Pay-for-Delay in Patent Settlement Agreements

On 10 October 2016, students and academic staff were given the opportunity to attend a seminar delivered by Professor Sofia Pais from the Catholic University of Portugal. Professor Pais was visiting the School of Law on a staff exchange in the context of the ERASMUS + Programme: Staff Mobility, organised by Professor Rosa Greaves. Professor Pais is an expert in EU competition law, which she teaches at the Faculty of Law (Oporto), Catholic University of Portugal. In 2014 she was awarded a Jean Monnet Chair; she also holds the position of Coordinator at the Research Centre for the Future of Law (Porto section) established by the University.

Professor Pais presented on “Pay-for-Delay Agreements in the EU and USA: Competition Issues” which covered recent EU and US case law concerning the anti-competitive agreements that pharmaceutical companies negotiate with the firms that manufacture generic medical drugs once patents have expired.

The seminar focused on patent settlement agreements with reverse payment (pay-for-delay agreements). These are agreements concluded between the patent holder (originator firm) and the generic supplier in the pharmaceutical industry before the patent expires. The idea behind such agreements is to transfer the value of the patent to the generic firm in order to avoid or settle litigation concerning the validity of the patent. According to Professor Pais, such patent settlements have several advantages; however, they may also have anti-competitive effects. Unfortunately, Professor Pais continued, there is no consensus from an economic or legal perspective.

Professor Pais considered the situation surrounding such agreements from the perspective of EU competition law and US antitrust law. In the US, the Federal Communications Commission (FCC) holds the view that patent settlements with reverse payment should be presumed unlawful and should be considered per se violations of the Sherman Act 1890. Professor Pais briefly discussed FTC v Actavis, Inc. 570 US, 133 S. Ct. 2233 (2013) where the Supreme Court held that where a plaintiff invoked a large and otherwise unjustified reverse payment, the settlement should be reviewed under the traditional rule of reason analysis.

The perspective of the EU on the topic is different. According to the EU Commission Annual Pharmaceutical Sector Inquiry, there are three types of settlement agreements: 1. No limitation on generic entry, i.e. the generic firm can enter freely into the market 2. Limitation on generic entry without value transfer from the originator firm - e.g. entry restrictions through licenses or the generic firm becomes the distributor of the drugs of the originator firm 3. Limitation on generic entry with value transfer - i.e. delay of generic entry for value transfer

Professor Pais then provided some examples of the European Commission’s decisions. Lundbeck (CASE AT.39226) was the 2013 case where six agreements operated between 2002 and 2003. The agreements were in relation to the antidepressant drug (citalopram) and concluded between Lundbeck and four generic pharmaceutical firms. The terms included the stipulation that the generic firms agree to postpone their market entry against financial compensation. The Commission concluded that all firms involved in the infringement were at least potential competitors and that the generic producer committed itself in the agreement to limit, for the duration of the agreement, its independent efforts to enter the markets. The firms appealed against the Commission decision to the General Court.

The next important 2013 decision discussed by Professor Pais was Fentanyl (CASE AT.39685) which related to the co-promotion agreement between the Dutch originator pharmaceutical firm Janseen-Cilag B.V. and the Dutch generic pharmaceutical firms Hexal and Sandoz. The product in question was a strong pain-killer, fentanyl, on the Dutch market. The Commission concluded that the agreement infringed Article 101 of the Treaty on the Functioning of the European Union (TFEU) because, amongst other issues, it delayed the entry of a cheaper generic drug for more than one year (restriction by object).

Servier (COMP/AT.39612) was a significant 2014 decision discussed by Professor Pais. The originator firm developed a second generator product protected by patents. Its direct competitor developed an alternative drug used for the treatment of cardiovascular diseases, Perindopril. Servier bought it in order to exclude it from the market. The Commission found this to be an infringement of Articles 101 and 102 of the TFEU, determining this as restriction by object. The Commission decision was appealed to the General Court (the appeal is pending).

The last part of Professor Pais’ presentation focused on recent developments in the US and EU. In the US, the Federal Trade Commission sued Endo because Endo paid more than $112 million to Impax Laboratories to drop a patent-challenge lawsuit and to delay the generic version of Endo’s painkiller. In return, Endo agreed not to introduce an authorised generic of the drug, therefore, guaranteeing that Impax would be the only firm selling generic Opana ER for a 180-day period. Furthermore, Endo paid hundreds of millions to Watson Laboratories to delay it selling a lower-cost copy of Endo’s drug.

The most recent development in the EU was the judgement of the General Court in Lundbeck v Commission (Case T-472/13), where the General Court upheld the Commission’s decision that the agreement between Lundbreck and the generic producers restricted competition by object in violation of Article 101(1) TFEU. Professor Pais highlighted various parts of the GC’s ruling. The most interesting point was that the General Court held that “the agreements at issue were comparable to market exclusion agreements, which are among the most serious restrictions of competition. The exclusion of competitors from the market constitutes an extreme form of marking sharing and of limitation of production” (para. 435).

In conclusion, Professor Pais said that despite the decisions issued in the EU and US, the boundary between lawful and unlawful conduct remain ill defined. The Federal Trade Commission and the EU Commission agree that reverse payment in patent settlements can raise competition concerns; however, the legal contexts are different. Professor Pais added that existing economic literature is compatible with different legal solutions.

~ Lana Nasibyan

Lana Nasibyan is a PhD candidate at the School of Law.  Lana's research topic is 'Does the size matter?  The comparative analysis of dominant position in the EU competition law and the monopoly in the US antitrust law'.  Her supervisors are Professors Mark Furse and Rosa Greaves.

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