On June 4, 2020, AG Kokott advised the Court of Justice to confirm the General Court’s judgment upholding the Commission’s decision of June 19, 2013 (“the Opinion”). The aforementioned decision imposed fines of €146 million on Lundbeck and five other generic drug manufacturers (“generics”) for patent settlement agreements that prevented the sale of rival versions of Lundbeck’s antidepressant drug citalopram.[1]
Broadly consistent with the Court of Justice’s ruling in Generics (UK)[2] (reported in our January 2020 EU Competition Law Newsletter),[3] the Opinion here applied a broad interpretation of the notion of potential competition. It also confirmed that a patent settlement agreement under which an originator makes a payment or other value transfer to a generic in order to prevent its entry into the market has the object of restricting competition within the meaning of Article 101 TFEU. For this reason, there is no need to assess its actual effects.
- Potential competition. AG Kokott’s Opinion agreed with the General Court’s finding that Lundbeck and the generic drug manufacturers were at least potential competitors despite Lundbeck’s valid patents that prevented generics from entering the market. According to AG Kokott, potential competition exists as soon as one company has “a firm intention and an inherent ability to enter the market”[4] and where there are no insurmountable barriers to entry. In practice, a potential competitive relationship will arise as soon as the generics company takes steps or makes business decisions with the aim of entering the market. AG Kokott’s Opinion sates that such actions can include making investments, taking steps to obtain marketing authorizations, concluding contracts with suppliers, challenging a patent’s validity, or seeking to invest in technology not covered by the patent.[5]Notably, according to AG Kokott, “the existence of a patent protecting the manufacturing process of that substance cannot, as such, be regarded as an insurmountable barrier” because process patents can be challenged and invalidated in legal proceedings, which are “a fundamental characteristic of competitive relationships in the pharmaceutical sector.”[6] It was concluded by AG Kokott that a potential competitive relationship exists not only in the context of process patents but even in circumstances where the originator holds a valid product patent, i.e., a patent on the relevant active chemical substance, which Lundbeck was found to have in Austria.[7]
- Restriction of competition by object. AG Kokott also confirmed that patent settlement agreements that include any type of value transfer from an originator company to a generics in order to incentivize them not to enter the market, restricts competition by object and are presumptively illegal. AG Kokott dismissed Lundbeck’s claim that such payments are not necessarily anticompetitive and could be justified by the imperfect patent enforcement framework in certain EU Member States where an originator company cannot be fully compensated for damages caused by illegal generics entry. For these reasons, an originator company has an incentive to make a reverse payment even if it has strong patents. According to AG Kokott, it is not the place of companies to redress alleged legislative inadequacies, and effectively take the law into their own hands.[8]
The Lundbeck case is different from the facts assessed in the Generics (UK) judgment. Lundbeck’s patent settlement agreements did not require generics to refrain from challenging the patent at issue (i.e., they did not include any no-challenge clause) and one of the agreements in Lundbeck did not prevent the generics from selling products not manufactured under the patent at issue (i.e., the restrictions were within the scope of the patent right).[9] However, according to AG Kokott, these differences did not matter because the fact of even entering into a reverse payment patent settlement agreement does not fall “within the exercise, by the patent holder, of its prerogatives stemming from the object of the patent.”[10]
The Court of Justice’s judgment in Lundbeck is expected by the end of the year and will conclude the Commission’s very first “pay-for-delay” case, which was initiated back in 2005 with dawn- raids at Lundbeck’s premises. Three similar Commission investigations have followed, and total fines imposed by the Commission in “pay- for-delay” cases now exceed €590 million:
- In 2013, the Commission imposed fines of €11 million on Johnson & Johnson and €5.5 million on Novartis for entering a “co-promotion agreement” that provided Sandoz, Novartis’ Dutch subsidiary, with strong incentives not to sell a cheaper generic version of the painkiller fentanyl in the Netherlands.[11] This agreement was not related to a patent dispute and the companies did not appeal the Commission’s decision.
- In 2014, the Commission imposed a fine of €331 million on Servier, and total fines of €98 million on five generics companies for a series of patent settlements that violated Article 101 This behavior was also found to constitute an abuse of Servier’s dominant position in the market for blood pressure drug perindopril. In 2018, the General Court overturned the Commission decision with respect to the abuse of dominance, and annulled one of the fines linked to the anticompetitive agreements, reducing Servier’s fine to €228 million.[12] Both Servier and the Commission have appealed to the Court of Justice.
- In 2011, the Commission opened an investigation against Teva and Cephalon for having entered an agreement to settle a patent litigation in the U.K.[13] and to allegedly restrict Teva from selling a generic version of Cephalon’s modafinil sleep disorder drug in exchange for a series of payments. The Commission issued a statement of objections in July 2017 and a supplementary statement of objections in June 2020[14] in view of the Court of Justice’s judgments in Generics (UK) and Lundbeck. The Commission’s investigation is pending.
[1] H. Lundbeck A/S and Lundbeck Ltd v. European Commission (Case C-591/16 P), Opinion of Advocate General Kokott, EU:C:2017:351 (the “Opinion”).
[2] The Generics (UK) judgment initiated by a preliminary reference made by the U.K. Competition Appeals Tribunal (the “CAT”), involved patent agreements between GlaxoSmithKline and generics manufacturers Generics UK and Alpharma delaying sales of generic versions of paroxetine, an antidepressant medicine. See Generics (UK) Ltd and Others (Case C-307/18) EU:C:2020:52 (“Paroxetine”).
[3] See Cleary Gottlieb, “Generics UK: The Court Of Justice Issues Judgment On The Application Of EU Competition Law To Pharmaceutical Reverse-Payment Settlements,” EU Competition Law Newsletter, December/January 2020.
[4] Opinion, para. 48.
[5] Opinion, para. 76.
[6] Opinion, paras. 47 and 51–60.
[7] Opinion, para. 223.
[8] Paroxetine, para. 135.
[9] Generics (UK), paras. 60 and 75.
[10] Opinion, para. 130. See also paras. 144–149.
[11] Fentanyl (Case COMP/AT.39685), Commission decision of December 10, 2013.
[12] Servier e.a. v. Commission (Case T-691/14) EU:T:2018:922.
[13] Cephalon (Case COMP/AT.39686), investigation ongoing.
[14] See Commission Press Release MEX/20/1018, “Antitrust: Commission sends supplementary Statement of Objections to Teva on suspected ‘pay-for-delay’ pharma agreement,” June 8, 2020.