On 8 September 2016, the General Court upheld a decision of the European Commission (“Commission”) adopted in June 2013, finding that ‘pay-for-delay’ agreements entered into by the pharmaceutical company Lundbeck, and four generic producers (Alpharma, Merck, Arrow and Ranbaxy) had restricted competition ‘by object’ in breach of Article 101 of the Treaty on the Functioning of the European Union.
In its decision, the Commission found that Lundbeck and the generic producers had entered into agreements to delay the entry into the market of cheaper generic versions of Lundbeck’s branded citalopram. According to the Commission, these agreements restricted competition ‘by object’ (by their very nature) for the following reasons: (i) the companies were at least potential competitors; (ii) Lundbeck transferred significant value to the generic producers; (iii) the transfer of value was linked to the commitment by the generic producers to limit their efforts to enter the market; (iv) the value transferred either exceeded or was broadly equivalent to the profit that the generic producers could have expected to make if they had entered the market; (v) Lundbeck could not have achieved the same limitations on entering the market by enforcing its process patents; and (vi) Lundbeck did not agree to refrain from bringing proceedings against the generic producers if they entered the market once the agreements had come to an end. Lundbeck was fined €93.8 million and the generic producers were fined €52.2 million in total.
This is the first time the General Court has considered pay-for-delay agreements. It upheld the Commission’s decision, finding that the pay-for-delay agreements were a restriction of competition by object. As this is a heavily scrutinised and controversial area, it is possible that Lundbeck and the generic producers will appeal the General Court’s decision to the Court of Justice of the European Union.
Patent settlement agreements are widely used in the industry and will not typically restrict competition law. However, businesses should be aware that such agreements may become problematic from a competition law perspective. Determining the distinction between legitimate and illegitimate conduct in this context is not straightforward and advice should be sought. Having said that, current precedent suggests that elements including the following may indicate an infringing settlement:
- the settlement excludes or limits a company from entering the market or reduces the incentives for a company to enter the market;
- there is a payment from the patent holder to the generic company and the size of the payment is linked to the anticipated profits of the generic company rather than the strength of the relevant patent.
Please do not hesitate to get in touch with the S&B competition team or your usual S&B contact if you wish to discuss these issues in more detail.