[Ip-health] General Court of the EU Confirms Fines Imposed on Lundbeck and Generic Drug Manufacturers for Entering into Patent Settlements

Tahir Amin tahir at i-mak.org
Fri Sep 23 08:13:48 PDT 2016


http://www.lexology.com/library/detail.aspx?g=a43678af-5fa5-4e42-86d3-982faf0edf0a

McDermott Will & Emery <http://www.lexology.com/contributors/1097/>
European Union September 22 2016

On 8 September 2016, the General Court of the EU (*GCEU*) handed down five
judgments upholding a decision by the Commission of 19 June 2013 imposing
fines on Lundbeck, an originator company, and Merck (the parent company of
Generics), Arrow, Alpharma and Ranbaxy, four generic companies. The
Commission found that the companies had entered into anticompetitive
“pay-for-delay” settlement agreements whereby Lundbeck paid a lump sum to
the generic companies in exchange for their agreement to delay their entry
on the market for Citalopram, an anti-depressant drug.

This ruling is notable in that it is the first time that the GCEU has been
asked to rule on patent settlements between originators and generic
companies. The GCEU upheld the Commission’s reasoning, noting that the
Commission’s reasoning in this case reflects the provisions of its
Guidelines on the application of Article 101 of the Treaty on the
Functioning of the EU (*TFEU*) to technology transfer agreements.

*Factual background*

Lundbeck had a patent covering both the active pharmaceutical ingredient
known as Citalopram and two production processes for Citalopram.
Subsequently, Lundbeck developed new more efficient processes for which it
obtained new patents. When the first patent expired, generic companies
could in principle enter the market although there was a risk that Lundbeck
would bring actions against them on the basis of their secondary patents
protecting new production processes. Instead of entering the market, each
of the generic manufacturers entered into agreements with Lundbeck,
accepting not to enter the market in exchange for substantial payments.

The Commission’s investigation into Lundbeck’s practices started before it
launched its sector inquiry into the pharmaceutical sector in January 2008
with an inspection at Lundbeck’s premises in October 2005. The results of
the sector inquiry published in July 2009 – the Commission found, *inter
alia*, that originator companies used various tools to restrict generic
entry, including patent settlements – provided the Commission with the
incentive to carry out further inspections and to eventually open formal
proceedings against Lundbeck and a number of generic companies that had
entered into agreements with Lundbeck. On 19 June 2013, the Commission
imposed a total fine of approximately € 150 million on all companies (€ 93
766 000 on Lundbeck and € 52 239 000 on the generic undertakings) for
having violated Article 101(1) TFEU. All companies appealed the
Commission’s decision.

On 8 September 2016, the GCEU rendered six judgments responding to the
parties’ different arguments but substantially following the same reasoning.

*Potential competition*

First, the GCEU confirmed the Commission’s finding that Lundbeck and the
generic companies were potential competitors. The GCEU considered that the
generic companies had real concrete possibilities of entering the market in
the absence of the pay-for-delay agreements. In particular, the GCEU found
that Lundbeck’s remaining intellectual property rights covered solely a new
production process for Citalopram rather than the active pharmaceutical
ingredient or the original production processes and that the generic drug
manufacturers had made considerable investments to enter the market.

*Restriction by object*

Second, the GCEU upheld the Commission’s qualification of the patent
settlements as agreements restricting competition by object in violation of
Article 101(1) TFEU, meaning that the coordination between the parties was
so harmful to competition that there was no need to analyse the effects of
the illegal agreements. The GCEU said that that the patent settlements
between Lundbeck and the generic companies were in practice market
exclusion agreements, which broadly equate to two types of restrictive
agreements listed in Article 101(1) TFEU: (i) agreements to limit
production and (ii) agreements to share markets.

Notably, the GCEU said that not all patent settlements are illegal – in
some cases, they are a legitimate way to find a compromise in a patent
dispute – but that in the present case, several factors demonstrated that
the agreements should be considered as restrictions by object, including
(i) the amount of the payments made by Lundbeck which amounted to the
profit anticipated by the generics had they entered the market successfully
and (ii) the absence of provisions in the agreements guaranteeing that the
generic companies would be able to launch their products on the market
after the expiry of the agreements without fear of retaliation by Lundbeck.

*No exemption under Article 101(3)*

Last, the GCEU confirmed the Commission’s view that the patent settlements
could not be exempted under Article 101(3) TFEU because it did not bring
about pro-competitive gains. In particular, the GCEU said that the
agreements (i) were not essential for Lundbeck to protect its incentive to
innovate, (ii) did not bring any benefits to consumers, and (iii) did not
avoid litigation costs because the agreements did not resolve any patent
disputes between the parties.

*Conclusion*

There is an apparent tension between competition law and intellectual
property law, in particular in the pharmaceutical industry: originator
companies must be entitled to benefit from patent protection so as to reap
the rewards for their innovation. At the same time, however, intellectual
property rights should not enable originators to block the entry of
generics on the market once their patents are no longer enforceable. This
tension can make it difficult for the Commission and EU courts to conclude
that an antitrust infringement has taken place in the context of a patent
dispute. The GCEU’s ruling in *Lundbeck* sends a clear message that an
agreement is not exempt from competition law merely because it concerns a
patent.

Now that it has the CGEU’s backing, it is likely that the Commission will
continue taking an active role in reviewing agreements in the
pharmaceutical industry between originators and generic companies.


-- 
Tahir Amin
Co-Founder and Director of Intellectual Property
Initiative for Medicines, Access & Knowledge (I-MAK)
*Website:* www.i-mak.org
*Email:* tahir at i-mak.org
*Skype: *tahirmamin
*Tel:* +1 917 455 6601/+44 771 853 9472



More information about the Ip-health mailing list