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Highest EU court confirms pay for delay settlement agreements may be abusive and restrict competition by object or effect

  • United Kingdom
  • Competition, EU and Trade

05-02-2020

On 30 January 2020, the Court of Justice of the EU (“CJEU”) confirmed that an agreement in settlement of a patent dispute in the pharmaceutical sector may constitute a restriction of competition by object or effect, as well as an abuse of a dominant position in breach of competition law. The CJEU’s ruling was issued in response to a preliminary reference made by the UK Competition Appeal Tribunal (“CAT”) relating to an appeal against a decision of the UK Competition and Markets Authority (“CMA”) regarding the supply of paroxetine (an anti-depressant medicine).

The CJEU’s ruling will have an impact upon other similar pay-for-delay cases currently under appeal before the CJEU, as well as similar cases currently being investigated by national competition authorities in the EU.

CMA Decision

On 12 February 2016, the CMA fined a number of pharmaceutical companies for anti-competitive conduct and agreements in relation to the supply of paroxetine (an anti-depressant medicine)1. Specifically, the CMA found that between 2001 and 2004 GlaxoSmithKline plc (“GSK”), the supplier of branded paroxetine, agreed to make payments and other value transfers totalling over £50 million to suppliers of the generic version of paroxetine including Generics (UK) Limited (“GUK”) and Alpharma Limited (“Alpharma”).

In 2000 GSK’s branded version of paroxetine (called Seroxat) was being issued at a figure of 4.2 million prescriptions in the UK with sales exceeding £90 million in 2001. At the time GSK held certain patents in relation to paroxetine. GSK alleged that GUK’s and Alpharma’s generic version of the drug would infringe its patents, and commenced litigation proceedings against them both. However, prior to the litigation, GUK and Alpharma individually entered into settlement agreements with GSK, which included terms prohibiting their independent entry into the UK paroxetine market in exchange for payments and other value transfers.

The CMA considered that these payments and other value transfers were aimed at delaying the potential entry of generic competitors into the UK paroxetine market, depriving the UK National Health Service of the significant price falls that generally result from generic competition.2

The CMA found that GSK’s agreements with each of GUK and Alpharma infringed the competition law prohibition on anti-competitive agreements. Furthermore, it decided that GSK abused its dominant position by inducing GUK and Alpharma to delay entry into the UK paroxetine market independently of GSK. The CMA fined the companies nearly £50 million in total with GSK fined £37.6 million.

CAT Preliminary Reference

Following the heavy fines imposed by the CMA, the parties challenged the CMA’s decision before the CAT. The parties argued that the existence of a disputed patent for paroxetine meant that the generics companies thinking of entering the market were not, at that stage, potential competitors; and that, as the outcome of the patent dispute was uncertain, it was impossible to tell whether the generic companies would in fact have entered the market; and that this in turn meant that the regulators needed to look more closely at the effects of the agreement on the market. On 27 March 2018, the CAT sought guidance, by a request to the CJEU for a preliminary ruling, on whether an agreement in settlement of a patent dispute in the pharmaceutical sector may constitute a restriction of competition by object or effect, and whether entering into such an agreement, possibly in combination with entering into other agreements, may constitute an abuse of a dominant position.3

CJEU Ruling

On 30 January 2020, the CJEU handed down its ruling and responded to the CAT’s questions as follows:

  • uncertainty regarding the validity of the patents and whether the generic products infringe them does not preclude the patent holder and generic manufacturers from being potential competitors. Factors that may demonstrate that the patent holder and the generic manufacturer are potential competitors include: the existence of a bona fide dispute as to whether the patent is valid or whether the generic product infringes the patent; and the patent holder’s perception and the fact that it regards the generic manufacturer as a potential competitor;
  • the competition authority should determine whether there are real, concrete possibilities to enter the market despite the existence of the patents, taking into account all the relevant factors such as the concept of restriction of competition by object, by effect and the definition of the market; and
  • conduct capable of constituting an abuse of a dominant position can only be justified by consumer benefits when it can be shown that those benefits offset an agreement's adverse effects on competition on the relevant market, which is not likely to be the case where the agreements provide limited benefits but also eliminate competition by removing all sources of potential competition.4

The CJEU’s ruling that patent dispute settlement agreements may constitute a restriction of competition by object or effect, and may constitute an abuse of dominant position is in line with Advocate General Kokott’s opinion, which was issued on 22 January 2020.5

Comment

“Pay-for-delay” or “reverse patent settlement” agreements have been the subject of competition law scrutiny since the European Commission’s sector inquiry into the pharmaceutical industry in 2008-09. This is the first time the CJEU has considered these kind of agreements and the ruling is important as it clarifies the factors to consider when assessing whether settlement agreements entered into in the pharmaceutical sector infringe competition law. The ruling sets a high bar for companies that may wish to argue that these kind of agreements are not anti-competitive by their very nature and the judgment has been welcomed by the competition authorities. The ruling gives a clear indication of what to expect from two other similar pay-for-delay cases currently under appeal before the CJEU, the Lundbeck and Servier cases.

Following the CJEU’s ruling, the case will now return to the CAT for a final judgment on the appeals.

 

1. CMA Decision

2. When independent generic entry eventually took place at the end of 2003, average paroxetine prices dropped by over 70% in 2 years.

3. Order of the Tribunal (Preliminary Reference to the CJEU).

4. Preliminary Reference Ruling

5. Advocate General Opinion.

Advocate General Opinion.Advocate General Opinion.