On 8 July 2009, as this update was being finalised, the European Commission published its final report on its inquiry into the pharmaceutical sector. We commented on the Commission’s equally detailed preliminary report in our December 2008 issue and will be commenting on the final report in our next issue, although in short it can be said that none of its contents is entirely unexpected given the contents of the preliminary report. The final report and accompanying papers, including an Executive Summary in the form of a Commission Communication, is available at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/index.html.

On the same date the Commission gave notice that it had initiated formal proceedings against Les Laboratoires Servier and several generic companies alleging breach of Article 82 EC by Servier for its unilateral behaviour, and breach of Article 81 EC by Servier and the generic companies for agreements between them which may have the object or effect of hindering entry on to the EEA markets of generic cardio-vascular medicine perindopril. Although the Commission does not identify in its press release the precise basis for the allegations, some inferences as to these can be drawn from the history of Servier’s patent litigation over perindopril, notably in the English Patents Court.

Thus, as to the Article 82 EC allegation, it will be interesting to see whether the Commission has in mind Servier’s actions in enforcing its patent for a crystalline form of perindopril, or in some other type of unilateral activity on its part. As to the former, when upholding a finding by the English Patents Court that the patent was invalid as anticipated and obvious, although Lord Justice Jacob, in the Court of Appeal, in Les Laboratoires Servier v Apotex Inc ([2008] EWCA Civ 445), said, “It is the sort of patent which can give the patent system a bad name”. He then went on to observe, “It is right to observe that nothing Servier did was unlawful. It is the court’s job to see that try-ons such as the present patent get nowhere. The only sanction (apart, perhaps, from competition law which thus far has had nothing or virtually nothing to say about unmeritorious patents) may, under the English litigation system, lie in an award of costs on the higher (indemnity) scale if the patent is defended unreasonably.”  

As to the Article 81 EC allegation, as to the nature of the agreements in issue it can be inferred that some would have involved an element of “reverse payment” made by Servier to generic companies not to enter the perindopril market, of the type disclosed in October 2008 in the judgment of the English Patents Court in Les Laboratoires Servier v Apotex Inc ([2008] EWHC 2347). In this, Apotex was awarded £17.5 million under the cross undertaking in damages that Servier had had to give to give to Apotex when it secured an interim injunction to keep Apotex’ generic perindopril off the market pending full trial of its infringement action, in which the patent was subsequently held invalid. In that judgment the Court noted that there was unchallenged evidence that one generic company had been paid £10 million by Servier not to enter the perindopril market, and that another had been paid $20 million.

Although the investigation against Servier and several generic companies does not form part of the sector inquiry, both sets of allegations exemplify types of activity noted in the Commission Communication that forms an Executive Summary of the sector inquiry final report, although the Communication is restrained in its analysis of most of these activities in competition law terms and indeed makes it clear that the report:

… does not identify individual cases of wrongdoing or provide any guidance on the compatibility of the practices examined with the EC competition rules. It provides the Commission however with relevant context and a factual basis for deciding whether and what further action is needed, including enforcement action.

The Communication is rather more specific however as to its views from a competition law perspective on “reverse payment” agreements in observing that:

Agreements that are designed to keep competitors out of the market may also run afoul of EC competition law. Settlement agreements that limit generic entry and include a value transfer from an originator company to one or more generic companies are an example of such potentially anticompetitive agreements, in particular where the motive of the agreement is the sharing of profits via payments from originator to generic companies to the detriment of patients and public health budgets.

To reduce the risk that settlements are concluded at the expense of consumers, it would seem useful for the Commission to consider further focused monitoring, within the context of the existing legal framework, of those settlements with a potential to adversely affect European consumers. This monitoring would have to take duly into account the administrative burden imposed on stakeholders and will be limited in time until the Commission has gathered sufficient information on the subject matter to decide whether further action is needed.

These observations, taken together with the focus by Competition Commissioner Kroes when commenting on this investigation on the agreements that Servier had entered into, may well indicate that these will form the main thrust of the investigation.