Divisive divisionals – more on the Consiglio di Stato Pfizer judgment

26.02.2014

Courtesy of our friend Daniela Ampollini of Trevisan Cuonzo, we have now seen an unofficial translation of the recent Consiglio di Stato (CS) judgment in the Pfizer Xalatan/latanoprost case. We have already referred readers to Daniela’s own excellent article on this casehere, and we share her views about the absurdity of a ruling which finds an infringement of Article 102 on the basis that patents, and related rights, have the effect of excluding competitors.
But is there anything else we can take from the judgment, other than this kneejerk reaction? It is important to try to do so, so that the next time we (as lawyers) or our clients (as business people) see a similar situation, we can recognise the risks, even if – being based in the UK, we do not have to face the Italian Competition Authority (ICA).
So, looking beyond what is right and wrong for the purposes of patent law, it seems that there are two main objections to the scheme which led to the ICA, and now the CS, to identify a competition law infringement. The first is that Pfizer based its applications for a Supplementary Protection Certificate (SPC) and paediatric extension on a divisional patent which did not protect a different product from that protected by the original patent. (While two divisionals of the same parent patent application could protect different innovative products, it is inherently unlikely that the same can be said of a divisional and parent, given that the divisional must contain the same subject matter*.) As Pfizer was out of time to obtain an Italian SPC on the original (parent) patent, it obtained the divisional – it appears – solely in order to allow it to obtain such additional protection, and thus regularise its patent expiry position around the EU. This mechanism was criticised by the CS as “artificial”. It is certainly true that divisional patents are more commonly used where the applicant believes that the parent patent may not survive examination before grant – once Pfizer had a granted patent covering the molecule, arguably the usual commercial reason for needing a divisional fell away. It seems unlikely that the case would, or could, have been brought if Pfizer had simply used the parent patent to obtain the SPC, or if the divisional patent was necessary for Pfizer to retain patent protection over the latanoprost molecule.
The second motivating factor seems to have been how late in the day Pfizer applied for its divisional. The CS, following the ICA, notes that generic companies were basing their preparations to enter the market on an assumed date of expiry of the original patent. This was frustrated by Pfizer’s late application for the divisional (which did not itself extend the period of patent protection), something which was then compounded by the SPC and paediatric extension applications – repeated references are made by the CS to the “uncertainty” that this created for generics. This seems to suggest that there is some kind of obligation of transparency at play. If this is right, pharma companies are required to make their intentions clear not only to patent offices (as in AstraZeneca), but more generally towards the market (bearing in mind the competition rules on information exchange, of course). It appeared for a while that the EPO agreed with the concern that late applications for divisionals was undesirable – but following a flirtation with a sunset period for divisional applications (2 years from the application for the parent), this new rule has been dropped as unworkable.
From a competition law perspective, however, this approach is broadly in line with the emerging policy at EU level which says that basic patent protection (classically protecting the pharmaceutical molecule itself), as legitimately extended by SPCs/paediatric extensions etc., is the maximum period of exclusivity to which pharma companies should be entitled. Any other secondary patent protection is liable to be viewed with suspicion (look, for example, at what the Commission said in its Sector Inquiry and its submission to an OECD roundtable on Competition, Patents and Innovation in 2009: “it is increasingly being recognised that patents and the patent system may not always stimulate innovation but may also be used for other defensive purposes and may retard (follow-on) innovation”). The oddity here is that the SPC protection obtained by Pfizer did not in fact extend its patent protection beyond the protection held in other countries, so if competition policy is really going to look at the broader question of how much exclusivity is “right” for society, balancing the interests of the innovator and consumers (i.e. in this case the Italian health authority), then here, no harm was sustained. (Unless, perhaps, the Italian health authority can justify ‘free-riding’ on the health budgets of other EU health authorities, to the extent that their budgets are not reduced by knock-on reference pricing effects from reduced Italian prices…)
Although the CS pointed to “a complex and articulated conduct” (perhaps a nod to the Sector Inquiry ‘toolbox’?), the other factors – the sending of cease and desist letters, the intervention with the Italian transparency authority, and the litigation (which Pfizer did not start) – seem ancillary to the two key points identified above. But the fact that they were ancillary does not of course mean that they were unnecessary to establish proof of the infringement: if Pfizer had made no attempt to assert its rights, or had acceded to the revocation proceedings, there would have been no, or significantly less, delay to generic entry. But we can’t help reverting to our kneejerk reaction that this decision is wrong. Each and every one of Pfizer’s acts was a rational commercial one (and legal). The suggestion seems to be that in itself, no single decision/action out of those listed would have constituted an abuse. Yet the Court of Justice has endorsed the fact that a “strategy whose object it is to minimise the erosion of its sales and to enable it to deal with competition from generic products is legitimate and is part of the normal competitive process”, always provided of course, that there is no departure from the nebulous concept of ‘competition on the merits’.
The CS’s judgment is notable for its lack of engagement with any case law – just one cursory mention of AstraZeneca, no reference to whether Pfizer’s conduct constituted ‘competition on the merits’ and no discussion of whether the ICA had trampled on the ‘specific subject matter’ of Pfizer’s IP rights. While the application of competition law to the obtaining of patent (and related) protection is akin to the first of the abuses identified by the Commission (and ultimately upheld by the CJEU) in AstraZeneca, in fact the reasoning on which this case is based is much more similar to the second abuse. This second abuse involved AZ withdrawing marketing authorisations for the capsule form of Losec, an action which was entirely lawful under the relevant regulatory provisions, but the only purpose of which could have been to delay generic entry. The absence of (any other) valid objective justification was explicitly noted as important in this part of AstraZeneca, and it was arguably important also in Pfizer. But (kneejerk again) – what possible justification can any company give for applying for an exclusionary right, other than the wish to exclude competition? And if that’s an intractable problem, here is another – how can companies ensure that competition law scrutiny happens at the stage when the relevant rights are being applied for? Is it unfair to wonder whether most patent lawyers or agents would be likely to pick up on the need for competition law screening when making applications for rights of this kind?

Sophie Lawrance

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