Op-Ed: “Judgment of the Court of Justice in Generics (UK) and Others – the application of well-established case law on restrictions by object and potential competition to settlements of patent dispute” by Tom Pick
Further to the Opinion of Advocate General Kokott (‘AG Kokott’) delivered on 22 January 2020 on patent settlement agreements and the enforcement of the EU competition rules, the Court of Justice of the European Union (‘CJEU’) delivered its ruling in Generics (UK) and Others (C-307/18) on 30 January 2020. The CJEU, having had the chance for the first time to rule on a so-called ‘pay for delay’ case, follows the reasoning developed by AG Kokott in her Opinion.
It sends a strong signal to pharmaceutical companies in Europe that trying to use patent settlement agreements to delay entry into the market by generics risks falling foul of the prohibition contained in Article 101(1) TFEU, as well as being considered an abuse under Article 102 TFEU. No doubt the European Commission will take comfort from this ruling vis-à-vis the two cases Lundbeck and Servier currently on appeal before the CJEU.
By way of background, GlaxoSmithKline (‘GSK’), the holder of a patent on the antidepressant medicinal product ‘paroxetine’, concluded patent settlement agreements with the generics, Generics UK (‘GUK’), IVAX Pharmaceuticals UK (‘IVAX’) and Alpharma.
As part of these settlements, the generics essentially undertook not to enter the market with their own generic version of the product and not to challenge that patent for the term of the agreement, in consideration for certain transfers of value by GSK.
On 12 February 2006, the UK’s Competition and Markets Authority (‘CMA’) found that the parties had breached Article 101(1) TFEU, and that GSK had abused its dominant position (Article 102 TFEU) in the market of paroxetine by entering into the patent settlement agreements with the generics.
The CMA’s decision was appealed before the UK’s Competition Appeal Tribunal (‘CAT’) and the CAT then referred questions to the CJEU. These questions, apart from raising additional questions on the interpretation and concept of Article 102 TFEU and market definition in the specific context, centre on the notion of potential competition as well as on the notion of restriction by object and/or effect. It is these two concepts that in the view of the author constitute the core of the case and that the author consequently singled out when opining on AG Kokott’s Opinion delivered on 20 January 2020 in a post on EU Law Live.
A look at the CJEU’s views on the concept of potential competition in the specific context of a patent settlement agreement
Not surprisingly, the CJEU follows the line developed by AG Kokott in her Opinion. The court confirms that pending disputes as to validity of the patent and patent infringement and the uncertainty of the outcome of these disputes did not at the time of the conclusion of the relevant patent settlement agreements result in there not being a competitive relationship between GSK and the generics. What needs to be determined here is whether in the absence of the patent settlement agreements (having the aim of keeping the generics out of the market for a certain period of time) there would have existed real and concrete possibilities for the generics to enter the market for the product and compete with GSK. The court continues that this cannot be based on purely hypothetical grounds but must also not lead to a requirement that it must be demonstrated with certainty. In the words of the court what needs to be established is that generic manufacturers ‘[have] in fact a firm intention and an inherent ability to enter the market, and that market entry does not meet barriers to entry that are unsurmountable’.
Echoing AG Kokott’s Opinion, the CJEU states that existing patent disputes of the type present here can be seen as an indication of the existence of a potential competitive relationship between GSK and the generics (rather than the lack of it) like the mere entering into of the agreements in question. Interestingly, the court also refers to the size of the value transferred to generics inducing them not to enter the market for the product. Commenting on the relevance of such transfer as an indication of the existence of a competitive relationship, the court states ‘[T]he greater the transfer of value, the stronger the indication’, which suggests that this issue will play a role in the future assessment of similar cases.
A few words on the court’s characterisation of restriction by object under Article 101(1) TFEU in the specific context of a patent settlement agreement
The CJEU, not surprisingly, follows the line established by the General Court in the Servier and Lundbeck cases finding that patent settlement agreements of the type at issue may constitute a restriction by object where they contain the transfer of value in return of entry delay and the discontinuation of patent challenges. The CJEU recites the well-established requirement to look at the nature and content of the agreement as well as the legal and economic context of which it forms part when assessing whether a certain restriction constitutes a restriction by object within the context of Article 101(1) TFEU. The CJEU then specifically states that patent settlement agreements restrict competition by object if it is clear that transfers of value ‘have no other explanation than the commercial interest of the parties to the agreement not to engage in competition on the merits’.
As regards the relevance of claimed pro-competitive effects of the patent settlement agreement for the finding of an object restriction, the CJEU makes clear that such claims can only put into question such finding where such proven pro-competitive effects give ‘rise to a reasonable doubt that it causes a sufficient degree of harm to competition’.
Finally, and importantly in the author’s view, the CJEU’s ruling clarifies that indeed efficiency type of arguments can be discussed at the level of Article 101(1) TFEU – as elements of the context of the agreement – and that the discussion is, therefore, not confined exclusively to Article 101(3) TFEU.
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 the European Commission in Brussels and national competition authorities.