The Relation of EU Competition Law
and Patent Law based on
Pay for Delay Agreements
Author: Viktoria Neubert
E-Mail: viktoria.neubert@gmail.com
Student Number: 12637637
Master Track: European Competition Law and Regulation
Supervisor: Dr. mr. Anniek de Ruijter
Word Count: 12898 words
1. Introduction ... 4
1.1 Legal puzzle: The competition conundrum of EU IP Law for pay for
delay agreements ... 5
1.2 Structure and Methodology ... 6
1.3 Fundamental concepts of the tense area ... 6
1.3.1 Generics ... 7
1.3.2 Exclusivity Mechanisms ... 8
1.4 The EU patent with unitary effect? ... 9
1.4.1 The current system in the EU ... 9
1.4.2 The upcoming system? ... 10
1.5 Basic legal framework concerning pay for delay agreements in the
EU competition law structure ... 12
2. Pay for delay Agreements: Case law ... 13
2.1 Pay for delay Agreements ... 13
2.2 Lundbeck Case ... 14
2.3 Johnson&Johnson Case ... 15
2.4 Servier Case ... 15
2.5 Cephalon Case ... 16
2.6 Paroxetine Case ... 16
2.7 Conclusion ... 16
3. Difficulties in finding a balance between the legal fields ... 18
3.1 Relationship in the legal fields of EU Competition Law and IP Law 18
3.2 To simplify the relationship: Should there be a per se illegality of pay
for delay agreements? ... 19
3.3 Are there clear-cut criteria to assess pay for delay agreements in a
balanced way? ... 20
3.3.2 Generic entry restriction ... 21
3.3.3 Significant value transfer ... 23
3.3.4 Value transfer equals the expected generic profit ... 24
3.3.5 No early entry date for the generic ... 24
3.3.6 Restriction outside the patent’s scope ... 25
3.4 Conclusion ... 26
4. Does the EU Competition Law actually value the Patent Law? ... 27
4.1 Are competition authorities able to examine patents? ... 28
4.2 Who is competent to examine patents? ... 28
4.3 How important are validity and strength of patents? ... 30
4.4 Is there an easier way to determine the impact of patents? ... 31
5. Conclusion ... 32
6. Future prediction to sufficiently recognize the IP Law ... 34
6.1 Lundbeck’s appeal at the CJEU ... 34
Abstract
Pay for delay agreements are a common method to end legal disputes in the pharmaceutical sector. The manufacturer of the patented medicine pays a value to the generic drug
manufacturer, in return the generic drug appears on the market later, if at all. While these settlements may be advantageous to the parties, they pose a problem for the consumer, who is dependent on cheaper drugs. This demonstrates the potential restrictive effect on EU
competition law. This reflects the opposing legal positions. First of all, the consumer, that is dependent on a free market and competition, as well as the generic drug manufacturer, who in principle is also dependent on the fact that a market launch is possible. The interests are set against the original manufacturer and his patent, who want to maintain the monopoly-like position as long and comprehensively as possible.
This factual framework of pay for delay agreements provides the question of compatibility with EU competition law. The courts and national competition authorities have therefore begun to monitor these comparisons more closely. However, due to their point of view, the follow-up problem of compliance with patent law arises and the recognition of its objectives. Therefore, in this thesis the current judgements are analyzed to see how the applied
competition law relates to patent law. Different approaches and criteria are shown, which could lead to a balance between the legal fields and to a clearer assessment of those agreements. A possible per se illegality of the agreements is pointed out but cannot be assumed due to possible positive effects. Instead, an attempt is currently being made to find clear criteria that would make such an agreement anti-competitive. However, apart from the clear restriction on market entry and related aspects, such as the value transfer, its size and if the entry restriction is outside of the patent’s scope, these criteria are not yet comprehensive. These show that the competent authorities and courts are still in the early stages of ensuring that patent law is sufficiently respected and that the other authorities and companies are also able to find or conclude legally effective settlements.
Here, various aspects of the assessment of the patent that would be required for a
comprehensive analysis are then identified. These also illustrate the difficulties, as the courts and competition authorities lack expertise on the assessment of patents. They would actually have to call upon patent authorities for the competence, strength and validity of the patents. However, this interaction is still difficult at present, which means that the courts are often left to their own devices. This can then lead to a competition law bias.
For this reason, the opportunity is taken to mention problematic aspects for the coming appeals before the CJEU and to create ideas for a balance between the fields of law.
1. Introduction
High pharmaceutical prices are a huge part of the costs of the national health systems and the national GDP.1 Generics are in general 40-50% cheaper than original products, which make
them an important good for a functional pharmaceutical market2 and the existence of generics
lead to drastically less sales of commercially successful original drugs.3
The pursuit of approval of a generic product is opposed by patents of the original product, which almost inevitably lead to disputes regarding the validity of the patent. The point in dispute is the time of market entry of the generic drug.4 To counter the economic influence of
generics, the undertakings of the original pharmaceuticals try to extend the economic ‘life‘ of their patented drugs.5 In this context, settlement agreements are often concluded with a capital
transfer from the originator to the generic undertaking. In return the generic company undertakes not to enter the market or only at a later stage.6 The owner of the patent thus
‘buys’ the effectiveness of the patent and the sole position on the market. These ‘pay for delay agreements’ also bear the term reverse payment settlements.7 Those agreements can be
problematic concerning their compatibility with the EU competition law.
With the Paroxetine case the first Court of the European Union (CJEU) judgement on pay for delay agreements was passed. With regard to the competition law perspective of the decision-making bodies, the question arises whether the objectives of patent law are complied with the same extent as those of competition law. Therefore, the research question of this thesis is:
Does the EU’s competition law structure recognize the objectives of intellectual property law regarding pay for delay agreements?
1 ‘Health at a Glance 2019 : OECD Indicators | OECD ILibrary’ <../els-2019-5387-en/index.html> accessed 18
April 2020.
2 ‘Competition: Report on Enforcement in Pharmacetical Sector’ (European Commission - European
Commission) <https://ec.europa.eu/commission/presscorner/detail/en/IP_19_741> accessed 18 April 2020;
Pawan Dutt and Tanel Kerikmäe, ‘Reverse Payment Patent Settlements in the Pharmaceutical Sector and Competition Law – Do Lundbeck and Actavis Help to Bridge the Views Across the Atlantic Regarding the Delayed Market Entry of Cheaper, Generic Medicines?’
<https://www.researchgate.net/publication/322707385_Reverse_Payment_Patent_Settlements_in_the_Pharmace
utical_Sector_and_Competition_Law_-_Do_Lundbeck_and_Actavis_Help_to_Bridge_the_Views_Across_the_Atlantic_Regarding_the_Delayed_Mark et_Entry_of_Cheaper> accessed 18 April 2020.
3 Peter Picht, ‘Reverse payment settlements – US-Rechtslage und die Antwort des europäischen Kartellrechts’
(2014) 12 Zeitschrift für Wettbewerbsrecht 83.
4 Juliane Langguth, Pay-for-Delay-Vereinbarungen im transatlantischen Vergleich: Die kartellrechtliche
Beurteilung von Patent-Vergleichsvereinbarungen in der Pharmabranche anhand von Art. 101 AEUV und Sec. 1 Sherman Act (Nomos Verlag 2018).
5 ‘Competition: Report on Enforcement in Pharmacetical Sector’ (n 2). 6 Picht (n 3).
1.1 Legal puzzle: The competition conundrum of EU IP Law for
pay for delay agreements
Since 2009 the European Commission focuses more on the pharmaceutical industry and published its pharmaceutical sector inquiry. The reasons were concerns about non-affordable medicines and the slowing of innovation because of business strategies by pharmaceutical undertakings as well as the creation of barriers to entry and competition.8 Other problematic
aspects relate to the questions, if the patent is extended by its geographical or time wise limits, if the content is extended or the originator gives misleading information about the extent of the patent.9
The attention also came to settlement agreements like pay for agreements in this sector as those may affect the price competition and can be the subject of competition law
investigation. 10
The problem for pharmaceutical companies, as well as national competition authorities and courts is the missing clear competition law framework for patent settlement agreements.11
Added to this is the competition law perspective from of the authorities and the not
all-encompassing knowledge about the patents in concern. Therefore, the problem arises to try to declare certain guidelines for national authorities and courts for examine those new kinds of pay for delay agreements, while acknowledging the patent law as an equal partner in the quest for innovative competition in the pharmaceutical industry and uphold its values and goals. How this recognition succeeds, and at which points in the competition law assessment this is problematic is highlighted in this thesis.
8 ‘REPORT on EU Options for Improving Access to Medicines’
<https://www.europarl.europa.eu/doceo/document/A-8-2017-0040_EN.html> accessed 19 April 2020.
9 ‘Antitrust: Shortcomings in Pharmaceutical Sector Require Further Action’ Text
<https://ec.europa.eu/commission/presscorner/detail/en/IP_09_1098> accessed 2 June 2020; ‘8th Report on the Monitoring of Patent Settlements (Period: January-December 2016)’
<https://webcache.googleusercontent.com/search?q=cache:cWM-ciRcRtAJ:https://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent_settlements_report8_en.pdf+ &cd=2&hl=de&ct=clnk&gl=nl&client=firefox-b-d> accessed 19 April 2020.
10 ibid.
11 Michael Clancy, Damien Geradin and Andrew Lazerow, ‘Reverse-Payment Patent Settlements in the
Pharmaceutical Industry: An Analysis of US Antitrust Law and EU Competition Law’ (2014) 59 The Antitrust Bulletin 153.
1.2 Structure and Methodology
This thesis mainly adopts the legal dogmatic method for analyzing the related case law of the EU regards to pay for delay agreements and decisions of the Commission, as well as examine the legal framework of the competition law concerning the pharmaceutical industry from the external perspective. There while, the comparative method is used to examine the current system of competition law and related case law regards to the attention that is given to the values of patent law and comparing this with the general objectives of IP law. After the conclusion a future prescription is made regarding the appeals to guarantee a sufficient recognition of the objectives of patent law.
The following thesis begins with a topic-specific introduction to the area of tension and description of basic terms and the legal framework (Chapter 1). Subsequently pay for delay agreements are defined and EU Competition Law relevant examples from case law are described (Chapter 2). To then come to the question of balance between the EU Competition law and IP Law (Chapter 3). This leads to the aspects of recognition of goals of the patent law in the competition law structure (Chapter 4). From the results obtained there, a conclusion will be drawn (Chapter 5), and the judgements of the upcoming appeals will be predicted on the basis of a sufficient recognition of the IP law (Chapter 6).
1.3 Fundamental concepts of the tense area
The EU competition law criticism of pay for delay agreements is representative for the development and intensification of competition law control of IP rights in Europe.12 The
control increasingly extends to their acquisition13 and ownership14.
Today it is recognized that the competition and IP law complement each other rather than being in conflict. They should lead to an integrative and innovation-friendly competitive environment.15 As in principle, IP law and EU competition law have the same two main
12 Maximilian Haedicke, ‘Pay-for-Delay-Vergleichsvereinbarungen Im Spannungsfeld Zwischen Patent- Und
Kartellrecht’ (2011) No. 3 Zeitschrift für geistiges Eigentum.
13 Case T-51/89 Tetra Pak v European Commission [1990] ECLI:EU:T:1990:41. 14 AstraZeneca (n 7).
15 Ward S Bowman, Patent and Antitrust Law; a Legal and Economic Appraisal (University of Chicago Press
goals: The increase of consumer welfare, the promotion of innovation16 and enhance
competition17.
Competition is ensured by innovation and IP rights enable this in a dynamic and effective way. Both fields have to be defined in a consistent way. Otherwise IP rights intervene with an effective competition or IP rights may not resolve market failures.18
Any settlement agreement on patents can therefore constitute an infringement of EU competition law. It intervenes in the free market if there is a restriction of competition by patents that cannot be explained by prioritized patent law assessments. In those cases, patents are used in a manner that is contrary to their function and essential scope.19
But first some basic terms will be described.
1.3.1 Generics
The pay for delay agreements rely on litigation between undertakings that produce originals und companies that produce generics. Generics are products which have the same
composition of active substances as the original medicine. If patents exist, they are securing treatment or dosage of drugs, generics cannot deviate much from the originator, if it should be approved as ‘reference medicine’. They have to be bio equivalent.20 In contrast to generic
manufacturers, there are the so-called original manufacturers, that mainly specialize in the research and development of new drugs and whose products form the basis for later generic drugs.21 Those are the ones, that get patented.
16 Nikolaos E Zevgolis, ‘The Interaction Between Intellectual Property Law and Competition Law in the EU:
Necessity of Convergent Interpretation with the Principles Established by the Relevant Case Law’ in Ashish Bharadwaj, Vishwas H Devaiah and Indranath Gupta (eds), Multi-dimensional Approaches Towards New
Technology: Insights on Innovation, Patents and Competition (Springer 2018)
<https://doi.org/10.1007/978-981-13-1232-8_2> accessed 23 April 2020.
17 COMMUNICATION FROM THE COMMISSION Guidelines on the application of Article 101 of the Treaty
on the Functioning of the European Union to technology transfer agreements 2014/C 89/03, para. 269.
18 Shubha Ghosh, ‘Intellectual Property Rights: The View from Competition Policy’. 19 Haedicke (n 12).
20 Berna Colak, ‘Generic Competition and Price Regulation in the European Union Pharmaceutical Market: The
Case of Cardiovascular Medicines’ [2014] Graduate Theses and Dissertations <https://scholarcommons.usf.edu/etd/5000>.
1.3.2 Exclusivity Mechanisms
In order to give incentives to companies to invest in Research and Development (R&D) and invent new original products several temporary exclusivity mechanisms are designed.22
Otherwise the high costs and the length of research to bring a new product on the market and the fact, that once a pharmaceutical product is developed, it is relatively easy to copy, would make the innovation of new drugs not profitable.23
Those exclusivity mechanisms are in their very nature monopolistic, which means that they have a general controversial impact than the competition law.24 One of the mechanisms are
patents. The patent holder gets an exclusive right to commercially exploit the product.25
Therefore, the applicant can address national patent authorities or the European Patent Office (EPO) that works on the basis of the European Patent Convention (EPC) which is an
intergovernmental instrument.26
The EPC requires that a patentable invention is novel (Art. 54 EPC), inventive (Art. 56 EPC) and sufficiently disclosed (Art. 83 EPC).27 The patent can exist up to 20 years according to
Art. 63(1) EPC from the date of filing the application.28 Long clinical testing phases,
registration and delays on market access lead to an effective protection of the drug from eight to ten years.29 Afterwards the primary patent can be extended by either up to five years for
22 OECD,'Licensing of IP Rights and Competition Law – Note by the EU’
<https://webcache.googleusercontent.com/search?q=cache:K-_uAeEAl0EJ:https://one.oecd.org/document/DAF/COMP/WD(2019)52/en/pdf+&cd=3&hl=de&ct=clnk&gl=de &client=firefox-b-d> accessed 24 April 2020.
23 Ellen ’t Hoen, ‘EU Review of Pharmaceutical Incentives: Recommendations for Change | Medicines Law &
Policy’ <https://medicineslawandpolicy.org/2019/06/eu-review-of-pharmaceutical-incentives-recommendations-for-change/> accessed 19 April 2020; ‘Competition: Report on Enforcement in Pharmacetical Sector’ (n 2).
24 Dutt and Kerikmäe (n 2).
25 Ernst Mestmäcker and Heike Schweitzer, Europäisches Wettbewerbsrecht (2014) para. 30 (33). 26 ‘Das Gemeinschaftspatent: Häufig gestellte Fragen’ (European Commission - European Commission)
<https://ec.europa.eu/commission/presscorner/detail/de/MEMO_00_41> accessed 12 July 2020.
27 European Patent Office, ‘The European Patent Convention’
<https://www.epo.org/law-practice/legal-texts/html/epc/2016/e/ma1.html> accessed 25 April 2020.
28 ‘Competition: Report on Enforcement in Pharmacetical Sector’ (n 2).
29 ‘Patenting Strategies of the EU Pharmaceutical Industry Crossroad between Patent Law and Competition
Policy’
<https://webcache.googleusercontent.com/search?q=cache:xDoq2swWJ3MJ:https://www.coleurope.eu/system/fi
les_force/research-paper/researchpaper_1_2011_tuominen.pdf%3Fdownload%3D1+&cd=6&hl=de&ct=clnk&gl=de&client=firefo x-b-d> accessed 23 April 2020.
medicinal products30 and even up to five and a half years for products used in the pediatric31
or 15 years from moment of the first marketing authorization in the European Economic Area32. This is called supplementary protection certificate.33 Art. 43(2) EPC provides different
patent claim categories including to a product, a process, an apparatus or a use. After the patent expires generic drugs can enter the market without risk, because the patent holder lost its monopoly over the specific drug production and distribution.34 Therefore, big
pharmaceutical companies often try various strategies to extent their patents, such as pay for delay agreements.35
1.4 The EU patent with unitary effect?
The aim of the EPC is to grant its holder the right to prevent third parties from commercially exploiting the invention, if the holder did not authorize them.36 Furthermore, the EU tries to
harmonize the legal field of patent law in a single European process.37
1.4.1 The current system in the EU
The EPC wants to reduce the costs regarding the patent applications in the contracting states and make the application easier, because the patent is not only valid nationally.38 Under the
EPC the applicant can seek a wider territorial protection.
As this is an optional agreement the European member states could decide themselves, if they want to join it. The EU did not have any competence when the agreement was concluded in 1975.39 Which also meant that at first only the application of the patents was harmonized, but
30 Regulation (EC) No 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the
supplementary protection certificate for medicinal products (Codified version) (Text with EEA relevance ) 2009 (OJ L).
31 ‘REGULATION (EC) No 1901/2006 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12
December 2006 on Medicinal Products for Paediatric Use and Amending Regulation (EEC) No 1768/92, Directive 2001/20/EC, Directive 2001/83/EC and Regulation (EC) No 726/2004’.
32 ‘Pharmaceutical IP and Competition Law in the EU: Overview’ (Practical Law)
<http://uk.practicallaw.thomsonreuters.com/9-617-0567?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1> accessed 25 April 2020.
33 ‘Competition: Report on Enforcement in Pharmacetical Sector’ (n 2). 34 Colak (n 20).
35 Dutt and Kerikmäe (n 2).
36 European Patent Office, ‘European Patent Guide: How to Get a European Patent’
<https://www.epo.org/applying/european/Guide-for-applicants/html/e/ga_c2_2.html> accessed 7 July 2020.
37 ibid.
38 ‘Das EU-Patent Und Das Einheitliche Patentgericht – Meilensteine in Der Entwicklung Des Europäischen
Rechts Des Geistigen Eige’ <https://webcache.googleusercontent.com/search?q=cache:X-B-
PyxgzWsJ:https://www.jura.uni-bonn.de/fileadmin/Fachbereich_Rechtswissenschaft/Einrichtungen/Sonstige/Zentrum_fuer_Europaeisches_Wirts chaftsrecht/Schriftenreihe/Heft_211_Tilmann_innen.pdf+&cd=2&hl=de&ct=clnk&gl=nl&client=firefox-b-d> accessed 7 July 2020.
not the legal consequences since the national courts were still the ones deciding patent
litigations.40 The European patent remains therefore more as a bundle of national patents, then
a truly European patent. The EU itself is also no member of the agreement.41
In case of dispute, therefore, national courts will continue to decide on the patents. They treat European patents as their own national patents. So, the plaintiff may have to bring
proceedings in several contracting states. Since the national courts can only make judgments that are valid for their own country.42
Due to the large amount of time, work and costs involved, the idea of creating a common court was born. Since otherwise there is also the danger that the same patent will be treated differently in different member states. 43
The Commission wants to create such a court within the framework of the CJEU, but this would mean an extension of competence and would therefore require a Treaty amendment. This still needs to be negotiated.44
Currently, the problem is that in many countries that are part of the EPC, the courts do not decide on the possible invalidity of patents, but administrative authorities or patent offices. However, these are not entitled to refer the matter to the CJEU. Furthermore, such a referral is rarely considered, as patent law is for the mostly not part of the European legal system.45
1.4.2 The upcoming system?
In 2011 there was an action that should lead to a Unified Patent Court (UPC) and further ideas and efforts from the EU to define, for example, the functioning of the Court.46
40 ibid.
41 Great Britain: Parliament: House of Commons: European Scrutiny Committee, Enhanced Cooperation for the
EU Patent: The Committee’s Evidence Session with Baroness Wilcox, Thirty-Second Report of Session 2010-12, Report, Together with Formal Minutes, Oral and Written Evidence (The Stationery Office 2011).
42 ibid.
43 ‘Das Gemeinschaftspatent: Häufig gestellte Fragen’ (n 26). 44 ibid.
45 Howald Samuel, Der Ausbau der europäischen Patentgerichtsbarkeit - Konsequenzen und Möglichkeiten für
die Schweiz (Stämpfli Verlag 2016), p. 130.
46 Kluwer Patent blogger, ‘Minister De Guindos Says Spain Will Not Join Unitary Patent System’ (Kluwer
Patent Blog, 22 March 2017)
<http://patentblog.kluweriplaw.com/2017/03/22/minister-de-guindos-says-spain-will-not-join-unitary-patent-system/> accessed 7 July 2020. Although Italy is willing to accept a unified patent system: Kluwer Patent blogger, ‘Italy Completes Legal Preparations for Unitary Patent System’ (Kluwer Patent
Blog, 20 March 2019)
Beside it there were two regulations on a UPC, a unitary patent and a language regime
regarding the patent that should enter into force leading to an enhanced cooperation in 2013.47
The package should create a uniform protection within the member states. While the application of the patent is examined by the EPO, which will decrease the costs of
application.48 In contrast to the classical European patent, any language can be used to apply
for a patent.49 The UPC can also guarantee an uniform interpretation of the patents for the
first time in all participating countries, that will lead to more legal certainty in patent litigation. 50
But as the EPO remains the authority in charge of search, examination and granting patents, the unitary protection under the enhanced cooperation is only an addition to the European patent (or the national one). 51
However, some countries did not sign the paper at first or ratify the regulation like Italy and Spain52, also the ratification by Germany is still missing, which is prevented by the Federal
Constitutional Court in 2020.53 Only if the UPC agreement is going to be ratified by 13 states
of 25 participating member states it will enter into force.54
The struggle between the different countries shows, that although the enhanced cooperation is based on Art. 20 TEU and 326-334 TFEU, the EU has not all the power concerning patent law and the patent law is therefore not as harmonized as the EU competition law.55
At the moment it is uncertain, if and in which countries the EU patent will come into force. Until today the corresponding international agreement has been ratified by 25 countries.56
47 European Commission, ‘Patent Reform Package - Frequently Asked Questions’ (European Commission)
<https://ec.europa.eu/commission/presscorner/detail/en/MEMO_12_970> accessed 13 July 2020.
48 ibid. 49 ibid.
50 Justine Pila and Christopher Wadlow, The Unitary EU Patent System (Bloomsbury Publishing 2015). 51 European Commission, ‘Patent Reform Package - Frequently Asked Questions’ (n 47).
52 Pila and Wadlow (n 50).
53 2 Senat Bundesverfassungsgericht, ‘Bundesverfassungsgericht - Entscheidungen - Gesetz zum Abkommen
über ein Einheitliches Patentgericht nichtig’ (13 February 2020)
<https://www.bundesverfassungsgericht.de/SharedDocs/Entscheidungen/DE/2020/02/rs20200213_2bvr073917.h tml> accessed 12 July 2020; JUVE- www.juve.de, ‘Patentwelt in Schockstarre: Unbekannter Kläger bremst UPC-Ratifizierung « JUVE’ <https://www.juve.de/nachrichten/verfahren/2017/06/patentwelt-in-schockstarre-unbekannter-klaeger-bremst-upc-ratifizierung> accessed 7 July 2020.
54 Pila and Wadlow (n 50). 55 ibid.
56 European Patent Office, ‘Mitgliedstaaten der Europäischen Patentorganisation’
1.5 Basic legal framework concerning pay for delay agreements
in the EU competition law structure
The interaction between IP law and EU competition law is summarized in the preamble of the Technology Transfer Guidelines (TTBER).57 It is stated that IP rights such as patents are not
immune in respect of EU competition law, but both legal fields should work together as they share their main values.58 However, with respect to Art. 17(2) of the Charter of Fundamental
Rights intellectual property needs to be fully respected and protected on a high, equivalent and homogenous level.59
The general framework of EU competition law in this respect is based on Art. 101 and 102 TFEU60, which allows to take efficiencies brought by IP rights into account.61 Apart from
this, the TTBER establishes the possibility to benefit from Art. 101(3) TFEU, if two parties agree on a technology transfer. Thus, in most cases of pay for delay agreements no
technology transfer takes place.62
However, some of the TTBER rules may also be invoked in the event that no technology transfer took place. One of those cases concerns pay for delay agreements, in which a value transfer from the originator leads to limited possibilities to use the product for the generic companies. Those cases have to be assed under Art. 4(1)(c) and Art. 4(1)(d) TTBER. The important factors are especially if a market allocation takes place or if the generic company gets restricted in using its own technology. The second case concerns the cross licensing, which grants mutual permission to use patents of the respective other party.63 Important
factors in the examination of those agreements are the market power of the undertakings concerned and non-challenge clauses which normally do not fall under Art. 101(1) TFEU as they are inherent to avoid future disputes.64 However, they may restrict competition if the
non-challenge clause extents the scope or subject matter of an IP right.65 Those are often part
of the pay for delay cases that will be examined later.
57 COMMISSION REGULATION (EU) No 316/2014 of 21 March 2014 on the application of Article 101(3) of
the Treaty on the Functioning of the European Union to categories of technology transfer agreements (n 17).
58 ibid.
59 Corrigendum to Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the
enforcement of intellectual property rights (OJ L 157, 30.4.2004) 2004 [32004L0048R(01)].
60 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between
undertakings (the EC Merger Regulation).
61 OECD (n 22).
62 One example is: Case T‑472/13 H. Lundbeck A/S and Lundbeck Ltd v European Commission [2016]
ECLI:EU:T:2016:449 para. 1144.
63 ‘Cross License Agreement Sample Clauses’ <https://www.lawinsider.com/clause/cross-license-agreement>
accessed 15 June 2020.
64 TTBER, rec. 15 (n 17). 65 ibid.
Additionally, the Vertical Block Exemption Regulation (VBER)66 should be noted. After
which agreements can be justified that were concluded by undertakings at different stages of the value chain and thus mainly comprising distribution and supply contracts.67 Though most
of the pay for delay agreements do not fall within the scope of VBER as both parties are manufacturers of the goods and have a horizontal relationship.68 The same applies to the R&D
Agreement Regulation69 as most of the pay for delay agreements do not contain any
provisions in the field.
As can be seen in the above explanations the special features of the pharmaceutical agreements and even pay for delay agreements are already partly taken into account.
However, even if the TTBER is applicable, there are still decisions with a broad discretional scope, where the question arises whether IP law is given enough attention to ensure its objectives in the framework of EU competition law.
2. Pay for delay Agreements: Case law
In the following this section is going to define the characteristics of pay for delay agreements, as well as introduce the relevant case law.
2.1 Pay for delay Agreements
Pay for delay agreements are payments from the patentee to the potential infringing company in order to delay or hinder the entrance of the generic drug into the relevant market.70
At first glance this settlement, in which the patent holder, that sues the generic company for infringing its patent, transfers a value to the same, seems contradictory. At least if the patentee believes in the validity of the asserted patent claims. This is why those payments are called reverse payments. In contrast to normal patent cases, where the patent holder is suing the alleged infringer, that is already on the market, for damages, here the alleged infringer has not
66 COMMISSION REGULATION (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of
the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices.
67 ibid. Rec. 3. 68 ibid. Art. 2(4).
69 COMMISSION REGULATION (EU) No 1217/2010 of 14 December 2010 on the application of Article
101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements.
70 ‘TALLINN UNIVERSITY OF TECHNOLOGY Development of Competition Law in the Pharmaceutical
Sector in Europe: The Lundbeck Judgment In’
<https://webcache.googleusercontent.com/search?q=cache:ZIDttMny3gAJ:https://digikogu.taltech.ee/et/Downlo ad/259659a2-6db6-4af2-bc64-48e63526eda0+&cd=5&hl=de&ct=clnk&gl=de&client=firefox-b-d> accessed 25 April 2020.
yet entered the market and gets sued for an injunctive relief.71 The reason for the originator to
pay the generic company in spite to this is the economic cycle of drugs. The most lucrative phase in the life cycle of a patent-protected drug are the last years of patent protection. The product is established on the market and sales are high. When patent protection expires and generic manufacturers enter the market, prices are drastically eroded by competition. In order to avoid the threat of price decline, it may be worthwhile for patent holders to pay a generic manufacturer to delay the launch of its product and to settle a pending patent infringement case by such a reverse payment settlement. 72
This seems to be a win-win situation for those involved. However, the method is
disadvantageous for the purchasers of the drugs, who continue to pay the high prices of a patent-protected drug. Therefore, the potentially restrictive effect on competition of such agreements is obvious.73
In the following some examples of recent Court cases concerning pay for delay agreements will be shown.
2.2 Lundbeck Case
The case was about Lundbeck’s anti-depressant Citalopram, which was Lundbeck’s best-selling medicine. After expiry of the original active ingredient patent (substance patent), but still during the term of two process patents for the production of active ingredients, competing generic manufacturers prepared their market entry and, in some cases, already placed their products on the market. Based on its process patents, Lundbeck attempted to prevent the market entry of generic drug manufacturers. In the course of the litigation, Lundbeck entered into settlement agreements with the generic drug manufacturers. These agreements contained payment obligations for Lundbeck or other incentives for the generics manufacturers in return for a delay in the market entry in several countries or the whole EU of the generic drug manufacturers as well as, among other things, an obligation for Lundbeck to purchase quotas of the active substance already manufactured by the defendants. The Commission examined
71 Bret Dickey, Jonathan Orszag and Laura Tyson, ‘An Economic Assessment of Patent Settlements in the
Pharmaceutical Industry’ (2010) 19 Annals of Health Law 367.
72 Bolko Ehlgen, ‘Einigung Mit Gewissen Vorzügen’ (2017) No.1 Intellectual Property
<http://webcache.googleusercontent.com/search?q=cache:oWA8FO1gqWsJ:www.intellectualproperty-
magazin.de/wp-content/uploads/sites/18/2017/03/3_Ehlgen_IP_1_17.pdf+&cd=2&hl=de&ct=clnk&gl=nl&client=firefox-b-d> accessed 19 April 2020.
that six agreements with four undertakings were prohibited by competition law regards to Art. 101 TFEU.74
2.3 Johnson&Johnson Case
The next case is about a company named Johnson&Johnson that distributed its patented drug Fentanyl. In 2005 the patent expired in the Netherlands, while Sandoz was ready to enter the market with its generic. But instead of entering the market, Sandoz and Johnson&Johnson concluded a ‘joint sales promotion agreement’. In this agreement, Johnson&Johnson committed to monthly payments that were higher than the calculated potential profits of the generic drug. In return, Novartis delayed its planned entry in the Netherlands and promised to co-market a new Johnson&Johnson Fentanyl patch. No actual measures were taken to
improve joint promotion.75
At first sight the case of Johnson&Johnson looks similar to the cases of Lundbeck. However, the patent of Johnson&Johnson has unlike the others clearly expired. This agreement is not in the tension between cartel and patent law, so that this agreement is in contrast to Lundbeck a much clearer case of a restriction of competition.76 Since the patent has expired this case
cannot be described as a ‘pay for delay‘case. The payment did not take place because of a patent settlement as in Lundbeck.77 This shows the importance of patents and its validity in
this context.
2.4 Servier Case
The Servier judgement is the second one by the GC regards to pay for delay agreements in the pharmaceutical sector. Servier had a best-selling product named Perindopril, which should regulate blood pressure. Servier received a first patent for the drug and seven years later four additional patents concerning manufacturing processes.78 After the expiration of the main patent in 2003 Servier wanted to compensate for this lower protection. Servier and the generic undertakings agreed on pay for delay agreements as well as agreement on patent settlements, in which Servier acquired the patented technology of the other undertakings. All agreements
74 Lundbeck, paras 1-31 (n 62); European Commission, ‘Press Release: “Antitrust: Commission Fines Lundbeck
and Other Pharma Companies for Delaying Market Entry of Generic Medicines”’ (2013) <https://ec.europa.eu/commission/presscorner/detail/en/IP_13_563> accessed 19 April 2020.
75 European Commission, ‘Press Release: “Antitrust: Commission Fines Johnson & Johnson and Novartis € 16
Million for Delaying Market Entry of Generic Pain-Killer Fentanyl”’
<https://ec.europa.eu/commission/presscorner/detail/en/IP_13_1233> accessed 19 April 2020.
76 Jacob Westin, Melissa Healy and Bill Bachelor, ‘Competition and Patent Law in the Pharmaceutical Sector’
(2014) 35 European Competition Law Review.
77 David W Hull and Michael J Clancy, ‘The Application of EU Competition Law in the Pharmaceutical Sector’
(2016) 7 Journal of European Competition Law & Practice 150.
contained a non-compete clause and a non-challenge clause regarding the patents of Servier. The Commission found that Servier infringed not only Art. 101 TFEU, but also Art. 102 TFEU.79
2.5 Cephalon Case
Cephalon’s drug Modafinil was a best-selling medicine to treat sleeping disorders. Cephalon had several patents for the product itself and the manufacture of it. After the expiration of some of the patents, Teva entered the market with a generic of Modafinil. In a lawsuit about the possible infringement of the remaining process patent of Cephalon, the two parties settled the dispute. Due to this agreement Teva received a value transfer from Cephalon and in return stopped selling its generic. The European Commission said in its Statement of Objection, that this agreement infringes Art. 101 TFEU. The Commission has not yet made a decision.80
2.6 Paroxetine Case
In 2001 GlaxoSmithKline (GSK) issued decisions of the competition authority in the United Kingdom.81 The decisions concerned settlements between GSK and generic producers, which
wanted to enter the market of Seroxat. Seroxat is an anti-depressant and GSK’s bestseller. Its active substance is Paroxetine for which GSK held the patent. The parties agreed on a value transfer in return for delaying the entrance on the market. The restriction of competition by object and by effect was determined (Art. 101 TFEU), as well as the abuse of the dominant position (Art. 102 TFEU).82
The CJEU concentrated on the overall context regards to Art. 101 TFEU and also commented on the possible abuse of a dominant position, Art. 102 TFEU. An abuse of a dominant
position is possible even when some of the agreements are in line with Art. 101 TFEU.83
2.7 Conclusion
The Lundbeck case is the classic example for pay for delay agreements which, in the given condition, are hardly compatible with the competition law. This case has only dealt with Art. 101 TFEU so far. The Servier case was the first case that considered also an infringement of
79 Ibid.
80 ‘Commission Sends Statement of Objections to Teva on Pay-for-Delay Agreement.’
<https://ec.europa.eu/commission/presscorner/detail/en/IP_17_2063> accessed 19 April 2020.
81 ‘1251/1/12/16 Generics UK Limited v Competition and Markets Authority | Competition Appeal Tribunal’
<https://www.catribunal.org.uk/cases/125111216-generics-uk-limited> accessed 19 April 2020.
82 Case CE-9531/11 Paroxetine [2016]. Paroxetine Investigation: Anti-Competitive Agreements and Conduct
(GOV.UK) <https://www.gov.uk/cma-cases/investigation-into-agreements-in-the-pharmaceutical-sector> accessed 19 April 2020. The IVAX/GSK agreement was not prohibited by Art. 101 TFEU in accordance with the Competition Act 1998 (Land and Vertical Agreements Exclusion).
Art. 102 TFEU. This was confirmed by the CJEU in the Paroxetine case. So, in order to fully assess the courts must examine on the one hand not only Art. 101 TFEU, but also Art. 102 TFEU. An abuse of a dominant position seems possible even when some of the concluded agreements are in line with Art. 101 TFEU.84 This is also determined by the overall
relationship between competition and patent law, as both legal fields generally want to embrace competition on the market, is reflected in a full scope examination, as those agreements generally do not restrict competition by object, Art. 101 TFEU. 85
Apart from this the Lundbeck, Servier and Cephalon case showed that a process patent is enough to fall under the category of pay for delay agreement, if the originator company settles the dispute with a generic undertaking. Therefore, it needs be assed under competition law. Here the importance of the protection of patent law can be recognized as the case law does not differ between the different kinds of patents.
The effects of the agreements should be analyzed in the overall actual context.86 As some of
those agreements, like the Servier case, included non-challenge clauses, which are, as stated in the TTBER, generally compatible with the competition law, but they cannot extent the scope of the patent. The problem to define the scope of the patent is a big aspect in the question of the sufficient recognition of the patent law within the competition law analysis.87
This aspect will be discussed in detail later.
Due to the Johnson&Johnson case the importance of the existing patent came more into focus, which contained an agreement similar to pay for delay agreements, but could not be considered as one, because the underlining patent had expired before the parties concluded the agreement. But pay for delay agreement are only considered as such, when the agreement is concluded in a patent dispute settlement.88 This example also shows the great importance of
the precise definition of a patent in a factual and temporal way.
84 ibid. Paras 172.
85 ‘Case CE-9531/11 Paroxetine [2016]. Paroxetine Investigation: Anti-Competitive Agreements and Conduct’
(n 82). The IVAX/GSK agreement was not prohibited by Art. 101 TFEU in accordance with the Competition Act 1998 (Land and Vertical Agreements Exclusion).
86 Generics (UK) (Paroxetine), paras 84, 85, 113-120 (n 83). 87 Perindopril (Servier) (Case AT.39612) (n 78).
3. Difficulties in finding a balance between the legal fields
In order to be able to assess pay for delay agreements under competition law, it is first necessary to ask the upstream question of how patent law and competition law relate to each other.89
The authorities have to strike the right balance between the needs of rightsholders and those of third parties such as consumers and generic producers and between the quality of the patents granted and the negative impact of the monopolistic position on the market.90
3.1 Relationship in the legal fields of EU Competition Law and
IP Law
The relatively short term of exclusivity due to the patent protection might not be enough in the view of the originator undertaking to compensate it for the expenses of R&D.91 However,
regardless of the length of patent protection, the IP law does not provide a right for on the one hand not challenging the patent and on the other hand paying the competitor for not entering the market.92 The owner of a patent only is protected against exploitation or unauthorized use
by IP law.93 But this does not mean that patents are immune to EU competition law
intervention.94
Therefore, particularly problematic is the assessment of actions which may constitute an infringement under EU competition law and at the same time be covered by IP law.95 For
example, in the AstraZeneca judgment, the GC held that competition is applicable law as soon as it falls within the scope of it, irrespective of whether it is also subject to other legal
provisions96 such as IP law. Thereby the exercise of the patent can be examined under EU
competition law, whereby the meaning and purpose of patent law must be observed.97 But
89 Ernst Mestmäcker and Heike Schweitzer, Europäisches Wettbewerbsrecht (2014) para. 30 (33); Langguth p.
93, 94 (n 4).
90 European Patent Office, ‘Europäische und internationale Zusammenarbeit’
<https://www.epo.org/about-us/services-and-activities/international-european-cooperation_de.html> accessed 9 July 2020.
91 ‘Patenting Strategies of the EU Pharmaceutical Industry Crossroad between Patent Law and Competition
Policy’ (n 29).
92 Einer Elhauge and Alex Krueger, ‘Solving the Patent Settlement Puzzle’ (2012) 91 Texas Law Review 283;
Zevgolis (n 16).
93 TTBER para. 5 (n 17). 94 Zevgolis (n 16).
95 Zech, „Defensive Patentstrategien“ und technischer Fortschritt im Wettbewerbsrecht – Einsatz von
Sperrpatenten als Behinderungsmissbrauch?’ (ZWeR online, 8 September 2011) <https://www.zwer- online.de/heft-3-2011/zwer-2011-312-defensive-patentstrategien-und-technischer-fortschritt-im-wettbewerbsrecht-einsatz-von-sperrpatenten/> accessed 28 April 2020.
96 Case T-321/05 Astra Zeneca v European Commission [2010] ECLI:EU:T:2010:266 para. 366.
97 Anja Doepner, Zwangslizenzen unter Berücksichtigung des Pharmabereichs (2010) p. 133; ‘Lundbeck:
while there is a uniform competition law within the EU, patent law only unified as can be seen in Art. 345 TFEU that declares IP law as national law and in Art. 2(2) EPC. It therefore seemed that the enforcement of the patent is limited by the EU competition law, because the patent law is based on national law98.
3.2 To simplify the relationship: Should there be a per se
illegality of pay for delay agreements?
As the key-points for a possible anti-competitive conduct are hard to define and examine in the pay for delay agreements, a per se illegality could simplify the legal situation.99 The
reasons for such a hard restriction on pay for delay agreements are that the incentive for innovation could be omitted for the originator company by those agreements.100 However,
those agreements might eliminate uncertainty regarding litigation outcomes101, and avoid
litigation costs.102 Apart from this, it might be that a long-lasting court case might delay the
entry of generic products on the market, in some cases even longer than an agreement.103 Also
more attention is being paid to these pro-competitive effects in the evaluations of the authorities and courts.104
So, the competition law recognizes the importance and advantage of IP law by recognizing the pro-competitive effects through an efficiency defense.105 Which can be also seen in the
so-called Block Exemption Regulation, as the TTBER, that create save harbors for some kind of agreements.106 One of those can be seen in Servier’s license agreement with Krka.
Blog, 22 November 2016)
<https://europeanlawblog.eu/2016/11/22/lundbeck-remedying-ip-overprotection-through-competition-law-enforcement-in-the-pharma-sector/> accessed 29 May 2020.
98 Pila and Wadlow (n 50).
99 Jorge Padilla and Valerie Meunier, ‘Should Reverse Payment Patent Settlements Be Prohibited Per Se?’
(Social Science Research Network 2015) SSRN Scholarly Paper ID 2604071 <https://papers.ssrn.com/abstract=2604071> accessed 18 March 2020.
100 Josef Drexl, ‘“Pay-for-Delay” and Blocking Patents – Targeting Pharmaceutical Companies Under European
Competition Law’ [2009] International Review of Intellectual Property and Competition Law 751.
101 Alden Abbott and Suzanne Michel, ‘Exclusion Payments in Patent Settlements: A Legal and Economic
Perspective’ (2006) 1 Journal of Intellectual Property Law & Practice; Thomas Vinje, ‘European Union - The Intellectual Property and Antitrust Review’ <https://thelawreviews.co.uk/edition/the-intellectual-property-and-antitrust-review-edition-4/1196563/european-union> accessed 18 May 2020.
102 Dickey, Orszag and Tyson (n 71); Keith M Drake, Martha A Starr and Thomas G McGuire, ‘Do “Reverse
Payment” Settlements Constitute an Anticompetitive Pay-for-Delay?’ (2015) 22 International Journal of the Economics of Business 173.
103 Matthews and Zech (n 80).
104 Floris ten Have, ‘Pay-for-delay: brightened lines between object and effect restriction’ (Stibbe)
<https://www.stibbe.com/en/news/2020/february/pay-for-delay-brightened-lines-between-object-and-effect-restrictions> accessed 28 February 2020.
105 OECD (n 22). 106 ibid.
as both legal fields generally want to embrace competition on the market, this similarity would also be undermined by a general restriction by object of pay for delay agreements.107
3.3 Are there clear-cut criteria to assess pay for delay agreements
in a balanced way?
In order to determine a balance between the EU competition law and patent law, one needs to determine both sides of the coin. Therefore, some institutions try to find guiding criteria to be able to determine the anti-competitive nature of agreements more easily and recognize the patent law in a sufficient way. This is especially relevant for the restriction by object assessment regarding Art. 101 TFEU.
Those criteria are the potential competition, generic entry restriction and the significant value transfer. As well as the compounding criteria of a value transfer, which is as big as the
approximated generic profit, no early entry date for the generic and an restriction of the generic, which is not within the scope of the patent.108 In the following the named criteria will
be discussed and their reliability evaluated with a view on the perception of patent law.
3.3.1 Potential competition
If the generic producer is already active on the relevant market, the two parties are actual competitors. Otherwise it needs to be examined if the generic manufacturer is a potential competitor. In this case the possibility to enter the market that the originator is active on needs to be realistic and concrete.109
From the view of the Commission the competition process starts when the generic producer begins to develop the substance of the product that should enter the market after the patent expired. The legal and economical context needs to be examined to determine if the generic producer exerts potential competitive pressure on the original manufacturer as stated in Servier.110
107 Zevgolis (n 16).
108 Bill Bachelor and others, ‘Lundbeck Provides More Questions than Answers on Pay-for-Delay Settlements’
(International Law Office, 20 October 2016) <https://www.internationallawoffice.com/Newsletters/Competition- Antitrust/European-Union/Baker-McKenzie-LLP/Lundbeck-provides-more-questions-than-answers-on-pay-for-delay-settlements> accessed 21 March 2020.
109 Cases T-374/94, T-375/94, T-384/94, T-388/94 European Night Services and Others v European Commission
[1998] ECLI:EU:T:1998:198.
In the opinion of the GC in Lundbeck, market entry of a generic product is also possible if there is an active patent of the originator and the generic is not precluded by it. So that the indications for a market entry must be sufficiently concrete.111 It emphasized that the
presumption of effectiveness of a patent should not be equated with the presumption that any generic market entry is unlawful where the patent holder suspects a patent infringement.112
Lundbeck itself admitted that an entrance in the market was possible without infringing any patent in this case. Therefore, the GC held that the market entrance during a patent dispute might be risky for the generic manufacturer but is not unlawful. So, the GC examined that a patent did not hinder the generic producer to be a potential competitor.113
Also, in the Paroxetine case the Commission held that generic producers were potential competitors and the patent of GSK did not hinder that, because they could enter the market anyways. While it examined that the existence of a process patent is no insurmountable barrier to potential competition.114
This criterion is one of the aspects needed in order to determine a possible infringement of Art. 101 TFEU. As its threshold is rather low115, it does not secure the patent holder’s rights unless it can prove that the entry of any generic would infringe the patent. Hereby the
question is, how can the competition authorities and courts value the arguments of the parties? Those aspects of evaluation will be discussed in Chapter 4.
However, a valid patent can hinder a potential competition, but the patent holder needs to prove that effect. The presumption of validity of the patent is therefore not enough. The type of patent also matters here.
3.3.2 Generic entry restriction
A generic entry restriction exists if without the agreement, the drugs would more easily enter the market and cause an increased competition. Which means an agreement can be used as an ‘insurance’ to eliminate the risk of competition is likely to harm competition.116 Here an
111 Lundbeck, paras 113, 120, 124 (n 62). 112 Lundbeck, paras 159, 203, 204 (n 62).
113Lundbeck, paras 113, 121, 124, 128 (n 62); Lundbeck (Case AT.39226) Commission Decision [2013], recs
738, 745, 827, 877, 965, 1016, 1017, 1090.
114 Generics (UK) (Paroxetine), paras 52, 56 (n 83). The importance of the value transfer will be discussed later
on.
115 ‘European Court Of Justice Adopts Strict Standard For Reverse Payment Settlements’
<https://www.mondaq.com/uk/Anti-trustCompetition-Law/890322/European-Court-Of-Justice-Adopts-Strict-Standard-For-Reverse-Payment-Settlements> accessed 3 March 2020.
interaction between both legal fields can be seen, as the initial situation on the market is depend on the patent as well as if the generic producer can enter the market.117
The Lundbeck case summarized the problematic entry restriction, when the restriction of market entry cannot be solely justified on the strength of the patent but may rely on the value transfer118. This underlines the intention of the competition law and patent law to generate an
open competition on the markets.
In the Servier case, each agreement contained a non-compete and a non-challenge obligation of the generic company towards Servier, which lead to limitations on the possibilities to enter the market for the generic companies.119 Servier used a clause in some of its agreements, that
made no early entry at all possible120, while a restriction based on the patent would only
prevent generics that infringe the underling product or process of the patent. Here the bridge is built to the later criterion of scope of the patent.
All cases at hand show, at least in most of their agreements, some limitations for entry restriction.121 That these agreements are so consistent regarding an entry restriction clause,
makes the strict case-law more comprehensible.
Whereas the courts stated that a delay of entry solely is relevant if there is also a transfer of value.122 One example is the settlement between Lundbeck and Neolab. The decisive
difference between the agreement with Neolab and the other patent settlements was that Lundbeck's asset transfer to Neolab was not paid in return for a market delay but that Neolab did not enter the market, until it has been established that its generic does not infringe the market. This was considered compatible with the competition law.123 The difference is that in
case of no value transfer the parties rely on the presumption of the validity of the patent and as such recognize the goal of the patent law and will not exceed the rights that the patent holder has. Therefore, those agreements within the line of the patent law can be more easily considered as compatible with the competition law. The aspect of the value transfer will be further examined in the next section.
117 Case CE-9531/11 Paroxetine [2016]. Paroxetine Investigation: Anti-Competitive Agreements and Conduct (n
82). Paras 6.86, 6.98, 6.150.
118 Lundbeck, para. 352 (n 62).
119 Perindopril (Servier) (Case AT.39612), rec. 1186 (n 78). 120 ibid. Recs 1312, 1560.
121 Lundbeck, paras 63-67 (n 62). 122 Lundbeck, para. 352 (n 62). 123 ibid. Paras 350, 351, 355.
3.3.3 Significant value transfer
Another criterion for an anticompetitive agreement could be a significant value transfer. The criterion should show whether the transfer of value is sufficiently lucrative to hinder the generic company with its product from entering the market concerned.124 The assumption is
that the originator is likely to pay larger sums of money, if there is a greater risk of
competition from the generic undertaking. As the patent holder cannot rely on the patent itself but needs to insure its position with an additional payment. But even with the opposite, if the potentially successful entry on the market is not assured, it might not change the
anti-competitive outcome of the analysis.125
From the economic side of view, there is prove that a value transfer that exceeds patent holder’s litigation costs is always anti-competitive.126 The same seems to apply when the
value transfer was quite similar to the expected profits.127 That lead to the assumptions that
the generic drug manufacturers did not accept the restrictions based on their valuation of the patents but rather on originator’s capital transfer.128
This contradicts not only the aim of EU competition law, but also the intention of IP law. The same principle applies, when the value transfer cannot be explained in another way than the will of the parties not to compete on this market.129 While a settlement without a value
transfer is unlikely to be anti-competitive.130 So that patent settlement agreements should be
categorized into agreement without and with value transfer.131
Furthermore, the Court stated in Paroxetine that a value transfer because of the legitimate reasons could be necessary, appropriate or justified. Such a reason could be a value transfer that equaled the expected litigation costs, or the value of goods or services given transferred by the generic company to the originator.132 On the other hand, where it is apparent that the
124 Have (n 85).
125 Abbott and Michel (n 101); ‘ECJ Rules For The First Time On “Pay-For-Delay” Agreements -
Anti-Trust/Competition Law - European Union’ (n 98).
126 Elhauge and Krueger (n 70). 127 Lundbeck (n 62).
128 ibid. Para. 355.
129 ‘CJEU Clarifies Assessment Under Competition Law Of Pay-For-Delay Deals In The Pharmaceutical Sector’
<https://www.mondaq.com/uk/Anti-trustCompetition-Law/891898/CJEU-Clarifies-Assessment-Under-Competition-Law-Of-Pay-For-Delay-Deals-In-The-Pharmaceutical-Sector> accessed 3 March 2020.
130 Case T-691/14 Servier SAS, Servier Laboratories Limited and Les Laboratoires Servier v European
Commission [2018] ECLI:EU:T:2018:922, para. 604.
131 Stakheyeva (n 101).
value transfer has no other explanation, but the commercial interest of the parties to avoid competition, a competition law breach is most likely.133
In conclusion, one could think the risk asymmetries between the parties can influence the amount of a capital transfer.134 So that the existence and size of the payment are decisive for
the legal assessment under EU competition law.135 Therefore, a significant value transfer can
be a valid indication for the effect on competition of the agreement when the value transfer cannot be based on effects of a valid patent, but one should not lose sight of the context, as reflected in Servier.136
3.3.4 Value transfer equals the expected generic profit
The first compounding criteria is the value transfer that might equal the expected generic profit. This criterium is used to constitute a link between the hypothetical entry on the market of the generic and the payment of the originator.
The respective cases confirmed that in almost all cases the value transfer from the generic drug producers corresponded approximately to the expected profits in case of an independent market entry of the generics.137
The criterion is no necessary one, as patent disputes keep a lot of uncertainty as to the
outcome. Which means that the value transfer might be even smaller than the expected profit of the generic company and still be beneficial for the receiving party, because the parties instantly receive the money without the risks of the market. That makes the criterion relatively vague as the authorities cannot be sure, if the parties agree on the value transfer because of the patent or the transfer itself.
3.3.5 No early entry date for the generic
The criterion relates to the possible restricting effect of IP rights. During the time, where the protection of the patent exists, no generics could have entered the market, that would infringe the patent holder’s rights. An early entry date would be before the date of the patent
133 ibid. Para. 87.
134 Lundbeck, para. 379 (n 62).
135 ibid. Paras 699-714; TTBER, recs 234-243 (n 17). 136 Servier, paras 943-963 (n 94).
137 Lundbeck (Case AT.39226), rec. 788 (n 113); Servier, para. 998 (n 130) besides the agreement with Krka;
expiration. This would generally lead to an increased competition and could even undermine the temporal protective effect of the patent. So, that the additional criterion of no early entry date for the generic exists to investigate or exclude a possible positive effect of such a settlement agreement. 138
The concept of no early entry date for the generic companies is a negative criterion, in order to exclude a possible positive effect of the agreement. Such an effect could not be proved in any case.139 But as even agreements within the lines of IP law can contradict the competition
law, it is not suitable as a tool for the detection of anti-competitive agreements, only to exclude a generally positive aspect of such an agreement.
3.3.6 Restriction outside the patent’s scope
A restriction of the generic, which is not within the scope of the patent might be an indication of an anti-competitive agreement. This is due to the fact that a justification for such
agreements is the exclusivity-effect and scope of the patent.140 The focus of the Commission
is therefore based on the exact scope of the patent.141
The Lundbeck case shows a classical example of agreements outside of the patent’s scope. The commitments of the parties did go beyond a possible outcome in front of the courts.142
Four of six agreements did not only cover Lundbeck’s Citalopram, but also other ones, including future products that could have been manufactured without infringing the patent.143
So the agreement restricted the generic company outside the patent’s scope.
Servier concluded non-challenge clauses in its agreements, so that the generic companies were not able to challenge the validity of the patent.144 Those non-challenge clauses are
compatible with the competition law, if they do not extend the scope of the patent.145
138 Bachelor and others (n 86).
139 Lundbeck (Case AT.39226), recs 246, 693, 1077 (n 113). The GC did not disagree but decided that the
Commission did not provide sufficient evidence (Paras 103, 144). Perindopril (Servier) (Case AT.39612), recs 2765-2772 (n 78). Case CE-9531/11 Paroxetine, para. 10.71 (n 82). Concerning the GUK and GSK-Alpharma agreement.
140 Bachelor and others (n 86).
141 ‘Case C‑457/10 P AstraZeneca AB and AstraZeneca Plc v European Commission [2012]
ECLI:EU:C:2012:770’ (n 7).
142 Lundbeck (Case AT.39226), rec. 693 (n 113). 143 ibid.
144 Perindopril (Servier) (Case AT.39612), recs 1911, 1918 (n 56). 145 TTBER (n 17).
The restriction within the patent’s scope might be more often compatible with the competition law, as they take the patent’s validity as justification for the agreement. This is the case in horizontal geographical market allocations, in which licenses for the sale of the originator drug are given to the generic company, where the parties recognized the existence and validity of the patent, such as in the Krka agreement.146
As the licensing agreement shows the acceptance of the originator’s patent, it confirms the legitimacy of a patent settlement agreement and state a possibility to end a legal dispute.147
That can be also seen in the Commission’s TTBER.148
But the court in the Paroxetine case stated that the restriction of the agreement outside or inside of the patent’s scope has no effect on the examination of competition law, as long as there is uncertainty if the patent is valid.149
So, the restriction of competition in the scope of the patent is not automatically in line with the competition law.150 Therefore, the restriction outside of the patent’s scope is an indication,
that the agreement is not compatible with competition law, not predefined criterion. The conclusion will depend on the restriction and clause itself.
3.4 Conclusion
The criterion of potential competition is a prerequisite for any analysis of competition, but the threshold, which was determined by the authorities is rather low. Which means that this criterion is just a prerequisite but does not necessarily say anything about the competition and patent law perspective. In contrast, the entry restriction is more narrowly defined and
consistently applied by the Courts, also for the assessment of the other factors the bow is often turned to the entry restriction. That makes the entry restriction a clear-cut criterion. The value transfer also often includes an assessment as to whether an entry restriction is present. The same applies for the additional factor, if the value transfer equals the expected profit of the generic company. However, the most problematic aspect of the pay for delay agreements is not the value transfer, but the delayed entry which leads to less competition and cannot exclude the uncertainty regarding the patent’s validity, but only if the market entry is
146 Carl Shapiro, ‘Antitrust Limits to Patent Settlements’ (2003) 34 The RAND Journal of Economics 391. 147 Servier, paras 943-963 (n 94). Agreement between Servier and Krka.
148 TTBER, rec. 234 (n 17).
149 Generics (UK) (Paroxetine), para. 97 (n 83).
