The Commission’s 5th report on patent settlements – a pretty picture?

24.12.2014

Earlier this month the Commission published its 5th report on the monitoring of patent settlements, looking at those concluded in 2013. The picture painted by the report is one of triumph: the number of settlements which attract antitrust scrutiny has “stabilised at a low level” whereas the total number of settlements has generally increased over the last five years. From this, the Commission concludes that any concerns that it was forcing companies to litigate ‘until the end’ are unfounded. Unfortunately we are not so sure that the Commission’s stats are all they are cracked up to be.

In the body of the report the Commission acknowledges that the increase in the number of patent settlements may be due to a number of reasons including medicines losing patent protection, a general increase in litigation and disputes, the greater readiness of parties to settle and the introduction of new legislation. But in making its firm conclusion that the Commission’s activities have not discouraged parties from settling, the report fails to note the possibility that without these factors we might have actually seen a decrease in the total number of settlements. (The Commission should be familiar with this argument, which is akin to one it used in its British Airways abuse finding – responding to BA’s claim that competitors gained market share during the period of the alleged abuse, the Commission suggested that without the abuse, the competitor share would have grown even more). In referring in the report to the numbers of settlements concluded over the last 5 years, it also fails to consider that the total figures** for 2013 are in fact lower than those for 2012 – perhaps indicating the start of a trend towards lower numbers of patent settlements.

The Commission has been using the same categorisation of patent settlements for some time now. Unfortunately, this is also flawed. The B.II category of patent settlements which “attract the highest degree of antitrust scrutiny” are those which limit access to the market and contain a value transfer. The Commission appears to use the low number of settlements falling into this category as a hallmark of its success despite the fact that in reality any settlement which involves a genuine compromise between the parties (as opposed to one party or the other just giving up) will fall into this category. The Commission acknowledges itself that this type of settlement would not “always be incompatible with EU competition law” (Monitoring Report, p.5). This provides little certainty for businesses in the pharmaceutical sector which need to be able to settle litigation, in the knowledge that the agreement reached will be enforceable and will not lead to years of investigation and litigation. Until there is more certainty, in the form either of published decisions (even the Lundbeck decision, which dates back to June 2013, remains unpublished, although details of the fines imposed were of course given in a Commission press release) or a fuller analysis of the agreements notified under the monitoring process, companies in the pharmaceutical industry are likely to need to take a – perhaps unnecessarily – risk-averse stance to any settlement of litigation. Until companies in the pharmaceutical sector have had a chance to adjust their litigation conduct (including, for generic companies in particular, the choice as to whether to launch before patent expiry or to bring revocation proceedings) in the light of the fines levied over the last two years, the Commission’s statistics do not provide very good insight into whether there really might be a chilling effect from these cases. The impact of the Commission’s activities in the pharma sector may well be very different from the picture painted in the Monitoring Reports – the statistics do not necessarily prove otherwise.

Finally, anyone interested in this area may wish to read this critique by James Killick and Jeremie Jourdan (amongst others at White , Case) of the Commission’s 4th monitoring report.

** Excluding Portugal, which has special rules in this area.

Sophie Lawrance

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