Pay for Delay? - Pharmaceutical Executive

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Pay for Delay?


Pharmaceutical Executive


The Lundbeck decision

In 2002, citalopram was Lundbeck's best-selling medicine. Citalopram's patent was nearing the end of its lifecycle, with patent protection for the chemical composition lapsed outright, and remaining patent protection limited to particular manufacturing processes.

On January 28, 2004, the Danish Competition Authority announced that it had made a preliminary assessment of the settlement agreements, and discussed the agreements with the Commission.

According to the Authority, the Commission at that time stated that reverse payment settlement agreements resided in a "grey area," that the amount of the payments made by Lundbeck did not at first hand imply that the company was paying a compensation to the generic drug manufacturers to stay out of the market, and that the Authority and the Commission therefore did not at that time wish to commence legal proceedings against Lundbeck (see the Authority's case no 1120-0289-0039 at http://www.kfst.dk/).

Nevertheless, based on the knowledge acquired during the sector inquiry finalized in 2009, the Commission decided to initiate formal antitrust proceedings against Lundbeck (see IP/10/8).

In July 2012, the Commission sent a Statement of Objection (see IP/12/834) to Lundbeck and, on June 19, 2013, the Commission decided to initiate damage proceedings. The infringement decision itself is yet to be published, but it appears from the Commission's press release that "Internal documents refer to a 'club' being formed and 'a pile of $$$' to be shared among the participants. Lundbeck paid significant lump sums, purchased generics' stock for the sole purpose of destroying it, and guaranteed profits in a distribution agreement. The agreements gave Lundbeck the certainty that the generics producers would stay out of the market for the duration of the agreements without giving the generic producers any guarantee of market entry thereafter. These agreements are very different from other settlements of patent disputes where generic companies are not simply paid off to stay out of the market."

Joaquín Almunia, vice president of the European Commission responsible for competition policy, announced at the same time that, "by today's decision we are confirming that these so-called 'pay-for-delay' deals constitute severe infringements of EU competition law. They may cause severe harm to patients and taxpayers and must be sanctioned accordingly."

It appears that, according to the Commission, the settlement agreements in question constitute a restriction of competition by object. It is, however, not entirely clear whether all reverse settlement agreements will in future be deemed to constitute a restriction of competition by object, and thus an infringement of Article 101.

Thus, in his speech, Almunia also states that the decision is in "good company" as it is in line with the US supreme-court judgment in FTC v. Actavis. In other words: the commissioner seems to indicate that the Commission has opted for a rule-of-reason test under which reverse payments are not presumed to be unlawful, but may be found to be so in individual cases, and in particular, if the payments made are found to be unjustifiably large and/or not motivated by genuine disputes.

Lundbeck announced that the company will appeal the Commission's decision to the General Court. Thus, it is the company's view that the settlement agreements were entered into in order to enforce its patents rights, and not in order to exclude generic companies. Nothing has yet been published about the appeal case. According to the latest statistics, the average duration of proceedings before the court is 48 months; a judgment is therefore not to be expected in the near future.

The state of the law in this respect is, therefore, yet to be finally settled. As a follow-up in 2010, 2011, and 2012, the Commission monitored settlement agreements in the pharmaceutical sector and the Commission has, besides proceedings against Lundbeck, initiated proceedings against French drugmaker Servier on similar grounds. Proceedings have also been initiated against Dutch subsidiaries of Johnson & Johnson and Novartis, as well as Cephalon and Teva.

Practical impact: clearing the air?

The Lundbeck case is the first antitrust decision taken by the Commission on reverse payment settlement agreements.

Following the decision, it is clear that paying a company to avoid market entry is anticompetitive and thus constitutes an infringement of the EU antitrust rules. However, it is unclear under which circumstances other settlements involving payments between originators and generics could also be anticompetitive, since this requires a case-by-case approach. For now, however, it seems advisable not to enter into settlement agreements involving reverse payments, unless one is willing to run the risk of an antitrust case before the Commission.

The other cases pending before the Commission and the General Court's judgment in the Lundbeck case are expected to deliver further legal clarity, hopefully in the form of a more nuanced and balanced approach to reverse payments.

Reverse payments may often be the best solution to a deadlock situation and the competition authorities should, in our opinion, be cautious not to "overregulate" within this field of the law.

In general, the competition authorities should only intervene when the settlement is, in reality, just a cover-up for an agreement in which one manufacturer eliminates competition by paying other manufacturers to stay out of the market. When, on the other hand, the reverse payment is motivated by a real patent dispute and broadly seems to reflect the parties' risk relating to the dispute, no intervention should be requested, or required.








Søren Zinck is a partner in the EU & Competition Law group at LETT, a Danish law firm based in Copenhagen. He can be reached at
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