Last January, the Commission spectacularly launched an investigation into the pharma sector by carrying out dawn raids on Europe’s major pharma groups. This was the first time a sector inquiry had been commenced by unannounced inspections.
The Commission published a 400-page preliminary report on its investigation, which was launched at a press conference given by EU Competition Commissioner Neelie Kroes in Brussels Nov. 28, 2008.
The Commission’s preliminary view, on which it will now consult, is that competition in the European pharma industry is not working as well as it should. The Commission cites certain practices of the large pharma groups that the Commission believes restrict competition and artificially keep the prices of drugs high.
The practices that concern the Commission are: registering lots of patents—apparently 1300 in one case—for the same drug (patent clusters) in order to make it more difficult for other companies to produce competing (generic) versions of the same drug; a policy of initiating litigation to keep the generic companies out of the market or delay their entry; settling these cases by agreements that typically keep the generic competitor out of the market for a time; giving the generic competitor a license of the patent holder’s drug or the right to sell it, so removing the possibility of a new generic drug entering the market; and/or including a so called “reverse payment” to the generic company.
The truth is that there is really nothing new in any of these allegations or practices, many of which have already been extensively litigated by competition authorities and industry players in the United States. The debate turns on the tension between antitrust legislation that is aimed at promoting competition, and other laws that safeguard intellectual property rights, which by their very nature confer an unchallengeable monopoly on the holder. Patents and other intellectual property rights are in the public interest because they incentivize innovation by allowing innovators the exclusive right to exploit the fruits of their work during a defined period. It is natural that powerful companies will wish to use the law in order to delay the entry of competitors and will vigorously defend any challenges to their intellectual property rights. European law recognizes the importance of intellectual property rights, and also recognizes that it is not a breach of competition law just to be big and powerful.
So the Commission will have its work cut out if it is going to mount legal challenges to the practices it has identified. Of course, registration and vigorous defense of patents restricts competition. That is the whole point of having a patent. When does this activity go so far as to become something that the law should sanction?
In this connection, the Commission will take little comfort from the more recent developments across the Atlantic. Last month, a U.S. Federal Appeals Court upheld a decision in favor of drug companies Bayer, Hoechst and Barr in a challenge by a group of health plan providers that patent settlement agreements between the three companies had artificially kept up the price of the drug Cipro—exactly the same argument raised by the Commission in its report.
So we will wait and see what enforcement action eventually results from this enquiry as it now goes to consultation. Consultation will finish at the end of January, and the final report is expected next spring. In the meantime, the Commission is keeping busy with another series of raids on the pharma sector. This, the Commission says, is unconnected with the current enquiry, and speculation is that these raids relate to distribution of drugs, rather than preventing or delaying generic entry. Neelie Kroes has picked a big fight with the pharma companies. It certainly promises to keep her busy.