities clearly oppose, on competition law grounds, patent settlements with a value transfer. Furthermore, on 30 June 2014, Commissioner Almunia stated that the Commission is likely to conduct more investigations into possible antitrust abuses in the pharmaceutical sector during its next mandate, staring in late 2014.
In order to minimise the risk of being the subject of such scrutiny, companies with market-leading products should review their pricing policies to ensure that customer incentives could not be interpreted as exclusivity conditions. Also, pharmaceutical companies who are considering a possible patent settlement would be well-advised to avoid value transfers and seek a demonstrable balance between the scope of the patent right and the positions of the parties with regard to that right.