Simplicity or complexity? – A tale of two patent settlement investigations

13.07.2020

Competition law commentators (including this blog) have expended many words over the years on the subject of the application of EU competition law to patent settlement agreements over the past 10 years or so, since the opening of the first Commission cases on ‘pay-for-delay’.  Such commentary has frequently disagreed on the precise way in which competition law and patent law interact, and the consequential way in which such agreements should be assessed.  Respected figures have questioned the idea that settlements relating to patent rights can be presumed to be anti-competitive, at least where the restrictions imposed on the would-be market entrant remain within the scope of the patent protection.  Perhaps partly in consequence of such diverging views, the major competition authority decisions to date have been some of the longest on record, with Lundbeck weighing in at close to 500 pages, Servier at nearly double that, and the CMA’s Paroxetine decision splitting the difference at around 700 pages.

The past month has seen two developments in relation to ‘pay-for-delay’ patent settlement cases.  The Lundbeck case, opened by the Commission in 2010, but notified by the Danish competition authority as long ago as 2003, edged towards the endgame with an opinion from AG Kokott recommending that the General Court judgment (and thus the Commission decision) should be upheld (see our post on the Opinion here).  Meanwhile, back at first base, the Commission announced on 8 June the dispatch of a supplementary statement of objections to Teva, in respect of an agreement with Cephalon (prior to its acquisition by Teva) settling a dispute in relation to patents protecting modafinil.  That investigation was commenced in 2011, only a little time after Lundbeck case, yet remains in the investigation phase.

While not unheard of, such protracted investigation is relatively rare.  It also contrasts curiously with aspects of AG Kokott’s recent Opinion.  At paragraphs 181 to 190, the Advocate General explains that “Lundbeck could not have been unaware of the anticompetitive nature of its conduct” as – notwithstanding that the agreements concerned intellectual property rights and the lack of any precedent holding such agreements to be anti-competitive – the agreements at issue could (according to the AG) be understood only as market exclusion agreements.  In a similar vein, the AG opines that the infringement was reasonably foreseeable, such that it was legitimate for the Commission to impose a substantial fine on Lundbeck (as well as on the generic counter-parties).  The AG holds that Lundbeck had “no basis for claiming that the backdrop to the agreements at issue in terms of patent law could have led them to believe that those agreements would be shielded from the application of competition law” (199).  Even though Lundbeck is the first EU case concerning patent settlements, has been under investigation or appeal for over 10 years and involved a decision of close to 500 pages (still only half what was required in Servier), the position is now considered to be so clear that there is no plausible reason for the paries to have been in any doubt as to the (non-) compliance of its agreements with EU competition law.

Why the mismatch between the apparently complex and time-consuming investigations, and this (provisional*) outcome?  The key simplifying step taken by AG Kokott (in line with the CJEU’s view in Paroxetine) is to make clear that no consideration needs to be given to the likelihood of infringement of the patent rights or to the merits of the underlying dispute.  The competition authority is thus “not required to prove that the generic version does not infringe the patent concerned or that the patent would have been found invalid in legal proceedings”.  Similarly, the ‘at risk’ entry of a generic product and the existence of patent challenges are sufficient to count as “real and concrete possibilities of competing with the patent holder” (99).  And again, the AG opines that if the sole consideration for a transfer of value is the generic manufacturer’s undertaking not to enter the market and/or challenge the patent, “this indicates, in the absence of any other plausible explanation, that it is not its perception of the patent’s strength but the prospect of the value transfer that prompted it to refrain from entering the market and challenging the patent” (129).  In principle, such simplifying approaches should simplify the competition authorities’ task in future cases.  Yet at the same time the AG makes clear that: “a competition authority should not disregard any question relating to patent law which is capable of influencing the finding that […] a competitive relationship exists” (59).  The Commission and national competition authorities therefore do still need to conduct a fact-specific analysis of the particular circumstances in which any patent settlement is concluded – although at least once ‘primary’ patent protection over the molecule has expired, it is not straightforward to see when such considerations will make a difference to the analysis, given that (in the AG’s opinion): “a process patent does not prevent the market entry of products manufactured under other processes” (60).

In any event, it appears that the Commission is now close to rendering a decision in modafinil, as its latest annual report notes that it expects to do so within this calendar year**.  It remains to be seen whether AG Kokott’s simplifying approach will result in a shorter decision in this case, compared to earlier ‘pay-for-delay’ cases…

* While the CJEU has yet to rule in Lundbeck, it appears likely that AG Kokott’s Opinion will be followed, given that it closely mirrors the CJEU’s judgment of earlier this year on the reference from the UK in Paroxetine – see our post on that judgment here.

** For those who follow Commission pharma cases generally, the Commission 2019 Annual Report notes that the Commission also intends to wrap up its investigation into Aspen (regarding the imposition of unfair and excessive prices) by the end of 2020 – see pp.24-25.

Sophie Lawrance

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