A second round of European Commission (EC) monitoring concluded in early 2011. The main objectives of the monitoring exercise were to ‘better understand the use of these type of agreements in the EU and to identify those settlements that delay generic market entry to the detriment of the European consumer possibly in violation of European competition law’. The type of settlements the Commission was looking for were those limiting generic entry and at the same time foreseeing a value transfer from the originator to the generic company.
This is the third of three articles on the EU pharmaceutical sector enquiry examining ‘pay-for-delay’.
The press release of 6 July 2011 reported that ‘the pharmaceutical sector shows a continuing decline of [patent] settlements potentially problematic under EU antitrust rules’. This highlights an increased awareness of which types of settlements between originator and generic companies can give rise to antitrust scrutiny–generally the so-called pay-for-delay settlements–and is good news for consumers who will benefit from cheaper pharmaceuticals .
The Federal Trade Commission (FTC) has had limited success in legal challenges to the ‘pay-for-delay’ tactics in the context of US laws. The EC, adopting a different approach, has interested the pharmaceutical industry in respecting the spirit of competition law without entering into costly litigation. In so-called ‘dawn raids’ and by asking firms to fill in lengthy questionnaires, the Commission has been looking for evidence of vexatious, or otherwise abusive, litigation initiated by innovative pharmaceutical companies. The EC acknowledged that the reason why it had chosen, for the first time, to kick off a sector inquiry by conducting ‘dawn raids’, was to a large extent because information relating to litigation is by its nature highly confidential. As a consequence, such information can easily be withheld, concealed or destroyed, so that unannounced inspections were deemed to be the most suitable instrument in the armoury of the EC .
Some of the evidence found was then published in the fact sheet accompanying the preliminary report. Without naming the authors, they were able to shame the companies with statements discovered such as ‘secondary patents will not stop generics competition indefinitely but may delay generics for a number of years, at best protecting the originator's revenue for a period of time’.
Nevertheless, to coincide with publication of the second report the EC announced that it had initiated an antitrust investigation against Les Laboratoires Servier, for suspected breaches of Articles 101 and 102 of the Treaty on the Functioning of the European Union, which purportedly resulted in market entry delays for the cardiovascular generic perindopril.
Results of the investigations
The number of settlements that restrict generic entry and show a value transfer from the originator to the generic company and which might attract competition law scrutiny, decreased significantly by 2010, when the second investigation was conducted, compared to the period investigated in the course of the sector inquiries. In the period from 2000 until mid-2008, these settlements constituted 22 % of the settlements reported (45 out of 207). In the period covered by the first monitoring exercise, they decreased to 10 % of all settlements concluded (9 out of 93). In the monitoring exercise covering the year 2010, only 3 % of the settlements were of this type (3 out of 89).
In muted language the report continues: ‘An explanation for these developments may be the increased awareness of companies and their legal advisors regarding the question whether such agreements might attract competition law scrutiny. The fact that the EC announced a continued monitoring of patent settlements and the ongoing competition proceedings in the Servier and Lundbeck cases might have had a deterrent effect’.
The number of patent settlements increased in 2010, however, showing that the EC’s vigilance did not prevent firms from settling disputes successfully within the boundaries of the EU rules. Statements of certain stakeholders during the sector inquiry that the EC would be forcing companies to litigate each patent dispute until the end have proven to be unfounded. Companies can continue to solve their disputes in a manner that is typically considered unproblematic from a competition law perspective.
‘I note with satisfaction that the number of patent settlements potentially problematic under EU antitrust law continues to decrease without calling into account companies’ legitimate right to settle disputes amicably. The EC will remain vigilant that companies’ behaviour respect antitrust law and do not delay entry of cheaper pharmaceuticals,’ said Mr Joaquín Almunia, Commission Vice President in charge of competition policy.
So far, the EC has opened three formal proceedings with respect to patent settlements.
How originator companies delay generic medicines
European Commission investigates Johnson & Johnson and Novartis over delaying generics
Problematic patent settlements in EU on the decrease
European Commission to investigate patent settlements again
1. GaBI Online - Generics and Biosimilars Initiative. EU investigation tackles pay-for-delay [www.gabionline.net]. Mol, Belgium: Pro Pharma Communications International; [cited 2011 January 13]. Available from: www.gabionline.net/Reports/EU-investigation-tackles-pay-for-delay
2. Lamote A, et al. Generic entry - a challenge to traditional EU competition law. [cited 2012 January 13]. Available from: www.practicallaw.com/8-500-7752
Source: European Commission