Lundbeck 'pay for delay' case: CJEU judgment

Posted on 14 April 2021

On 25 March 2021 the European Court of Justice (CJEU) handed down its judgment in Lundbeck A/S and Lundbeck Ltd v European Commission (as well as five other related appeals).

As we predicted in our article last year, the CJEU has accepted Advocate General Kokott's Opinion that the CJEU should uphold the General Court's judgment that patent settlement agreements reached between Lundbeck and several generics manufacturers in the pharmaceutical sector constituted a restriction of competition "by object".  

However, the CJEU confirmed the European Commission's view that not all "pay-for-delay" agreements are 'by object' infringements of competition law. A case by case analysis is required to ascertain this, and in particular the value of the transfer in each settlement agreement will be examined. In the Lundbeck case, the CJEU held that the value transfers under the patent settlement agreements could not be explained as anything other than incentivising the parties to not compete.

The CJEU also gave a clear indication that parties have a duty of care to preserve documents once a sectoral inquiry has been commenced.

Background

In the early 2000s Lundbeck held patents in relation to an active pharmaceutical ingredient (API) used in the manufacture of citalopram, an anti-depressant treatment. Lundbeck also held patents in relation to the manufacturing processes for the production of citalopram. Further, Lundbeck developed other, more effective, processes for the production of citalopram, in respect of which it applied for, and for the most part obtained, patents in several EEA countries. Lastly, Lundbeck also planned to launch a new antidepressant medicinal product, Cipralex, based on a different API (escitalopram, or S-citalopram), by the end of 2002 or the beginning of 2003. That new medicinal product was designed for the same patients as those who could be treated by Lundbeck’s patented medicinal product Cipramil, based on citalopram. The escitalopram API was protected by patents valid until at least 2012.

In 2002, at a time when patent protection on citalopram was about to expire, Lundbeck entered into a number of patent settlement agreements with generic manufacturers, paying them to agree to refrain from entering the market with generic citalopram products.

European Commission decision

The European Commission investigated and, in 2013, found that the purpose of these patent settlement agreements was to exclude generic manufacturers from the market for the agreed period of time in exchange for payments from Lundbeck. Accordingly, the European Commission held that those agreements were restrictions of competition by object, and imposed fines on Lundbeck and the other parties to the patent settlement agreements.

Appeal to the General Court

Lundbeck, with the other parties, in six appeals sought an annulment of the Commission's decision from the General Court. Their appeals were rejected in September 2016.

CJEU judgment

Lundbeck and the other parties named in the Commission's decision then appealed to the CJEU. They argued that the patent settlement agreements were not obvious breaches of competition law, and disputed whether they really had the effect of keeping generic versions of citalopram off the market.

In its judgment, the CJEU held that the General Court did not err in law in finding that the patent settlement agreements constituted restrictions of competition ‘by object’. The CJEU referred to its view in Generics (UK) and Others v CMA (discussed in our article last year) that "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'. "

The CJEU also held that the General Court did not err in upholding the Commission’s assessment that, at the time the patent settlement agreements were made, Lundbeck and the manufacturers of generic medicines were potential competitors. The CJEU stated: "in order to assess whether an undertaking which is not present in a market is a potential competitor with one or more other undertakings which are already present in the market, it must be determined whether there are real and concrete possibilities of the former joining that market and competing with the undertakings present in it."

Disclosure obligations

The CJEU also raised a novel point regarding retention of documents, which will be of import for disclosure purposes going forward. Two of the generic manufacturers, Alpharma and Xellia Pharmaceuticals asserted that the European Commission had infringed their rights to a defence by not informing them promptly of the existence of an investigation relating to them specifically. Alpharma and Xellia said that, because of this failure to inform them in a timely manner, they did not keep documents which could have been used in their defence. They argued that the Commission's investigation began in 2003 but they were only informed of it later on in 2010 and 2011.

The General Court held that their rights of defence had not been infringed since they had "failed to comply with their obligation of diligence", whereby they ought to have preserved documents which could be of use to them in their defence.

The CJEU found that the General Court had erred in law as the obligation of diligence was only applicable where there were delays in the administrative procedure, which had not happened here. However, this error of law was not a reason for setting the General Court's judgment aside. Xellia and Alpharma had a "specific duty of care" to ensure that documents were preserved in the event of a subsequent investigation following the European Commission's 2008 pharmaceuticals sector inquiry. The CJEU commented that Xellia and Alpharma could not have been unaware of this sectoral inquiry which involved looking at patent settlement agreements.  The CJEU stated that "the General Court was entitled to impose on them a specific duty of care requiring them to ensure that information enabling details of their activities to be retrieved is retained properly in their books or records, in order, in particular, that they have in their possession the necessary evidence in the event of subsequent administrative action or judicial proceedings".

As such, this is a clear indication that entities should take steps to preserve documents once they are aware of a sectoral investigation by the European Commission.

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