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Lundbeck loses appeal to overturn 'pay for delay' fines

Posted on 25 November 2016

Lundbeck loses appeal to overturn 'pay for delay' fines

In a September 2016 ruling, the General Court of the EU ruled against Danish pharmaceutical company, Lundbeck, in its appeal to overturn antitrust fines imposed by the European Commission.  The General Court agreed with the Commission's decision that the settlement agreements reached between Lundbeck and a number of rival pharmaceutical companies to delay sales of a generic anti-depressant drug 'citalopram', amounted to anti-competitive behaviour.

The 'pay-for-delay' agreements had resulted in fines for those companies involved, totalling EUR146 million.  Lundbeck appealed the Commission's decision, contending that the agreements were reached within the pharmaceutical industry to prevent lengthy litigation.  However, the General Court dismissed the appeal, concluding that the agreements constituted a restriction of competition.  The Court ruled that Lundbeck and the generic drug producers were potential competitors at the time the agreements were issued and, in the absence of the agreements, the generic drug manufacturers would have had real possibilities of entering the market. 

The Court considered that the 'pay-for-delay' agreements meant Lundbeck were able to keep the price of citalopram artificially high, breaching Article 101 of the Treaty on the Functioning of the European Union (Article 101 TFEU).  While generic producers were preparing to introduce a cheaper version of the anti-depressant drug, they were restricted from entering the market for the duration of the agreement, allowing Lundbeck to maintain higher prices.

Whilst it is likely that this will not be the end of the story in terms of 'pay-for-delay' agreements, the General Court's decision does raise some further interesting points and questions. These are discussed below in the context of two of the broad pleas put forward by Lundbeck in its appeal:

  1. The Commission wrongly concluded that the agreements constituted a restriction of competition 'by object'; and
  2. The Commission wrongly concluded that the generic undertakings and Lundbeck were at least potential competitors at the time the agreements were concluded.

Practical takeaways

Whilst the decision remains contentious, given the potential encroachment into the rights of a patentee to prevent unlawful competition (that is, competition which would be prevented by the enforcement of valid patent), there are a number of considerations which should be taken into account by companies operating in the life sciences or IP rich sectors:

  • From a competition law perspective, where a generic manufacturer is considering entering or bringing a new product to market to challenge an incumbent(s), it may be perceived as being a competitor to the incumbent(s). This is regardless of whether it has applied for a Marketing Authorisation, and will depend on an examination of whether it has a commercially viable market entry strategy. This has consequences for the potential legitimacy of methods used by generic manufacturers when trying to gain market entry. The context of any discussion with an incumbent(s) (however early in the pipeline a product might be) may be viewed as being as between competitors and such discussions should therefore not be conducted without further legal advice.  A single unilateral exchange of commercially sensitive information as between competitors can be enough to infringe Article 101, and lead to fines.
  • Not all reverse payments will be problematic, for example where:
    • they can be linked to the strength of the patent (as perceived by each of the parties); and
    • they are necessary for the parties to find an acceptable and legitimate solution for their dispute; and
    • they are not accompanied by restrictions intended to delay market entry on the part of the generic manufacturers.

It is essential that reverse payments are in no way linked to sharing of profits or expected profits that the generic manufacturer could have received if it entered the market. 

The General Court's Decision

Restriction of competition by object

A restriction by object is regarded as harmful to the proper functioning of normal competition by its very nature, and therefore it is not necessary for competition authorities to prove that there would be an actual effect on competition. In its judgment in Cartes Bancaires, the CJEU confirmed that in order to assess whether an agreement has the restriction of competition as its object, the Court must consider the content and objectives of the provisions in the agreement, taking into account the economic and legal context in which they operate. It is also important to consider the nature of the affected goods or services, and the real conditions and structure of the markets in questions. Finding an agreement restrictive by object means the Court does not have to carry out an extensive analysis on the actual market effects of the agreement on the relevant market.

As part of this assessment the General Court considered the value transfers of the agreements. While patent settlements are not always anti-competitive, it is important that the value transferred is proportionate to the perceived strength of the patent as considered by both parties. Such payment agreements should not be related to the anticipated profit for the generic producer had they entered the market, or linked to restrictions which go beyond the scope of patent itself. The General Court found that the agreements replaced the uncertainty for Lundbeck of the generic producers entering the market and successfully challenging the validity of their crystallisation patent, with the certainty that in exchange for payments, the generic products would not enter the market for the duration of the agreements.

While Lundbeck argued that the agreements were necessary to enforce their process patents and protect their IP rights, the General Court found that Lundbeck could have protected their rights by bringing actions against the generic manufacturers for infringement. The General Court held the agreements were not necessary to protect Lundbeck's IP rights, and that the restrictions went beyond the scope of the process patents.

After considering the content and objectives of the provisions, and the legal and economic context of the agreements, the General Court upheld the Commission's findings that the agreements restricted competition by object, as they effectively excluded Lundbeck's potential competitors from entering the market with generic drugs and allowed Lundbeck to maintain artificially high prices.

Actual or potential competitors

The applicants challenged the Commission’s approach by arguing, inter alia, that it was an error of law to view the launch of medicinal products that infringe third parties’ intellectual property rights as the expression of potential competition. They argued that Art 101 TFEU protects only lawful competition, which cannot exist where an exclusive right, like a patent, precludes market entry, in law or in fact.

Lundbeck held molecular patents for citalopram in various EU countries, including Germany, Spain, Belgium, Ireland, France, the UK and Austria. These patents expired between 1994 and 2003. In addition, Lundbeck held a number of process patents (the crystallisation patents) related to the production of citalopram. The process patents provided less protection against competitors entering the market with generic versions of the anti-depressant, as rival producers can find alternative processes to produce the drug, thereby avoiding patent infringement.

At the time of the agreements there was a question of the validity of the process patents – evidence included in the Commission's decision indicated that Lundbeck itself estimated the probability that its crystallisation patent would be held invalid at 50 - 60%. On this basis, the Commission held that the process patents were not "insurmountable barriers" to prevent rivals generics entering the market. The General Court also pointed out that the Commission had also taken into account other factors when assessing whether the parties were actual or potential competitors, such as the investment and the efforts made by the generics to enter the market, whether there were any infringement decisions that had been taken by courts, and the fact that the reverse payment itself was indicative that Lundbeck was reacting to a threat from competitive pressure.

The General Court agreed with the Commission that the generic companies were at least potential competitors to Lundbeck, even if they risked facing potential litigation actions by Lundbeck for process patent infringement by entering the market.

The General Court stated that whilst patents are indeed presumed to be valid until they are expressly revoked or invalidated by a competent authority or court, that presumption of validity cannot be equated with a presumption of illegality of generic products placed on the market which the patent holder deems to be infringing the patent – i.e. at risk entry is not unlawful.

Indeed, at the time the agreements were entered into, several producers of generic pharmaceutical products were showing signs of entering the market, placing competitive pressure on Lundbeck. The Court noted that Article 101(1) applies to potential competition within the relevant market, and is not limited to existing competition.

The General Court's ruling will be interesting in the context of Les Laboratoires Servier's appeal from a 2014 fine from the EU Commission of nearly EUR427.7 million for practices that delayed market entry of a generic version of cardio-vascular drug perindopril, and GlaxoSmithKline plc's appeal from the CMA decision against them in respect of payments which were found to be aimed at delaying generic producers of paroxetine from entering the UK market.

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