In recent years, “pay-for-delay” arrangements in the pharmaceutical sector have come under intense scrutiny from the European Commission and national competition authorities. The focus of the authorities thus far has largely been on traditional small-molecule pharmaceutical products. However, recent antitrust litigation in the USA relating to Humira (adalimumab) suggests that patent settlement agreements relating to biotech products may also be alleged to present competition law issues. This case is also the first to consider the whether allowing “early entry” in EU markets counts as a quid pro quo for staying off the market in the USA and whether, if so, that is an antitrust concern. It is therefore of interest not only to US antitrust lawyers, but also to EU competition law practitioners, as well as to the wider biotech industry.
In patent settlement agreements involving a ‘pay-for-delay’ element, the originator company makes a payment or provides some other benefit to the generic company. In return for this payment, the generic promises to respect the patent and stay off the market for a period of time. To date, these agreements have generally been viewed by competition authorities and courts as anti-competitive (see, for example, the General Court’s judgments in Lundbeck and Servier, and the CMA’s decision in the UK Paroxetine case), as they remove the possibility of early entry by cheaper generic products. Such ‘reverse payments’ are considered to act as an inducement to the generic to accept what would otherwise be an unacceptable fetter on its market access. The recent Court of Justice Paroxetine judgment (a response to a preliminary reference by the UK Competition Appeal Tribunal) confirmed that entering into agreements of this kind may, in certain circumstances, amount to an infringement of competition law by object. Although the European courts have yet to consider how pay-for-delay agreements between potential biotech competitors would be assessed, it should be assumed that the same basic principles would apply.
Background to the litigation
In March 2019, a private antitrust suit was filed in the Illinois Northern District Court against AbbVie and biosimilar companies including Amgen, Pfizer and Mylan by UFCW, a healthcare benefits provider, on behalf of indirect US purchasers of Humira (adalimumab). Humira is a monoclonal antibody treatment developed and marketed by AbbVie, which is used to treat chronic immune-related diseases including rheumatoid arthritis, psoriasis and Crohn’s disease. The primary patent for Humira expired in the US in December 2016. However, AbbVie holds over 100 other patents for Humira, with expiry dates up to at least 2034.
The main allegations against AbbVie and the settling biosimilar companies are that:
- AbbVie has created and employed an exclusionary “patent thicket” of over 100 patents in order to provide long-term insulation to Humira from any biosimilar competition;
- AbbVie has used its patents to enter into illegal market-division agreements with the co-defendants in a bid to delay biosimilar entry in the US. (Even though the settlement agreements allow US entry at an agreed date which is before the patent expiry in 2034, this is still alleged to be a pay-for-delay arrangement.) Meanwhile, AbbVie permitted biosimilars of Humira to launch as early as October 2018 in the EU market (following SPC expiry in the EU);
- AbbVie’s prolonged monopoly has resulted in US patients paying artificially higher prices compared to European patients, who benefitted from competition; and;
- The lower price for Humira in Europe was effectively “subsidised” by the much higher price in the US where AbbVie unlawfully maintained its monopoly.
Pay-for-delay in the EU and US
From an EU perspective, pay-for-delay agreements have been held to be “by object” restrictions of competition under Article 101 TFEU (Lundbeck Paroxetine). The Humira plaintiff takes a similar view, asserting that “The unlawful market division arrangements are per se violations of the Sherman Act”. However, the US courts have previously taken a more nuanced view of pay-for-delay settlements between originator and generics manufacturers. In FTC v Actavis, the US Supreme Court stated that the pay-for-delay cases should be analysed using a “rule of reason” approach – albeit at the “quick look” standard – rather than the stricter “per se” rule. To date, however, the US Supreme Court has not yet had cause to look at non-financial incentives within patent settlement agreements of the type alleged in the Humira case.
The strong US policy in favour of protecting innovation (including the filing of patents) also suggests that establishing a patent thicket has anticompetitive effect is likely to be difficult. Nor is it clear that the US Court will agree that the biosimilar manufacturers – of which a number were yet to receive FDA approval – would have had a realistic prospect of entering the market in the absence of the settlement agreements.
In previous EU pay-for-delay cases, the courts have considered whether the existence of patent rights could create an insurmountable barrier to entry. They have generally concluded that the existence of process (or other secondary) patents was not enough to preclude potential competition in the market: once the primary patent over the active ingredient has expired, the market “is in principle open”.
There is also no clear position on whether the EU authorities would be willing to tackle patent thickets. The Commission did refer in its Servier decision to the existence of a portfolio of process patents which made it “more difficult, costly and lengthy for potential entrants to identify the scope of Servier’s valid patent protection and thus develop a viable product for potential entry”. However, this statement was not formally presented as an allegation of abuse, and in any event, the General Court overturned the Commission’s abuse of dominance finding in this case. One earlier case was closed following a settlement between the parties involved in the underlying patent dispute.
Generics vs biosimilars
Whether or not the findings in previous pay-for-delay cases also apply to biotech companies remains to be seen; although the markets are similar, biosimilars differ from small-molecule generics in several ways. For example, the higher costs associated with the development of a biosimilar compared with a generic drug result in an reduced asymmetry of risk between the originator company and the biosimilar company upon the launch of the biosimilar. Moreover, doctors may be more hesitant to switch patients to biosimilars than they are to switch patients to generics due to a lack of guidance on interchangeability between originator biologics and biosimilars, and so a less extensive and immediate loss of sales of the originator product may be seen upon the launch of a biosimilar compared to the launch of a generic.
There may therefore be less of an incentive for originator companies to “pay-off” their biosimilar competitors in exchange for the promise of delayed entry onto the market. Taking into account the economic and scientific context, it may therefore be the case that the relationship between biologics and biosimilars cannot be viewed as equivalent to that of small molecule originators and generic manufacturers.
Allowing early entry in the EU – a “value transfer”?
The allegations in the Humira case do not fit within the framework of a pure ‘pay-for-delay’ agreement, as there is no allegation of a monetary payment by Abbvie to the settling biosimilar manufacturers. Rather, it is alleged that those manufacturers benefited through being permitted to launch their products in Europe while remaining off the US market.
There are a number of reasons why a settlement agreement following litigation in different parts of the world may result in the parties agreeing a different approach for different territories. The scope of patent protection will not be identical in different regions, and the patentee may consider it has better prospects of success in some markets than others. From a more commercial point of view, it is also inevitable that some markets are worth more than others, and may be worth an investment in defending which it would not be worth making in a country with a smaller patient population. It may not make commercial sense to pursue market withdrawal from markets where at risk entry has taken place. It is uncontroversial that different patent protection may be put in place in different countries; it follows that litigation strategy, including decisions to settle, are likely to be similarly country-specific. It seems unlikely that competition rules would oblige a party to settle everywhere or nowhere.
However, that is not to say that a situation of this kind could never cause competition problems. The EU has looked at the question of settlements which result in a commitment to stay off some markets while allowing entry in others in the Servier – Krka case. In that case, Krka (the generic manufacturer) was involved in litigation with Servier in the UK, and (following a decision by the Opposition Division of the EPO to maintain the patent) agreed to settle that litigation on terms that it would stay off the UK market. Meanwhile, it had already entered certain Eastern European markets, and signed a licence agreement with Servier to formalise its market access. The Commission Decision treated the licence agreement as an inducement to Krka to agree to the UK settlement. However, the General Court rejected this analysis and held that as the licence agreement involved royalty payments at a fair market value, it followed that there was no inducement.
The course that this case takes will be important for all pharmaceutical companies envisaging global settlements, in particular where these lead to different market outcomes in different parts of the world. For now, biotech and other pharma firms should exercise caution when entering into patent settlement agreements that contain terms allowing entry at different times in different geographical markets.
 Cases T-472/13 etc. Lundbeck v Commission EU:T:2016:454
 Case T-691/14 Servier v Commission EU:T:2018:922
 CMA decision of 12 February 2016, Paroxetine – Case CE-9531/11
 Case C-307/18, Generics (UK) Limited and Others v Competition and Markets Authority. For more information on this judgment, see the recent article by Pat Treacy and Olivia Henry for Bristows’ life sciences blog, On the Pulse, at https:/ www.bristows.com/news/competition-between-generics-and-originators-whats-the relevance-of-a-patent-2/
 UFCW Local 1500 Welfare Fund v AbbVie and ors (class action complaint filed 18 March 2019), paragraph 127
 Federal Trade Commission v Actavis, Inc. et al., 570 U.S. __ (2013)
 Commission Decision C(2013) 3803 final – Lundbeck, paragraph 68
 Commission Decision C(2014) 4955 final – Perindopril (Servier), paragraph 2770