Agreements whereby an original pharmaceutical manufacturer pays generic producers to stay out of the market are anti-competitive and therefore illegal, the General Court has affirmed. In this recent landmark judgment, the court upheld a previous decision of the European Commission to impose hefty fines on all parties involved in the conclusion of such pay-for-delay agreements.
In 2002 and 2003, Danish pharmaceutical company Lundbeck concluded six agreements with four generic pharmaceutical companies in relation to the product citalopram, an anti-depressant, whether in the form of an active pharmaceutical ingredient or in the form of a medicinal product.
At the time, Lundbeck’s patents and data protection on the citalopram compound and the two original production processes had expired. It still had a number of process patents, which gave Lundbeck exclusivity rights on limited new ways of producing citalopram. However, any undertaking using either the original production processes or any production process not covered by these valid patents could in principle freely enter the European market with the generic citalopram.
A potential patent dispute between Lundbeck and the generic manufacturers ensued. This was halted via the conclusion of agreements between the parties, before a court ruling on the patent issue was delivered.
In its 2013 decision, the European Commission observed that patent settlement agreements which, like any other agreements, are subject to EU competition law.
The main aspect of these agreements which breached competition law related to the fact that they contained a transfer of value from Lundbeck to a potential or actual generic competitor on the condition that the latter did not market generic citalopram in the geographic area concerned for the duration of the agreement. The value transferred took into consideration the turnover or the profit which the generic undertaking would have made had it successfully entered the market.
Such agreements clearly cause harm to consumers by reducing competitors’ incentives
The Commission noted that the agreements in question did not resolve any patent dispute but rather postponed potential generic market entry. Also, the agreements contained no commitment from Lundbeck to refrain from infringement proceedings should the generic undertaking enter the market with the generic citalopram after the expiry of the agreement.
The Commission concluded that, through the agreements in question, Lundbeck obtained results that it could not have achieved by enforcing its process patents before the national courts. Furthermore, the agreements in question prevented the generic company concerned from selling generic citalopram, irrespective of whether such citalopram would be produced in infringement of Lundbeck’s process patents.
The Commission proceeded to impose a fine of €93.8 million on Lundbeck and fines totalling €52.2 million on the four generics competitors. The parties appealed the Commission’s decision before the General Court.
In a recent judgment, the General Court has now confirmed the Commission’s findings. It observed that the Commission was correct in finding that there was “a buying-off of competition” whereby the generics competitors agreed with Lundbeck to stay out of the market in return for value transfers and other inducements.
The court also confirmed the conclusion arrived at by the Commission, namely, that the agreements eliminated the competitive pressure from the generic companies and constituted a restriction of competition. Furthermore, the court observed that Lundbeck was not able to justify why these particular agreements would have been needed to protect its intellectual property rights.
Agreements between independent companies to fix prices, to limit production or to share markets or customers between them clearly fall foul of EU anti-trust law. Such cartels are heavily fined by the Commission and it is now clear that pay-for-delay agreements – particularly in the pharmaceutical industry – are no exception. Such agreements clearly cause harm to consumers by reducing competitors’ incentives or possibility to enter new markets. Choice for the consumer is, as a consequence, severely diminished and the consumer has to do with less choice for more expensive prices.
Antitrust laws are specifically designed to prevent such scenarios and, if properly implemented and enforced by the relevant authorities, ensure a level playing field for competitors and fair prices for consumers.
mariosa@vellacardona.com
Mariosa Vella Cardona is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.