February 25
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24th January 2020
Competition & State Aid

Op-Ed: “Advocate General Kokott’s Opinion in Generics (UK) and Others – a welcome clarification on restrictions by object and potential competition in settlements of patent disputes” by Tom Pick

On 22 January 2020, Advocate General (AG) Kokott delivered her much-awaited Opinion Generics (UK) and Others (C-307/18) on patent settlement agreements and the application of EU competition rules, hot on the heels of the Lundbeck and Servier cases currently pending before the Court of Justice of the European Union (CJEU). The findings of the Opinion are broadly in line with those two landmark cases issued by the General Court. The beauty of the Opinion is that it offers clear and consistent guidance on what qualifies as an object restriction and what qualifies as potential competition under Article 101(1) TFEU in the specific context of patent settlement agreements. It also clarifies the approach under Article 102 TFEU in that area.

In a nutshell, the case involves the originator company GlaxoSmithKline plc (“GSK”), which held the patent on the antidepressant medicinal product ‘paroxetine’, and its dealings with a number of generic companies. GSK’s patent protection on paroxetine expired in January 1999 and the data exclusivity expired in December 2000. From that date, generic manufacturers could (and did) seek marketing authorisations of the generic product paroxetine. Accordingly, IVAX Pharmaceuticals (“IVAX”) had submitted such an application for a market authorisation (in Ireland), Generics (UK) Ltd (“GUK”) applied and had obtained market authorisation for paroxetine in Denmark and Alpharma Limited (“Alpharma”) had submitted an application for market authorisation in the UK. In the meantime, GSK had also procured process patents protecting certain methods of manufacturing the active pharmaceutical ingredient of paroxetine. This had led to a number of disputes as to the validity of such patents initiated by said generics seeking to enter the paroxetine market with GSK at the same time bringing patent infringement proceedings, including interim injunctions, against GUK and Alpharma in the UK courts. Subsequently, the disputes relating to the validity of GSK’s process patent or whether the generic products infringe that patent remained unsolved and resulted in patent settlement agreements (“Agreements”) between GSK and the generic manufacturers.  It is the content of these settlement agreements that forms the heart of the matter of the current Opinion.

Under those Agreements, GSK agreed to manufacture and then supply the generics companies with limited quantities of generic paroxetine for entry on the market. The generics were thus prevented during the term of the agreements from entering the market with their own generic paroxetine. In addition, GSK transferred certain payments to the generic companies, in return for agreeing to settle the various legal disputes and not to challenge the patent for the duration of the agreement and until the expiry of the (process) patents.

On 12 February 2006, the UK’s Competition and Markets Authority (“CMA”) found that the Agreements breached Article 101(1) TFEU and that GSK had abused its dominant position in the market of paroxetine by entering into the Agreements with GUK, IVAX and Alpharma. Consequently, the CMA imposed a fine of GBP 44.99 million on the participating companies. The CMA’s decision was appealed before the UK’s Competition Appeal Tribunal (“CAT”) and the CAT then referred 10 questions to the CJEU that form the subject basis of AG Kokott’s Opinion. The questions centre on the notion of potential competition as well as on the notion of restriction by object and/or effect. Finally, questions are raised as to market definition and the inclusion (or not) of generic versions of the products in question as well as to what constitutes an abuse under Article 102 TFEU, having in mind the specific settlement context of the case.

This Op-Ed will focus on the notion of potential competition as well as object restriction within the context of application of Article 101(1) TFEU.

On the factors relevant to define potential competition in the specific context of a patent settlement agreement

AG Kokott finds, contrary to the views of GSK et al, that uncertainty as to the outcome of the patent disputes between GSK and the generics, and thus uncertainty on whether market entry with generic paroxetine by the generics would have been lawful, does not prevent the generics from being regarded as potential competitors within the context of Article 101 TFEU.

In particular, she finds that the very existence of a bona fide dispute between the patent holder and the generic companies, and the patent holder’s perception of the competitive pressure from generic manufacturers are key factors capable of demonstrating that potential competition exists between them. On the one hand, those factors show that generic manufacturers had real concrete possibilities to enter the relevant market . On the other hand, those elements demonstrate that the existence of a patent was not an insurmountable market entry barrier for generic manufacturers. If they were, the patent holder would not have settled that dispute by paying significant sums to the generic companies.

On the question of what constitutes a restriction by object in the context of a patent settlement agreement

Following the line established by the General Court in the Servier and Lundbeck cases, AG Kokott concludes that an agreement to settle patent litigation constitutes a restriction of competition by object when that agreement involves the transfer of payments by the originator to the generic company(/companies) with the sole aim to delay entry on the market of those generics with their own product and to discontinue the challenge of the patent during the agreed period.  Doing so has the direct effect of replacing independent competitor actions with coordination that can be assimilated to cartel-like behaviour (she uses the term ‘concerted position’).

Furthermore, the fact that the settlement agreements may have resulted in some (claimed) benefits to consumers that would not have occurred if GSK had succeeded in litigation does not change anything in AG Kokott’s view as to the existence of an object restriction in the context of the settlement agreements at issue.

Comment

AG Kokott’s conclusions on the question whether the generic companies in question could be regarded as at least potential competitors, given the pending patent disputes (concerning validity of the patent and patent infringement) and the uncertainty of outcome of these disputes, are quite compelling and apply a common sense approach. It is indeed the actions of GSK and the generics themselves, namely the mere existence of the patent disputes and the entering into of the various patent settlement agreements delaying entry in return for value transfer, that constitute the clearest evidence of a (potential) competitive relationship between them. This is indeed a key factor in the present case (as was also the case in Servier and Lundbeck) capable of demonstrating that potential competition exists.

As far as AG Kokott’s views on object restriction are concerned, there is nothing really revolutionary. What needs to be applauded though is the clarity of the Opinion in that respect. It provides very useful guidance on the application of the principle in that specific context (patent dispute settlement agreements between originator and generics, including elements of entry delay) and consolidates existing case law in that area.

There are two points worth highlighting in our view: firstly, the very clear and unequivocal application of the current case law on the parameters to take into account when finding whether a restriction falls in the “object” or the “effects box”. Referring to important cases and AG opinions in that area, such as AG Kokott in T-Mobile Netherlands, AG Wahl in CB v Commission, and AG Bobek in Budapest Bank and Others, the Opinion manifests the important message that an object restriction can never be established in the abstract. In other words, to determine an agreement’s anticompetitive object requires a case-specific analysis. Not only has one to focus on the content and nature of the agreement but one has to also carefully consider the legal and economic context of which it is part to determine whether it may result in sufficient harm to competition.

Secondly, the discussion of the relevance of (claimed) benefits of a given agreement for the determination whether a specific restriction constitutes a restriction by object of effect. Indeed, the Opinion makes clear that there is no automatism in the sense that an analysis of the anticompetitive object of an agreement switches to an analysis of the anticompetitive effects the moment benefits are claimed. Rather, a careful analysis, with the help of the information available in the case file, evaluating the economic and legal context is necessary (what is the economic rationale of the agreement?) to reach a finding on whether the benefits of the presumed harmful agreement can cast doubt on the anticompetitive object of the agreement. Concluding on these two points, AG Kokott finds that the agreements entered between GSK and the generic companies in question clearly reveal the potential harm to competition (she assimilates them to market exclusion agreements) as their objective was to eliminate the risk of an independent entry of generics on the market.

 

Tom Pick is a partner in the Brussels office of Fieldfisher, where he leads the Competition Practice. His practice focuses on all aspects of EU and national competition law, including behavioural antitrust and antitrust litigation, merger control, cartels and State aid. His work also involves regularly representing clients on competition matters before the European courts in Luxembourg and before civil courts in Germany, as well as before European Commission in Brussels and national competition authorities.

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