The antitrust report: a legal perspective

Jul 28, 2009
By Pharmaceutical Executive

There are three key points to note about the EC's final report on the pharmaceutical sector inquiry:
• The Commission has backed down very significantly from the aggressive stance it took in the preliminary report.
• It is now acknowledged that the regulatory framework is central to the way in which the sector operates.
• Once again, EC recommends a Community patent and a unified patent litigation system in the EU.

Innovation through IPRs
The Commission has faced widespread and severe criticism of its handling of the inquiry, which was kicked off in January 2008 by the series of dawn raids. It has bombarded pharmaceutical companies caught up in the inquiry with an endless succession of questionnaires demanding almost instant responses. There has also been justifiable concern at the apparent lack of understanding in Directorate General for Competition of the patent system and its goals.

Whilst Neelie Kroes, the Competition Commissioner, maintained that there are competition problems in the pharmaceutical sector and that company practices are a contributing factor, the tone of the final report and the analysis it contains is far more measured. Apocalyptic attacks on pharmaceutical companies' patent strategies now looks to be significantly less likely than it did at the end of last year.

The Commission has, however, announced the opening of its first case: a restrictive agreement and abuse of dominance case against Servier and several generics companies. This looks to be a settlement agreement type case where the generic suppliers agreed to stay out of the market in return for payment from the branded supplier.

EC calls upon member states
The preliminary report effectively ignored the impact of the regulatory framework on the competitive environment. In contrast, the final report acknowledges the importance of the impact of the regulatory framework and identifies two areas of focus.

First, EC calls upon member states more fully to implement mutual recognition procedures. It also asks marketing authorisation and reimbursement bodies to disregard unmeritorious interventions by originators in applications by generics. Second, it recommends changes to pricing and reimbursement: eg, inviting member states to grant automatic pricing and reimbursement status to generic products.

If implemented, these proposals should help the Commission achieve its aims in a more legitimate manner than using competition rules to attack patenting strategies. The rub for the Commission, of course, is that whilst it controls the enforcement of the competition rules, it does not directly control marketing authorisation or pricing decisions.

A Community patent
There was, according to EC, universal support for a single Community patent and unified patent litigation system. Work on a Community patent started in the 1970s but has so far failed to bear fruit: some businesses remain nervous about the level of competence of a Community patent court and concerned about translation issues. Also, an EU-wide system would end any potential for strategic use of litigation in different jurisdictions.

Better for being less bold
When compared to the preliminary report, the final report is more measured as regards pharma practices, particularly around patent strategies. The sector will remain under intense Commission scrutiny and enforcement action should be expected for egregious breaches of the competition rules, particularly on issues such as settlement agreements with reverse payments. The risk that the competition rules will be used to remedy 'weak' patents and allegedly ill-founded litigation appears, however, to have receded for now.