The importance of the Lundbeck judgement

The Lundbeck judgement – as the first pay-for-delay judgement of the EU courts – was long-awaited by legal professionals.

From a competition law point of view, its main elements are related to potential competition, and to the definition of by object restriction. The Cartes Bancaires standard requires a sufficient degree of harm associated with certain types of agreements to categorize agreements as by object restrictions. According to the General Court’s judgement, the reverse payment settlement in Lundbeck was similar to market exclusion agreements, which are among the most serious restrictions of competition, constituting an extreme form of market sharing and of limitation of production.

The problem with reverse payment settlements has already been discussed: if the generic entry does not occur as an effect of a pay-for-delay agreement, the generic and the originator will share the profit, and the consumers do not enjoy the benefits of competition. It can also happen that the generic will earn more than its expected profit from market entry. Even if the payment is a bit lower that the expected profit, the generic might choose to conclude the agreement to avoid the risks.

The key question of the Lundbeck case therefore was whether potential competition existed between Lundbeck and the generics on the relevant market – a positive answer in itself determines the evaluation of the agreements as a by object restriction. If there was potential competition between the originator and the generics when the agreements were concluded, the originator bought out its most efficient (potential) competitors from the market. By the very nature of such agreements, this only can be evaluated as by object restriction on competition.⁸²³

821 T-472/13 Lundbeck para 524

822 Idem. para 527

823 Pablo Ibanez Colomo: GC Judgment in Case T-472/13, Lundbeck v Commission: on patents and Schrödinger’s cat. (Available at: https://chillingcompetition.com/2016/09/13/gc-judgment-in-case-t-47213-lundbeck-v-commission-on-patents-and-schrodingers-cat/ Downloaded: 30 November 2018)

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On the other hand, without potential competition, the same outcome is not possible. If neither actual nor potential competition exists between the parties of an agreement, competition cannot be distorted, and consequently, the provisions of competition law cannot be infringed.

Therefore, the existence or non-existence of potential competition actually decided whether the agreement between Lundbeck and generics constitutes by object restriction, or it does not infringe competition law at all. It should be noted that Lundbeck is definitely not the first case where the outcome of the judgment was influenced by the existence or non-existence of potential competition, and the General Court – in this earlier case, confirmed by the ECJ – found that the mere existence of a market-sharing agreement suggests that the parties considered themselves to be at least potential competitors.⁸²⁴ Interestingly, the parties’

considerations about potential competition received less attention from the Commission in a recent merger prohibition case,⁸²⁵ but they certainly seem to play a role in the evaluation of antitrust cases.

In Lundbeck, the General Court found that potential competition took place between Lundbeck and the generics. This finding was based on the special circumstances of the case. Considering the existence of potential competition in that case, both the Commission and the General Court took into account the special characteristics of the pharmaceutical sector i.e. the patent system, the patent enforcement system, and the regulatory background, which have been discussed in details in the first subchapter. In that regard, the General Court’s judgment became subject to disputes.

According to some authors, the reasoning of both the General Court’s judgment and of the Commission’s decision were accurate and correct in that respect, and only criticize the General Court for failing “to provide more general guidance as to how pharmaceutical undertakings can safely draft their settlement agreements”.⁸²⁶

824 C-373/14 P Toshiba para 47

825 Case M.8677 - SIEMENS/ALSTOM

826 Konstantinos Sidiropoulos:Lundbeck: Remedying IP overprotection through competition law enforcement in the pharma sector. European Law Blog, 22 November 2016. (Available at:

https://europeanlawblog.eu/2016/11/22/lundbeck-remedying-ip-overprotection-through-competition-law-enforcement-in-the-pharma-sector/ Downloaded: 13 December 2017)

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Other authors, on the other hand, highlight the contradictory nature of the General Court’s reasoning.⁸²⁷ Ibanez Colomo finds the relevant parts of the judgment contradictory, because it suggests that a generic producer is a potential competitor even if it is uncertain (i) that the generics would necessarily have infringed the patent(s); (ii) that the patent(s) holder would have brought an action for infringement and (iii) that the patent(s) would have been found to be valid.

Ibanez Colomo argues in that respect that generic producers may not see the prospect of an injunction as realistic, either because they believe they would be successful in the event of a challenge or because they do not believe that the patent holder would bring an action in the first place.

Ibanez Colomo also criticizes the General Court’s judgment for three other reasons:

i) while the General Court accepts that patents are valid, it also emphasizes that patents can be declared invalid, which two statements cannot be reconciled;

ii) General Court seems to conflate ex ante and ex post considerations, while the judgment suggests that the generic producer is a potential competitor because it may appear, ex post, “which considerations seem to ignore that the very point of a genuine pay-for-delay agreement is to deal with ex ante uncertainty;”

iii) the General Court did not take into consideration the ECJ’s relevant case law⁸²⁸. On the basis of the referred case law, Ibanez Colomo argues “that potential competition does not exist where market entry depends on the infringement of an intellectual property right. The fact that the right in question may be declared invalid at a subsequent stage is not a relevant consideration under this case law”.

Ibanez Colomo also disputes the statement of the General Court that the analysis of counterfactuals is only relevant in by effect cases by stating “it is impossible to determine whether an agreement restricts competition by object without considering the counterfactual”,

827 Pablo Ibanez Colomo: GC Judgment in Case T-472/13, Lundbeck v Commission: on patents and Schrödinger’s cat. (Available at: https://chillingcompetition.com/2016/09/13/gc-judgment-in-case-t-47213-lundbeck-v-commission-on-patents-and-schrodingers-cat/ Downloaded: 30 November 2018)

828 Case 35/83, BAT Cigaretten-Fabriken GmbH v. Commission ECLI:EU:C:1985:32, Case 258/78 Nungesser and Kurt Eisele v. Commission ECLI:EU:C:1982:211, Case 262/81 Coditel v. Ciné-Vog Films ECLI:EU:C:1982:334, Case 27/87 Erauw-Jacquery v. La Hesbignonne SC. ECLI:EU:C:1988:183, Case 9/IHT Internationale Heiztechnik GmbH and Uwe Danzinger v Ideal-Standard GmbH and Wabco Standard GmbH ECLI:EU:C:1994:261

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and he also expresses his hopes that the ECJ should confirm the existence-exercise dichotomy.⁸²⁹

Other authors highlight that while the Lundbeck judgment seems indeed contradictory with the ECJ’s orthodox interpretation of potential competition and of by object restriction, and especially, with Cartes Bancaires, “in Lundbeck, the legal and economic context served, in effect, to confirm the likelihood that these potentially restrictive arrangements would in fact harm competition. Relevant factors included the significant opportunities for market entry and thus upheaval created by expiry of the API patent, the comparative weakness of Lundbeck’s process patent, and the likely impact of any attempted new entry on regulated drug prices at national level. Moreover, although the subjective intention of the contracting parties is not determinative, the fact that Lundbeck sought deliberately to ensure that potential competition would not translate into actual competition served to reinforce the conclusion that these agreements were inherently harmful to competition, even if the precise harm anticipated remained somewhat contingent or remote. The Commission could thus validly conclude that the impugned settlements were comparable to market exclusion agreements.⁸³⁰

On the basis of the above arguments, it can be seen that the General Court’s Lundbeck judgment is subject to hot disputes. Concerning Ibanez Colomo’s views, I have to agree in certain aspects:

the judgment indeed has a contradictory nature in respect of ex ante/ex post competition issues and by discussing the discrepancies related to the presumption of patent’s validity. The confirmation of the long-standing principle of the existence-exercise dichotomy would be welcome. With regard to the ECJ’s Cartes Bancaires judgment, it can also be argued that a counterfactual analysis can be necessary in by object cases, although it further blurres the line between object/effect analysis. Concerning the case law referred by Ibanez Colomo, one important fact should be highlighted however: these cases are not related to the pharmaceutical industry, in which sector competition has a special nature, as it is discussed in the first chapter of this thesis. With regard to this special nature – e.g. taking into consideration the existence and aim of the Bolar exemption, etc. – generics preparing for market entry – if certain

829 Pablo Ibanez Colomo: GC Judgment in Case T-472/13, Lundbeck v Commission: on patents and Schrödinger’s cat. (Available at: https://chillingcompetition.com/2016/09/13/gc-judgment-in-case-t-47213-lundbeck-v-commission-on-patents-and-schrodingers-cat/ Downloaded: 30 November 2018)

830 Niamh Dunne: Why Protect Potential Competition? In: Sandra Marco Colino – Niamh Dunne – Knut Fournier – Sofia Oliveira Pais – Derek Ritczmann: The Lundbeck case and Potential Competition. Concurrences Review, No. 2-2017, June 2017. p. 19.

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circumstances also examined by the General Court met – cannot be considered as potential competitors. On the other hand, the Lundbeck judgment fails to provide guidance to companies for future settlement agreements, and it is not even clear whether any reverse payment settlement agreements, which restrict competition would be considered as a by object restriction.

The circumstances of the Lundbeck case were special, it is questionable what would happen without the case specific factors – e.g.‘smoking guns’ – considered by the General Court.