When does a pharmaceutical company’s granted patent prevent the entry of a generic competitor? The answer is, frequently, grey. Through Schrödinger’s eyes, the patent may be simultaneously valid and infringed (preventing entry), and invalid and/or not infringed (not preventing entry), until the final decision of the courts. Patent courts (and patent litigators) spend their lives considering these issues and the shades of grey involved. How then should competition law analyse these uncertainties?

The CJEU has now provided an answer (a mere eight days after the similarly clear opinion of Advocate General Kokott), at least when it comes to payments made by pharmaceutical innovators to settle patent disputes with generic companies (the “reverse payment settlements” which opponents prefer to call “pay-for-delay”). In particular, it finds that there is no need for the competition authorities or courts to decide the patent case in order to determine the competition case.

In response to a series of ten questions referred by the UK’s Competition Appeal Tribunal in 2018 in Generics (UK) and others v Competition and Markets Authority, the CJEU bundles them into five answers and tells us that:

  1. A reverse payment settlement may, by its nature, be a “restriction by object”: where the value transferred is such that there is no explanation other than the commercial interest of the parties not to engage in competition on the merits, unless the parties can prove sufficient pro-competitive effects to give rise to reasonable doubt that there is a sufficient degree of harm to competition; it will no longer be enough to argue that there is a genuinely uncertain dispute or that the settlement is within the scope of the patent rights.
  1. A reverse payment may also give rise to a “restriction by effect”: even if it is not possible to decide whether the generic company would have prevailed in the patent litigation or would have obtained a less restrictive agreement; a broad range of factors need to be considered and these two factors are not determinative.
  1. Generic companies can be “potential competitors”: provided they have a firm intention to enter the market and do not face insurmountable barriers; interim injunctions are not insurmountable and the scale of a reverse payment is indicative of potential competition.
  1. The “relevant market” can include the generic products: when considering abuse of dominance, despite the existence of the patent rights; the question is whether the generic manufacturers would be in a position to launch quickly in sufficient volume to constitute a serious counterbalance to the innovator (interestingly, in this case the court does not explore the impact of interim injunctions on the immediacy of launch).
  1. The use of a “reverse payment settlement” strategy may be abusive: where it has the capacity to restrict competition beyond the anticompetitive effects of each of the individual agreements; the CJEU indicated this was likely to be the case where access to consumers would be significantly foreclosed, and that even unintended pro-competitive efficiencies could also be considered but would have to be weighed against the adverse effects

The case now returns to the Competition Appeal Tribunal to apply the judgment of the CJEU. However, the speedy judgment does not mean that this is a recent fact pattern: the key conduct occurred between 2000 and 2004.* Similarly, two similar cases on appeal from the General Court which are pending before the CJEU (Servier and Lundbeck) date back to the early to mid-2000s. Pharmaceutical companies are well aware that the competition authorities have been critical of such agreements, including in the 2008-2009 pharmaceutical sector inquiry and eight reports monitoring patent settlements, and accordingly such agreements are now extremely rare.

Looking ahead:

  1. The CJEU’s ruling raises a number of interesting questions in relation to the assessment of potential competition in the pharmaceutical industry, including in dynamic mergers involving the pipeline portfolios of innovative biotech companies. While the CJEU’s ruling on market definition and potential competition is consistent with the increased scrutiny of such transactions across the world, it also supports a need for competition authorities to consider the competitive constraint posed by other potential competitors (i.e. beyond the target business) in greater detail, in any forward-looking competition analysis.
  1. The United States has led the way in analysing pharmaceutical settlements (with the Supreme Court deciding FTC v Actavis in 2013). For those trying to settle pharmaceutical cases today, again there is perhaps greater interest in developments in the United States. The class actions and allegations relating to Humira are of particular note, as these involve challenges to settlements which did not involve reverse payments but rather agreed entry dates which varied by territory (with later entry in the United States). Despite the attempt of the CJEU, there remain many shades of grey in the analysis of pharmaceutical patent litigation and settlement.