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'Pay for Delay' appeals decided before the General Court and pending before the European Court of Justice
On 12 December 2018, the General Court (‘GC’) of the European Union delivered its second decision on "pay for delay" patent settlements in the pharma-sector in case T-691/14 Servier v. Commission, read judgement here (currently only available in French). In parallel, the GC's first 'pay for delay' decision, Lundbeck v. Commission (Case T-472/13), is under appeal before the European Court of Justice (CJ)(C-591/16 P – hearing regarding TFEU 101 pending next week). The 'pay for delay' cases follow a sector inquiry undertaken by the European Commission ('EC') in 2007 in the pharma sector.
The Servier-judgement concerned the product perindopril, a drug to cure hypertension. The product was protected by a molecule patent until 2003/2004, and Servier held secondary process patents. Generics preparing to enter the market in competition with perindopril led to patent litigation and subsequent settlement decisions in the period 2005-2007 between Servier (Servier S.A.S., Laboratoires Servier SAS and Servier Laboratories Ltd) on the one hand and the generic manufacturers Niche Generics Ltd (“Niche”)/Unichem Laboratories Ltd (“Unichem”), Matrix Laboratories Ltd (“Matrix”), Teva Pharmaceuticals Ltd, Teva UK Limited ("Teva"), Teva Pharmaceuticals Europe B.V.), Krka Tovarna Zdravil d.d. (“Krka”), and Lupin Ltd (“Lupin”) on the other hand.
In July 2014, the EC imposed fines upon Servier and the generic manufacturers totalling €427.7 million for violations of European competition laws (€330 million imposed upon Servier). The EC held that the settlement agreements qualified as restrictions of competition by object and by effect in violation of TFEU Article 101. In addition, the EC held that Servier was dominant in the market for perindopril and had abused its dominant position by way of entering into patent settlements and acquiring technology in violation of TFEU Article 102. It also found that Servier had implemented an exclusionary strategy, which constituted an abuse of a dominant position. The EC decision was appealed in September 2014.
In its decision, the GC rejects the procedural arguments raised by the plaintiffs (impartiality, advisory committee, others), upholds the main findings relating to TFEU Article 101 and rejects the findings relating to TFEU Article 102:
At least four key takeaways could be observed:
First, the GC confirms that potential competition may exist in a market before the expiration of the relevant patent.
Second, the GC upholds the three criteria used by the EC in order to determine whether the patent settlements at issue constituted restrictions of competition by object, i.e.
Third, the GC confirms the legal test as to whether a reverse payment constitutes an incentive for the generic manufacturers to accept non-challenge/non-commercialisation clauses as part of the patent settlements. In particular, Competition Authorities should examine (i) the payment’s nature; (ii) the payment’s justification; (iii) whether such reverse payment covered costs that were inherent to a patent settlement. Notably, the GC confirms that a side-deal to the settlement agreement in the form of a licensing agreement is not per se suspicious and may serve as an appropriate means of putting end to a dispute.
Fourth, the judgment highlights the importance of a concrete economic analysis taking into account the broader regulatory, therapeutical and economic context when defining the relevant pharmaceutical market. The use of use the Anatomical Therapeutic Chemical (ATC) classification system may serve as a helpful starting point in the definition of relevant market, but not replacing the need for a more detailed analysis. In particular, the GC noted that the EC had underestimated the patients’ inclination to change treatment from perindopril and ignored the constraint posed by the competitor's efforts to promote alternatives.
The 'pay for delay' cases show that the Competition Authorities closely monitors the competition between originator and generic companies.
Before entering pay for delay settlements, pharma companies should undertake due diligence to