The 4th annual report on the Commission’s pharma patent monitoring exercise was published yesterday (here). The relative numbers of the different types of settlements (those which the Commission regards as non-problematic vs. those which restrict generic entry / include a “value transfer”) are not so very different from last year, at least once the effect of Portugal’s newly introduced Hatch Waxman-type regime is taken out of the equation.

Indeed, much of the text of the report is also very similar to previous years. However, there are a few important additions which appear to give an indication of some of the issues in the various cases that the Commission has been looking at. This is particularly useful information for the industry given the delayed public access to the Lundbeck decision.

Probably the most interesting part of this report compared with previous years are the aspects which indicate how the Commission views early entry type agreements. The Commission has not always been clear on how it views settlement agreements which split the difference between the date of the settlement agreement and the date of patent expiry. It has been assumed by some in the industry that the Commission views such settlements more favourably than those which limit the generic company’s entry until patent expiry. It appears that this is not – or not always – the case, unless the entry is immediate and not limited in any way (e.g. by any requirement to pay royalties, or by any constraints on the marketing of the generic company’s own product). See paragraph 11 of the report which clearly states: “agreements providing for an early entry of a generic medicine will be seen as limiting generic entry where entry is not immediate”. This approach is followed up in the analysis of the BII settlements (i.e. those that the Commission regards as most likely to attract competition law scrutiny) which distinguishes a number of settlements of in which the “value transfer” element consists of early entry and licence granted to the generic company.

However, paragraph 13 also notes that in some cases “an early entry may be pro-competitive when compared to the parties’ anticipated outcome of the litigation”. This is new to the report, and demonstrates that the Commission intends to infer the likely outcome of the litigation from the companies’ internal or other contemporaneous statements about the likely outcome. (This is surely open to gaming – companies involved in patent litigation now have an incentive to make over-inflated statements of confidence in order to try to support their belief that they would have won the litigation. In our view, a more appropriate point of comparison would be the actual context of the agreement, e.g. whether the generic has a marketing authorisation, is actually ready to enter immediately or not, although even in that case it should not follow axiomatically that any settlement agreement including restrictions and a value transfer will be unlawful.)

Other new aspects worth noting are as follows:

• The wide definition of the concept of “value transfer” continues, with the example of the purchase of stocks from the generic at market price being explicitly listed (see paragraph 12). It appears that this practice is drawn from one of the Lundbeck agreements that the Commission held infringed Article 101 earlier this year (the press release announcing the decision against Lundbeck stated that the company: “purchased generics’ stock for the sole purpose of destroying it”).
• There are a number of new references to the treatment of non-assertion clauses under which the patentee promises not to assert the patent, but does not specifically grant a licence. These references do not sit easily with the sections describing the treatment of immediate entry settlements (as discussed above). Contrary to the favourable view of immediate entry settlements, non-assertion clauses “may be perceived as constituting a value transfer” as “the generic gained marketable value”. Although the report suggests that such agreements may not attract “the highest degree of antitrust scrutiny”, this is of little comfort to the parties to such an agreement in an age of private competition law actions, and given the potential unenforceability of such agreements.
•  The Commission also responds to commentary suggesting that its policy will force companies to litigate to the bitter end, suggesting that the number of settlement agreements and the high proportion which are unproblematic in the Commission’s eyes means that there is no such problem. This is difficult to assess fully without access to the settlement agreements themselves, but it is very likely that the majority of the settlement agreements in the A category (no restrictions imposed) in particular are not true settlements of litigation which remains contested, but rather discontinuations by the patentee. There is a suggestion of this in the note in paragraph 37 which refers to the proportion of settlements concerning expired patents. Similarly, B1 settlements appear to involve the generic simply giving up and accepting to be bound by the patent.

The inconsistencies noted above suggest that even after a sector inquiry and four rounds of reports, a number of issues in this space still remain to be fully worked out even to make the Commission’s own internal policy fully coherent. Given the recent appeals announced by the parties to the Lundbeck agreements, the General Court will eventually have the opportunity to look at the Commission’s approach. However, it is likely to be a number of years before a clear view emerges.