While the pharmaceutical sector might have felt some relief that the Final Report from the Pharmaceutical Sector Inquiry (Sector Inquiry) was more balanced than its Interim Report, the European Commission (Commission) is maintaining its focus on competition in this sector. One of the main policy recommendations of the Sector Inquiry was to intensify competition law scrutiny and the Commission’s recent activities can be seen as a clear confirmation that this is underway. While continuing to investigate individual cases (for example a case launched in July 2009 concerning the generic entry of cardio-vascular drug, Perindopril and a new case in January 2010 concerning the anti-depressant, Citalopram) it has, in parallel issued a broad request for companies to provide it with copies of any patent settlement agreements. Taken together, what is clear is that the spotlight is still firmly on this sector, even if concrete results such as infringement decisions, may still be some way off.

Requests for patent settlement agreements

On January 12, 2010, the European Commission confirmed in a press release that it had requested information from certain pharmaceutical companies concerning patent settlement agreements entered into between July 1, 2008 and December 31, 2009. Commissioner Kroes commented that “Patent settlements are an area of concern, not least if there are situations where an originator company pays off a generic competitor in return for delayed market entry.” This monitoring activity flows from the Commission’s Sector Inquiry. In its Final Report published on July 8, 2009, the Commission stated inter alia that it intended to intensify competition law scrutiny of company practices that could potentially infringe Articles 101 and 102 TFEU (in addition to scrutiny of mergers in this area as well as through other initiatives such as the rapid establishment of a single Community patent, streamlining marketing authorisation processes etc.). The Final Report identified patent settlement agreements concluded at the expense of consumers as an area which could benefit from further focused monitoring.

While it is unclear whether information requests have been sent to all of the companies involved in the Commission’s Sector Inquiry, a number of originator firms have confirmed being the target of this new monitoring activity, such as GlaxoSmithkline, AstraZeneca, Pfizer, Sanofi-Aventis, Novartis, Roche, and Boehringer Ingleheim. Generic companies such as Teva and Niche Generics have also been identified. The legal basis for these monitoring activities appears to be Article 17 in conjunction with Article 18 (requests for information) of Regulation 1/2003. While this monitoring exercise stems from the Commission’s stated intentions in its Final Report, the Commission’s clear objective is to follow any “suspect” agreements by way of a more targeted investigation. Companies responding to the requests have to be mindful of the different consequences depending on whether the information request is based on Article 18(1) - where a reply is not compulsory but the provision of incomplete or misleading information can lead to fines, or on Article 18(3) - where a mere failure to reply can lead to fines and/or periodic penalty payments.

In what is perhaps an attempt to deflect one of the more general criticisms of the Sector Inquiry, the Commission has limited its latest requests to copies of all patent settlement agreements relevant for the EU/EEA markets concluded during the 18 month period between July 1, 2008 to December 31, 2009. Copies of all annexes, related agreements and amendments must be included. However, no additional background or narrative material needs to be supplied (except to the extent that it is necessary to clarify the patents, parties, and geographic scope of the agreement where these are not apparent on the face of the agreement). This may be small comfort to those at the receiving end of such requests who may feel the need to provide background on the circumstances surrounding any such agreements.

It is clear from the Sector Inquiry that the Commission does not consider all settlement agreements to be unlawful under EU competition law. Among the issues that are likely to be of interest to the Commission (and for pharmaceutical companies assessing the compatibility of their agreements with EU competition law) are the following:

1. the nature and status of the dispute at issue (i.e. whether or not litigation has actually commenced);

2. whether the settlement involves a payment or other benefit such as a royalty free license to the generic company to defer entry beyond the date of settlement;

3. whether the agreed entry date precedes the expiry of the disputed patent;

4. whether the settlement goes beyond resolving the dispute at issue.

The importance of understanding the settlement in its proper factual and economic context will be clear from the considerations outlined above. There may be good reasons for companies to seek to end potentially costly and protracted litigation through settlement. A “pay for delay” provision may in fact reflect a legitimate market outcome. However, this may not be readily apparent on the face of the agreement so that it will be important for competition authorities and concerned parties to assess what would have happened without the settlement, including with regard to entry by the generic company and the outcome of litigation.

Interestingly, the Commission states that following receipt and analysis of responses, it intends to publish a short report with a statistical overview. Commissioner Kroes explained that the Commission needs to monitor these types of agreements in order to better understand why, by whom, and under which conditions they are concluded and to allow the Commission to act should this become necessary. Even more worrying perhaps is the Commission’s statement that “depending on the outcome of the exercise, this round of information requests may be repeated annually for as long as the Commission considers that there is a potential problem.” This monitoring of patent settlement agreements, and publishing an overview of the results, could be viewed as an effort by the EU to keep up to date with events in this sector while falling short of the US filing requirements and annual compilations overseen by the Federal Trade Commission.

New and ongoing cases at European and national level

In parallel to this monitoring exercise, the Commission is already actively following up individual cases concerning the potential hindrance of generic pharmaceuticals into EEA markets. On July 8, 2009, the Commission confirmed that it was investigating (under Articles 101 and 102 TFEU) the activities of Les Laboratoires Servier in regard to the potential restriction of generic entry on the market of Perindopril, a cardio-vascular medicine originally developed by Les Laboratoires Servier. More recently, on January 7, 2010, the Commission confirmed that it had opened formal proceedings against the Danish pharmaceutical company, H Lundbeck A/S, in connection with behavior and agreements (Articles 101 and 102 TFEU) that could potentially hinder the entry of generic Citalopram, an anti-depressant drug originally developed by Lundbeck. In addition, Novartis, the owner of Sandoz, has recently confirmed to investors that the investigation that took place in France in October 2009 would also examine possible collusion via the national generics association (GEMME) as well as possible collusion among generic firms (as yet unconfirmed by either the French Competition Authority or the national generics association). During the Sector Inquiry, complaints were raised by originator companies that the Commission should examine practices between generic companies. However, the Commission determined that such issues did not fall within the scope of the Sector Inquiry and that, in any event, it was not the appropriate tool to consider potential shortcomings in this part of the market. Of course, nothing prevents the Commission or the French Competition Authority from examining such issues through an appropriately targeted investigation.

In the UK, the Office of Fair Trading (OFT) issued a Statement of Objections on February 23, 2010 alleging that Reckitt Benckiser had abused its dominant position in the market for the UK National Health Service supply of alginate and antacid heartburn medicines. The OFT alleges that Reckitt Benckiser deliberately withdrew Gaviscon Original Liquid (which no longer has patent protection) before the publication of a generic name, with the result that doctors searching for Gaviscon would be presented with Gaviscon Advance - a second generation product which is still protected by a patent - rather than a competing generic product. The OFT considers that the choice given to pharmacies to dispense either the relevant brand or the generic (i.e. cheaper) medicine is important for price competition. The issues that the OFT is investigating have not been examined by either the UK competition authorities or the Commission in proceedings relating to abuse of dominance.

Nor did the Commission reach a conclusive view on this practice in the Sector Inquiry, although similar issues have been considered in the US in cases involving alleged ‘product hopping’. What is clear is that the case raises significant and complex competition issues and no conclusions have been made at this stage that there has been an infringement of UK or EU competition law.

Conclusion

The Commission is clearly interested in investigating patent settlements and other types of agreements wherein an originator company allegedly pays off a generic competitor in return for delayed market entry of a generic drug. The likelihood of further monitoring requests in the future is clearly flagged and, accordingly, all companies operating in the pharmaceutical sector need to take account of the continued scrutiny in this area by the European competition law authorities. National competition authorities are also continuing to investigate the sector. Continued vigilance is required to the competition law considerations underpinning licensing of patents, litigation, arrangements to resolve disputes and practices relating to the lifecycle management of a product.