Critical analysis of the cases handled by the European Commission and the CMA

introduced in the previous subchapter. The Commission adopted its decision very recently in Cephalon/Teva, therefore, the text of this decision is not available yet. The exact facts of the cases and the assessment of the authorities are unknown at this stage, so, commenting on them seems too early.

The Fentanyl case is a unique one, due to the fact that neither patent infringements, nor patent settlements were involved. This case is going to be used only for the sake of comparison, while this analysis is going to focus on Servier, Lundbeck, and GSK cases.

We should start with the Lundbeck test, which was applied also in the Servier case. The three-prong test elaborated and applied in Lundbeck by the Commission remains at the heart of the Commission’s assessment. However, the test has been subject to criticism.⁶⁸⁸ Killick at all.

criticize the test for being very loose, and not differentiating “between patent disputes where the possible outcome is 50/50 and one where it is 10/90 or 90/10 or even 1/99 or 99/1.”⁶⁸⁹ While this argument might be valid, it should also be noted that the European Commission is not

687 Case Nos: 1251-1255/1/12/16. Competition Appeal Tribunal. (Available at:

http://www.catribunal.org.uk/files/1.1251-1255_Paroxetine_Judgment_CAT_4_080318.pdf Downloaded: 30 November 2018) para 453.

688 Cartes Bancaires para 89. See also: Killick and P. Berghe, Applying a by object test to patent settlements is very different from the rule of reason. Concurrences N° 2-2014, pp. 21-24. See also James Killick – Jérémie Jourdan – Jerome Dickinson: The Commission’s Lundbeck decision: A critical review of the Commission’s test for patent settlement agreements. CPI, 24 February 2015. (Available at:

https://www.competitionpolicyinternational.com/the-commissions-lundbeck-decision-a-critical-review-of-the-commissions-test-for-patent-settlement-agreements/ Downloaded: 17 December 2017)

689 James Killick – Jérémie Jourdan – Jerome Dickinson: The Commission’s Lundbeck decision: A critical review of the Commission’s test for patent settlement agreements. CPI, 24 February 2015. (Available at:

https://www.competitionpolicyinternational.com/the-commissions-lundbeck-decision-a-critical-review-of-the-commissions-test-for-patent-settlement-agreements/ Downloaded: 17 December 2017)

155

competent to decide about the strength of patents, neither able to predict the potential outcome of a – potential – patent dispute.

The test applied by the Commission was also criticized for the very broad concept of potential competition, stating that such a test will not allow for any distinction between a generic company ready to enter the market and one that has serious hurdles to overcome.⁶⁹⁰ In that regard, the judgment of the General Court in the Lundbeck case – which will be discussed in the next subchapter – clarified that the generics should have real, concrete possibilities to enter the market within a short period of time, in order to be considered as potential competitors. This requirement complies with the ECJ’s findings in the Visa case.⁶⁹¹

The Commission also listed the possibilities of the generics to enter the market in the Lundbeck case, which can be relevant in cases which have the same background as Lundbeck. In Lundbeck, the compound and the two original production processes were no longer patent-protected; while Lundbeck still had a number of process patents covering several, but not all possible ways to produce marketable citalopram medicine. So, in Lundbeck the Commission listed the following potential routes of generics to enter the market:

a) launching at risk;

b) making efforts to "clear the way" with the originator undertaking first before entering the market;

c) action for declaration of non-infringement;

d) invalidity actions at national courts,

e) changing the way of production to eliminate risk, or changing the API supplier (e.g producing citalopram in a non-infringing way).⁶⁹²

Killick at all. also highlight that “the existence of a limitation of the generic’s freedom to independently market its product is an inevitable consequence of most settlements, which will often include a non-challenge and a non-infringement clause” and “the presence of a value transfer to the benefit of the generic company cannot be enough to infer the existence of a restriction by object. […] Any settlement requires mutual concessions, so it must be expected

690 Idem.

691 Case T-461/07, Visa Europe Ltd and Visa International Service v Commission, judgment of the General Court of 14 April 2011, EU:T:2011:181, § 68 and 166.

692 Lundbeck para 635.

156

for a settlement to include some form of transfer from the originator to the generic company.

And there is a fundamental difference between one competitor paying another not to compete and the typical scenario of patent litigation: the difference is the patent, which grants one competitor a monopoly. The patent is the elephant in the room, which despite its size and importance seems often to be downplayed or forgotten.”⁶⁹³

This point of the argument is indeed interesting. It suggests that value transfer from the originator to the generic – i.e. – reverse payment is a necessary element of a settlement in the pharmaceutical sector. While it is obvious that even in the sector there are several settlements without such value transfer, it cannot be excluded that in certain cases the generic – bearing a significantly lower risk in the patent dispute – expects to be incentivised by the originator to settle. Besides the lower risk on the side of the generic, the information asymmetry also supports the generics’ position, and – at least theoretically – could enable it even to bluff on the originator.

In that regard, it should be noted, even the Commission found that not all reverse payment settlements are by object restriction, the assessment is subject to a case-by-case analysis. The Commission also declared in Lundbeck that not all payments are problematic. Neolab settlement serves as an example of non-problematic settlements: if the generic refrained from entering the market due to the originator’s actions and threats, and at a later stage of the litigation the parties came to the conclusion that it is likely that the patent is invalid or not infringed. The potential danger of reverse payments is highlighted by the Commission as follows: in the light of the specific circumstances of the case, the reverse payment may actually constitute "exclusion" payments, that is to say payments by the originator to the generic in exchange for the acceptance of commercial limitations which it would not, based purely on its assessment of the likelihood of infringing a patent and of invalidating any such patent, have the same incentives to accept in the absence of the payment.⁶⁹⁴

From the comparison of the Fentanyl and Lundbeck tests, it is visible that the two tests are very similar. Obviously, the Commission did not differentiate between paying for delay in the presence or absence of patents. The Commission provided the following reasoning: even if the limitations in the agreement on the generic undertaking's autonomy do not go beyond the material scope of the patent, they are likely to breach Article 101 of the TFEU “when those

693 James Killick – Jérémie Jourdan – Jerome Dickinson: The Commission’s Lundbeck decision: A critical review of the Commission’s test for patent settlement agreements.

694 Lundbeck para 639-640.

157

limitations cannot be justified and do not result from the parties' assessment of the merits of the exclusive right itself, but in particular from a transfer of value overshadowing this assessment and inducing the generic undertaking not to pursue its independent efforts to enter the market.

However, such restrictions are all the more likely to be illegal when the restrictions agreed do go beyond the substantive scope of the patent, in the sense that the same restrictions could not have been obtained by the patentee's right to oppose possible infringement before the court.”⁶⁹⁵ This reasoning might be criticized for blurring what the Commission understands under the scope of the patent, and even the fact that the Commission refers to the scope of the patent test, which as a US test was rejected by the Commission in the same decisions, is kind of questionable. Interesting to note that the reference was used before Actavis, when the scope of the patent test was not overruled, but the general standard applied in the US. While the Lundbeck test summarizes the main criteria applied by the Commission to assess patent settlement agreements and can seem well suited for the purposes of the assessment at first sight, the test – and its application – leaves several questions unanswered. While the main elements of the Lundbeck case can be summarized as generic entry restriction, significant value transfer and potential competition and the aggravating criteria, the Commission did provide sufficient guidance for drafting lawful settlements in the future. We know that additional elements, smoking guns and the intent was taken into regard in the European cases – but we do not know in what extent this influenced the decisions.

The same test was applied by the competition authorities in Servier and in the UK GSK cases.

These later cases however have a further interesting element to be discussed: the application of Article 102.

In Servier, the Commission found that Servier was dominant and followed a generic strategy to delay generic entry: “Servier put in place and rigorously pursued a comprehensive strategy using all complementary means to protect perindopril. This broader strategy relied on the creation of a "maze of patents", and influencing regulatory standards so that they would, for example, "lead to the use of [Servier's] protected processes" and thus influenced the parameters for viable market entry by generic perindopril. Within that broader context, Servier pursued a targeted exclusionary strategy, […] to remove, before market entry, all close sources of competitive threats on the up- and down-stream markets for perindopril with the potential to

695 Idem. para 641-642.

158

overcome notably the patent and regulatory barriers. By and large, these threats were not ousted from competition based on the merit of Servier's patent portfolio, its superior efficiency, or better quality of its products, but by a string of technology acquisitions (Azad in 2004, Sandoz (failed) in 2008) and rent sharing in the form of a series of reverse payment patent settlements with generic companies (Niche/Unichem and Matrix in 2005, Teva and Krka in 2006, Lupin in 2007).”⁶⁹⁶

So, in Servier, not only the patent settlement, but a whole anti-generic strategy is assessed in its entirety. In GSK the CMA followed this approach, and also the Concordia case is opened on the basis of Article 101 and 102 and of their british equivalents.

While it is not directly related to pay-for-delay settlements, these cases lead to the “misuse of patent” doctrine originating from AstraZeneca case. In Servier, the Commission highlighted that Servier misused otherwise legitimate tools such as the patent settlements and process patents, by shutting out a competing technology and buying out several competitors that had developed cheaper medicines.⁶⁹⁷ In AstraZeneca, it was found by the Commission and the European Courts that AstraZeneca misused the regulations and procedures – i.e. otherwise legitimate tools – inter alia by providing misleading information to patent authorities, and by deregistering marketing authorisation of its old product, Losec.⁶⁹⁸

AstraZeneca was not a pay-for delay-case but is nevertheless relevant for this research because it shows that the Commission and also the European Courts seem to be willing to correct the inefficiencies and problems of other regulations by applying competition law.