The ECJ’s judgment in Lundbeck

In Lundbeck, the opinion of the Advocate General⁸³¹ (AG Opinion) was made available on 4^th June 2020. It was followed by the long avaited judgment of the ECJ on 25 March 2021. The judgment dismissed all the appeals against the European Commission's decision and is largely based on the reasoning given in the Paroxetine judgment, as it could be expected after the AG Opinion. It follows the same path like the General Court’s judgment concerning potential competition and the evaluation of by object, therefore I don’t find it necessary to repeat the discussion in details here. I find it better to highlight a few important findings.

Concerning potential competition, the ECJ confirmed that in order to assess whether an undertaking not present in a market is a potential competitor of another undertaking already present in that market, it must be determined whether there are real and concrete possibilities of market entry for the former. When certain agreements are assumed to have the effect of temporarily keeping undertakings outside a market, it must be determined, having regard to the structure of the market and the economic and legal context within which it operates, whether in the absence of those agreements would have existed, real and concrete possibilities for market entry. In the context of the pharmaceutical sector, it is necessary to examine in that respect whether the generic manufacturer actually has a clear intention and ability to enter the market and does not meet barriers to entry that are insurmountable. The existence of a patent is not in itself such an insurmountable obstacle if a generic who actually has a clear intention to enter the market also has the ability to do so, and through its actions, appears to be ready to challenge the validity of the patent and accept the risk of an infringement action. The ECJ also confirmed that it is not the competition authority’s task to carry out a review of the strength of the patent

831 Case C-591/16 P Lundbeck v Commission, Opinion of Advocate General Kokott. ECLI:EU:C:2020:428. para 36

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or in the case of a dispute, of the probability of finding that the patent is valid and has been infringed.⁸³²

The Court also confirmed that taking into account the subjective factors in order to establish the existence of potential competition cannot be excluded provided that that competition is not established exclusively or principally on the basis of those factors. This applies in particular to the originator’s perception about the risk delivered by a generic to its commercial interests if that perception affects the originator’s market conduct.⁸³³

Concerning by object restraints, the judgment confirms: the notion of by object restraint must be interpreted strictly, as it is required by Cartes Bancaires and the following jurisprudence, and pay-for-delay agreements cannot be considered to be ‘restrictions by object’ in all cases for the purpose of Article 101(1) TFEU. However, the “characterisation as a ‘restriction by object’

must be adopted when it is plain from the examination of the settlement agreement concerned that the transfers of value provided for by it cannot have any explanation other than the commercial interest of both the holder of the patent at issue and the party allegedly infringing the patent not to engage in competition on the merits, since agreements whereby competitors deliberately substitute practical cooperation between them for the risks of competition can clearly be characterised as ‘restrictions by object’”.⁸³⁴

In my view, the judgment’s main contribution relates to the object effect dichotomy, the long-lasting debate reopened by Allianz Hungária and Cartes Bancaires and clarified by Budapest Bank and Paroxetine. First, it perfectly follows the structure of assessment determined by the later judgments, and also explains when counterfactual analysis is not necessary in the case of by object analysis.

Shortly:

• In each case, it must be assessed whether the net gain of value transfers made by the originator to the generic was sufficiently significant incentivise the generic to refrain

832 C-591/16 P Lundbeck v European Commission, ECLI:EU:C:2021:243, para 54-60

833 Idem. para 75-76

834 Idem. para 112-114

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from entering the market and not to compete on the merits (the net gain does not need to be greater than the profits expected by the generic from market entry)⁸³⁵

• For the purposes of classifying an agreement as "restrictive by object", only the specific characteristics of the agreement are relevant, on the basis of which “any particular harmfulness of that agreement for competition can be inferred, where necessary as a result of a detailed analysis of that agreement, its objectives and the economic and legal context of which it forms part”.⁸³⁶

• The fact that the agreements did not contain any no-challenge clauses, (unlike in Paroxetine) is not relevant for their assessment, because the generics had no incentive to challenge Lundbeck’s new process patents after concluding the agreements, since the reverse payments broadly corresponded to the profits they expected from market entry or to the damages which could have been paid to them if they had succeeded in litigation against Lundbeck. Even if the reverse payments were less than the expected profits, they nevertheless constituted a certain and immediate profit, without the risks that market entry would have entailed.⁸³⁷

• Absence of pro-competitive effects of the agreements: furthermore, the agreemnets do not meet the standard of proof required by paragraph 107 of the Paroxetine judgment to rebut characterisation as ‘restrictions by object’ on the basis of reasonable doubts as to whether they caused a sufficient degree of harm to competition⁸³⁸. (or, to quote Advocate General Bobek's Opinion⁸³⁹, the fish appears to be fish)

Concerning counterfactual analysis, the judgmnent found that it “allows the effects of a concerted practice with regard to Article 101 TFEU to be assessed when the analysis of that practice does not reveal a sufficient degree of harm to competition to enable it to be

835 Idem. para 115

836 Idem. para 131

837 Idem. para 133-135

838 Idem. para 136-137

839 Opinion of AG Bobek in case C-228/18 Gyzdasági Versenyhivatal v. Budapest Bank at all.

ECLI:EU:C:2019:678, para 51 “if it looks like a fish and it smells like a fish, one can assume that it is fish.

Unless, at the first sight, there is something rather odd about this particular fish, such as that it has no fins, it floats in the air, or it smells like a lily, no detailed dissection of that fish is necessary in order to qualify it as such. If, however, there is something out of the ordinary about the fish in question, it may still be classified as a fish, but only after a detailed examination of the creature in question.”

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characterised as a ‘restriction by object’”. Consequently, “an examination of the ‘counterfactual scenario’, the purpose of which is to make apparent the effects of a given concerted practice, cannot be required in order to characterise a concerted practice as a ‘restriction by object’”⁸⁴⁰ Although, in the case of an agreement which has the effect of temporarily keeping an undertaking outside a market, “it must be determined whether there would have existed, in the absence of that agreement, real and concrete possibilities for that undertaking to enter that market, it should be noted that that specific clarification concerned the assessment of the existence of a potential competitive relationship between the parties to an agreement such as those at issue in the case which gave rise to that judgment and not the characterisation of those agreements as a ‘restriction by object’”⁸⁴¹