Since the 1970’s, the Danish pharmaceutical manufacturer Lundbeck has developed antidepressants containing the active substance citalopram. When the primary patent expired, Lundbeck was left with limited protection against competition which opened up for other manufacturers entering the market. Lundbeck submitted during the proceedings that the generic manufacturers’ entry on the market was contrary to Lundbeck’s limited protection by way of process patents.
Lundbeck’s legal proceedings were settled, and it therefore remained uncertain whether the generic manufacturers had infringed Lundbeck’s rights. The agreements were in the nature of patent settlement agreements, and they have subsequently been named “Pay-for-Delay” agreements. According to the agreements, Lundbeck paid an amount against the generic manufacturers refraining from entering the market of sale of medicinal products containing citalopram in competition with Lundbeck.
In 2013, the European Commission decided that the agreements between Lundbeck and the four generic manufacturers were contrary to the EU competition rules. Lundbeck was ordered to pay a fine of Euro 93.7 million, while the manufacturers were ordered to pay a total fine of Euro 52.2 million.
The court affirmed the decision of the European Commission in 2016. The involved companies filed an appeal to the European Court of Justice, which has now ruled in the case.
THE COMMISSION'S INVESTIGATION OF THE PHARMACEUTICAL INDUSTRY
The case is one of many based on the Commission’s investigation of the pharmaceutical industry.
The Commission’s investigations showed a large number of patent settlements that limited the generic manufacturers’ market access against payment or other transfer of value from an original manufacturer. The investigation formed the basis of a number of cases from the Commission the purpose of which was to take legal proceedings against the unlawful practice of the pharmaceutical companies.
In another case, the Commission ordered Les Laboratoires Servier and a number of generic manufacturers to pay fines of Euro 427.7 million. As in the Lundbeck case, the involved companies had also concluded patent settlements which prevented them from offering cheaper generic versions of the blood pressure products containing the substance perindopril for sale on the market. In 2013, Johnson & Johnson and Novartis were also ordered to pay fines of approx. Euro 16 million for having concluded "Pay-for-Delay” agreements concerning pain medicine containing the active substance fentanyl.
The above cases show that the companies’ compliance with the competition rules within the pharmaceutical industry is high on the Commission's agenda.
LUNDBECK AND THE GENERIC MANUFACTURERS WERE COMPETITORS
A central question in the Lundbeck case was whether Lundbeck and the generic competitors were competitors.
The European Court of Justice found that companies are potential competitors if a company has a real and specific opportunity to enter a market and be competitive. This means that the generic manufacturers were Lundbeck’s potential competitors if they had decided to enter the market, and if they had an inherent ability to enter the market and compete with Lundbeck.
The generic manufacturers were already developing a strategy for entering the market. The agreements with Lundbeck subsequently discontinued or delayed the generic manufacturers’ plans to enter the market. The generic manufacturers also had the ability to manufacture a product which could be offered for sale in competition with Lundbeck as they possessed the relevant knowledge and technology. Only few of the manufacturers and developers of active substances for medicinal products possessed this ability.
PAY-FOR-DELAY: WHEN IS A PATENT SETTLEMENT UNLAWFUL?
The European Court of Justice found that a patent settlement restricts competition when it has been concluded for the purpose of safeguarding the parties’ joint commercial interests in not competing with each others’ products.
The European Court of Justice assessed that is was clear that the patent settlements had been concluded for the purpose of postponing the generic manufacturers’ entry on the market of pharmaceutical products containing citalopram.
PATENT SETTLEMENT IS NOT EXEMPT FROM THE COMPETITION RULES
The case shows that a patent settlement is not exempt from the competition rules - a judgment determining a patent infringement is required. Patent settlements and agreements with licensees often contain a competition restriction if the agreement is concluded between competitors and concern a restriction of the licensee’s launch of a competing product and a payment for this restriction paid by the licensor.
The Commission has subsequently introduced a new exemption and a number of guidelines concerning application of the competition rules in relation to IP licence agreements. The guidelines lay down when agreements concerning technology rights are exempted from the competition rules. For instance, the exemption does not apply to no-challenge clauses giving the licensor the right to terminate a licence agreement if the licensee challenges the patent’s validity.