On March 25, 2021, the Court of Justice dismissed the appeals of H. Lundbeck A/S and Lundbeck Limited (“Lundbeck”), as well as of certain generic drugmakers (“generics”), against the General Court judgments upholding the first-ever so-called pay-for-delay Commission decision.
The Court of Justice confirmed the General Court’s conclusion that Lundbeck’s patent settlement agreements with four generics aimed at preventing generic market entry for Lundbeck’s best-selling antidepressant drug citalopram and restricted competition by object. While the judgment came out as expected given the Court of Justice’s ruling in Generics (UK), it leaves one wondering whether it struck the right balance between IP and competition law and if it will increase the already expected chilling effect on innovation in the European pharmaceutical sector and on out-of-court patent settlements.
In the 1970s, Lundbeck developed a widely successful antidepressant containing the active pharmaceutical ingredient (“API”) citalopram and subsequently obtained patents protecting the citalopram API as well as processes for producing citalopram (so-called “process patents”).
In 2002-2003, Lundbeck initiated litigation against generics that it claimed were infringing some of its patents. Lundbeck obtained preliminary relief in over half of these proceedings and settled several other cases through what later came to be coined as pay-for-delay arrangements. In 2013, the Commission found that six of these patent settlement agreements restricted competition by object within the meaning of Article 101 TFEU, and aimed at delaying the entry of cheaper generic versions of Lundbeck’s—then best-selling— citalopram. The Commission fined Lundbeck and the generics a combined €146 million.
The Court of Justice confirms the General Court’s conclusion that pay-for-delay agreements restrict competition by object
Lundbeck’s main substantive points of contention when it applied for annulment of the Commission’s decision to the General Court in 2013 and lodged an appeal against the General Court’s judgment before the Court of Justice in 2016, were that the contested agreements did not restrict competition by object and that there was no actual or potential competition between it and the generics.
General Court judgment. On September 8, 2016, the General Court dismissed Lundbeck’s appeal in its entirety and thus confirmed, for the first time, that pay-for-delay agreements constitute a restriction of Article 101 TFEU by object.
- First, the General Court upheld the Commission’s finding that Lundbeck and the generics were actual or potential competitors at the time of the The generics had “real concrete possibilities” to enter the market— even by launching their product risking litigation from Lundbeck, and it was not relevant that the generics did not yet have marketing authorizations.
- Second, the General Court confirmed that the pay-for-delay agreements at issue were by-object restrictions of competition, because the size of Lundbeck’s payments provided an incentive for the generics to accept restrictions on their commercial behavior that they would otherwise not have Agreements restrict competition by object if “having regard to the content of their provisions, their objectives, and the economic and legal context of which they form part,” they harm competition “by their very nature,” without the need to examine their effects.
Court of Justice judgment. The Court of Justice dismissed Lundbeck’s appeal in its entirety and sided with the General Court. The judgment was long-awaited but not surprising. It relies heavily on the Court of Justice’s Generics (UK) preliminary reference ruling of January 2020, which is repeatedly quoted in the Lundbeck judgment.
- When confirming that Lundbeck and the generics were potential competitors, the Court of Justice observed, in line with Generics (UK), that potential competition exists as soon as a company has (i) “a firm intention and an inherent ability to enter the market” and (ii) where there are no “insurmountable” barriers to entry. An originator holding a valid patent was not considered an insurmountable barrier to entry.
The Court of Justice also deemed immaterial whether the generics held a marketing authorization at the time of the agreements. It is sufficient that the generics have taken preparatory steps to enter the market—and it is not relevant whether market entry actually happens or not in the end. The Court of Justice therefore also dismissed Lundbeck’s counterfactual analysis, based on events post-dating the agreements, that the generics would not have entered the market. Evidence relating to events subsequent to the conclusion of the agreements and, therefore, unknown to the parties at the time of those agreements are “not capable of having influenced their conduct on the market” and, thus, are not relevant for the assessment of potential competition.
- The Court of Justice also confirmed that the agreements’ object was to prevent generic entry and therefore restrict competition. The Court of Justice held, again in line with Generics (UK), that patent settlement agreements involving large enough payments to incentivize generics not to enter the market can restrict competition by It added that “there is no requirement that the net gain should necessarily be greater than the profits which that manufacturer of generic medicines would have made if it had been successful in the patent proceedings.” The Court of Justice also considered irrelevant the fact that, as Lundbeck claimed, the agreements imposed restrictions on the generics that were within the scope of Lundbeck’s patents and that—contrary to such “no-challenge clauses” in the Generics (UK) case—they did not preclude the generics from challenging Lundbeck’s patents.
The Court of Justice further noted that the generics could not have concluded the agreements mainly because they thought that Lundbeck’s patents constituted insurmountable barriers to entry, as they were still disputing the strength of Lundbeck’s patents at the time, and that the generics had taken significant steps to enter the market before the agreements, despite Lundbeck’s patents. The size of Lundbeck’s payment, therefore—which corresponded roughly to the profit the generics expected to make during the agreements’ term if they had entered the market—must have been the determinative factor inducing the generics to enter into the pay-for-delay agreements. Lundbeck in turn had not shown any outweighing procompetitive effects of the agreements.
The new normal
Unlike the sentiment that the “by-object box” was enlarging, which prevailed at the time of the Commission’s Lundbeck decision in 2013, the possibility that patent dispute settlements can infringe competition by object is now a given.
According to the Lundbeck judgment, a patent holder can challenge alleged infringements, and may or may not be successful in litigation, but cannot enter into agreements—even if within the scope of its patent rights—that breach Article 101 TFEU. What is more, a generic can be a potential competitor of an originator, even when its only way to enter the market is by infringing the originator’s patent.
It remains to be seen whether the Lundbeck judgment struck the right balance between IP and competition law and if it might intensify the expected chilling effect that the Lundbeck case brought about first in 2013, both on innovation in the European pharmaceutical sector and on out-of-court patent settlements. The upcoming Court of Justice and General Court rulings in the pending Servier appeal and Teva action for annulment will likely further cement the Generics (UK) and Lundbeck line of reasoning.
 The generics were Merck KGaA and Generics UK Ltd, Arrow Group ApS and Arrow Generics Ltd, Sun Pharmaceutical Industries Ltd (formerly Ranbaxy Laboratories Ltd) and Ranbaxy (UK) Ltd, and Xellia Pharmaceuticals ApS and Alpharma LLC (later renamed to Zoetis Products LLC). These four drug makers develop and market generic pharmaceutical products, i.e., drugs that are created to be the same as existing and approved branded drugs. Lundbeck, on the other hand, is an “originator” drug maker, as its activities focus on researching and bringing new medicines to the market. See also H. Lundbeck A/S and Lundbeck Ltd v. Commission (Case C-591/16 P) EU:C:2021:243, para. 6; Xellia Pharmaceuticals ApS and Alpharma LLC v. Commission (Case C-611/16) EU:C:2021:245; Sun Pharmaceutical Industries Ltd, formerly Ranbaxy Laboratories Ltd, and Ranbaxy (UK) Ltd v. Commission (Case C-586/16) EU:C:2021:241; Arrow Group ApS and Arrow Generics Ltd v. Commission (Case C-601/16) EU:C:2021:244; Generics (UK) Ltd v. Commission (C-588/16) EU:C:2021:242; and Merck KGaA v. Commission (Case C-614/16) EU:C:2021:246.
 A preliminary reference made by the UK Competition Appeals Tribunal resulted in the Generics (UK) preliminary ruling, which involved patent settlement agreements between GlaxoSmithKline and generics manufacturers that delayed sales of generic versions of paroxetine, an antidepressant medicine. See Generics (UK) Ltd v. Commission (Case C-307/18) EU:C:2020:52 (“Generics (UK)”), also reported in our December/January 2020 EU Competition Law Newsletter.
 Reverse payment settlement agreements, also known as pay-for-delay agreements, are settlements entered into during patent infringement suits brought by branded pharmaceutical companies—the so-called originators—against generics. In these instances, the originator pays the generic to agree not to enter the market until the settlement agreement expires.
 H. Lundbeck A/S and Lundbeck Ltd (Case COMP/AT.39226), Commission decision of June 19, 2013.
 H. Lundbeck A/S and Lundbeck Ltd v. Commission (Case T-472/13) EU:T:2016:449, para. 128.
 Ibid., paras. 117–133, 157–167, 170–182.
 H. Lundbeck A/S and Lundbeck Ltd v. Commission (Case C-591/16 P) EU:C:2021:243, para. 112.
 See also H. Lundbeck A/S and Lundbeck Ltd (Case C-591/16 P), opinion of Advocate General Kokott, EU:C:2017:351 (the “Opinion”). For reporting on the Opinion, see our June 2020 EU Competition Law Newsletter.
 H. Lundbeck A/S and Lundbeck Ltd v. Commission (Case C-591/16 P) EU:C:2021:243, paras. 56 & 58.
 Ibid., paras. 78, 83–86, 88. An important consideration was also the very fact that Lundbeck entered into agreements with the generics that were not yet present on the market.
 The validity of one of Lundbeck’s process patents was confirmed in 2009, after the contested settlement agreements. According to the Court of Justice, this could not be taken into account to assess the parties’ position at the time the agreements were signed.
 H. Lundbeck A/S and Lundbeck Ltd v. Commission (Case C-591/16 P) EU:C:2021:243, paras. 72.
 Ibid., para. 115.
 Ibid., para. 135.
 Ibid., paras. 117–118.
 Servier SAS v. Commission (Cases C-176/19 P and C-201/19 P) EU:T:2018:922.
 Teva Pharmaceutical Industries and Cephalon v. Commission (Case T-74/21) OJ 2021/C 98/39.