Competition law issues

Restrictions on trade

Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?

Practices that restrict trade are prohibited by both US antitrust and patent laws. Generally speaking, the antitrust laws prohibit a business with a monopoly over certain products or services from abusing its dominant position or market power. Examples of the types of prohibited practices include bid rigging, predatory pricing, price fixing, product tying and vendor lock-ins.

With respect to patent licence agreements, specifically, there is the concept of ‘patent misuse’, which would render the patent unenforceable (with the exception of certain activities, see question 27). While patent misuse is similar to antitrust, it addresses broader activities. That is, the key inquiry will be whether the patentee has impermissibly broadened the scope of the patent grant with ‘anticompetitive effect’ by imposing conditions that derive their force from the patent.

Legal restrictions

Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?

Not all restrictions on competition from licence agreements are prohibited. That is, if the restrictions in the licence agreement do not violate the US antitrust laws, or constitute patent misuse, as discussed above in connection with question 26, they would be legal. Unlike the European courts, the US courts do not appear to have addressed the issue of ‘internet sales prohibitions’.

US patent laws, however, specifically exclude certain activities from the ambit of patent misuse. Specifically, 35 USC 271(d) states that:

[N]o patent owner otherwise entitled to relief for infringement or contributory infringement of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having done one or more of the following: (1) derived revenue from acts which if performed by another without his consent would constitute contributory infringement of the patent; (2) licensed or authorised another to perform acts which if performed without his consent would constitute contributory infringement of the patent; (3) sought to enforce his patent rights against infringement or contributory infringement; (4) refused to license or use any rights to the patent; or (5) conditioned the licence of any rights to the patent or the sale of the patented product on the acquisition of a licence to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the licence or sale is conditioned.

IP-related court rulings

Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?

In the United States, reverse-payments or ‘pay for delay’ arrangements whereby the patentee pays (or provides other value to) the accused infringer to delay market entry, which for the most part arise only in the pharmaceutical field, may be considered anticompetitive and prohibited. Because an allegedly infringing commercial product being marketed, sold or offered for sale is typically a requirement for bringing a patent infringement action, pay-for-delay arrangements typically are not an issue. However, pay-for-delay arrangements can arise in the pharmaceutical field due to the Hatch-Waxman Act’s (the Act) statutory framework that provides, inter alia, that submitting an Abbreviated New Drug Application seeking Food and Drug Agency (FDA) approval to market a generic drug is an artificial act of infringement. Under the Bolar Amendments to the Act, it is not an act of infringement (even though otherwise infringing acts) for a generic manufacturer to develop a formulation and seek FDA approval; the generic manufacturer, however, is not allowed to enter the market until it receives FDA approval, and the FDA will not provide final approval until resolution of the underlying patent infringement action or expiration of the 30-month stay even if the underlying litigation is still pending. See generally King Drug Co of Florence, Inc v SmithKline Beecham Corp, 791 F3d 388 (3d Cir 2015).

In 2013, the United States Supreme Court rejected the FTC’s argument in FTC v Actavis, Inc, 570 US 136 (2013), that ‘reverse payment settlement agreements are presumptively unlawful’. Rather, the United States Supreme Court held that courts ‘reviewing such agreements should proceed by applying the “rule of reason”, rather than under a “quick look” approach’. As such, the courts will have to find actual anticompetitive activities instead of a mere payment (monetary or otherwise) to hold a pay-for-delay arrangement in violation of the competition laws. While the various US Appeals Courts have addressed the issue to varying degrees, the United States Supreme Court refused to hear the GlaxoSmithKline v King Drug, 791 F3d 388 (Fed Cir 2015), cert denied 137 SCt 446 (2016) case. In that case, Teva sought to make a generic version of Lamictal and Glaxo filed an infringement action. The parties settled without Glaxo making a cash payment to Teva. Instead, Glaxo agreed to allow Teva to sell generic chewable and tablet forms of Lamictal before patent expiration. Glaxo also agreed not to sell its own competing ‘authorized generic’ version of the drug. The Third Circuit Court of Appeals did not find this arrangement to be anticompetitive, and the United States Supreme Court declined to hear the appeal. As such, whether a pay-for-delay arrangement is anticompetitive is still open and must be adjudicated on the entirety of the situation and not merely because there was a reverse payment.

Most recently, Congress has sought to introduce legislation making pay-for-delay arrangements per se anticompetitive, but there has been no substantial progress on these proposals. The FTC, further, sued Endo and a number of other generic companies alleging that various components of the settlement agreement between Endo and Impax in the Opana ER patent infringement action constituted impermissible pay-for-delay arrangements (see FTC v Endo, 2016 US Dist LEXIS 145329 (ED Pa 2016)), which was settled in January 2017. See generally FTC v Endo, 2017 US Dist LEXIS 149749 (ED Pa 2017). Civil liability can additionally attach to such pay-for-delay arrangements. In a series of settlements finally approved in July 2018, Medicis Pharmaceutical Corp agreed to pay slightly more than US$76 million to consumers, sellers and insurers to settle a class action law-suit based upon Medicis’ settlements of Hatch-Waxman actions under which Impax Laboratories, Inc, Sandoz Inc and Lupin Limited/Lupin Pharmaceuticals, Inc were paid and agreed not to compete in the market for extended-release minocycline hydrochloride tablets, that is, Solodyn and its generic equivalents, in violation of the Sherman Act. See generally In re Solodyn (Minocycline Hydrochloride) Antitrust Litigation, US District Court, District of Massachusetts, No. 14-md-02503 (2018).