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Published online by Cambridge University Press: 20 January 2017
This Report examines the competition law issues that arise, in the EU pharmaceutical sector, from pay-for-delay agreements concluded between an originator company and a generic manufacturer. The Commission's approach to these agreements is reviewed evaluating the findings of the on-going monitoring activity of patent settlements, the outcome of recent investigations, and the legislative proposals specifically aimed at dealing with the phenomenon. Finally, a comparison of the EU and US approaches provides a clear indication of the challenges that still lie ahead.
1 Which consists of several phases, ranging from the identification of new chemical entities, or new uses of known substances, to clinical testing and regulatory approval. Pharmaceutical companies also incur post-approval R&D costs, as noted by DiMasi, Joseph A., Hansen, Ronald W. and Grabowski, Henry G., “The price of innovation: new estimates of drug development costs”, 22 Journal of Health Economics (2003), pp. 151 et sqq., at 172–173.CrossRefGoogle Scholar
2 DiMasi, Joseph A. and Grabowski, Henry G., “R&D Costs and Returns to New Drug Development: a Review of the Evidence’, in Danzon, Patricia M. and Nicholson, Sean (eds.), The Economics of the Biopharmaceutical Industry (New York: Oxford University Press 2012), pp. 21 et sqq., at p. 25.Google Scholar
3 DiMasi et al., “The price of innovation”, supra note 1, at p. 166.
4 Paul, Steven M., Mytelka, Daniel S., Dunwiddie, Christopher T., Persinger, Charles C., Munos, Bernard H., Lindborg, Stacy R., and Schacht, Aaron L., “How to improve R&D productivity: the pharmaceutical industry's grand challenge”, 9 Nature Reviews Drug Discovery (2010), pp. 203 et sqq. Google ScholarPubMed
5 DiMasi, Joseph A., Feldman, L., Seckler, A. and Wilson, A., “Trends in Risks Associated with New Drug Development: Success Rates for Investigational Drugs”, 87(3) Clinical Pharmacology & Therapeutics (2010), pp. 272 et sqq. CrossRefGoogle ScholarPubMed
6 European Commission, “Pharmaceutical Sector Inquiry – Final Report”, 8 July 2009, available on the Internet at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/staff_working_paper_part1.pdf (last accessed on 9 January 2014), at paragraph 72.
7 Only four months for the highest selling medicines (see ibid., paragraph 193).
8 Ibid., paragraph 1560.
9 Ibid., paragraphs 230 et sqq.
10 A tertiary effect, directly related to the first two, consists in the increased number of patients who have access to the more affordable medicine, either as direct purchasers or through the national healthcare services.
11 Pharmaceutical Sector Inquiry, supra note 6, at paragraphs 211 et sqq.
12 Pharmaceutical companies rely on the profits made through the sale of successful drugs not only to recoup the related R&D expenses, but also to pay for the research investments that did not result in the marketing of a new drug, and to cross-subsidize the development of other medicines, whose development costs are projected to be higher than the medium-term returns. See Scherer, Frederic M., “The Link Between Gross Profitability and Pharmaceutical R&D Spending”, 20(5) Health Affairs (2001), pp. 216 et sqq. CrossRefGoogle ScholarPubMed
13 See, generally, Hull, David W., “The Application of EU Competition Law in the Pharmaceutical Sector”, 3(5) Journal of European Competition Law & Practice (2012), pp. 473 et sqq. CrossRefGoogle Scholar
14 Lemley, Mark A. and Shapiro, Carl, “Probabilistic Patents”, 19(2) Journal of Economic Perspectives (2005), pp. 75 et sqq. CrossRefGoogle Scholar
15 See, for example, the European Commission Decision C(2005) 1757 final of 15 June 2005. In this case, AstraZeneca had relied on misleading representations to patent offices and before national courts, in order to obtain supplementary protection certificates for the brand drug Losec. Further, it had employed selective deregistration of marketing authorizations and other strategic behaviors to delay generic entry after patent expiry. The Commission found that AstraZeneca had committed two abuses of a dominant position, thereby infringing Article 82 EC and Article 54 of the Agreement on the European Economic Area, and imposed fines for a total of € 60 million. The General Court (Case T- 321/05, AstraZeneca v Commission [2010] ECR II-02805) and the Court of Justice (Case C-457/10 P, AstraZeneca v Commission [2012]) upheld the Commission's decision.
16 Pharmaceutical Sector Inquiry, supra note 6, at paragraphs 476 et sqq.
17 Ibid., paragraphs 431 et sqq.
18 A recent case, decided by the French Competition Authority, assessed the behavior of Sanofi-Aventis, which sought to prevent the widespread adoption of a generic version of the brand drug Plavix, relying on imprecise, misleading and erroneous information to persuade doctors to prescribe either the brand drug, with the indication “non-substitutable”, or the generic version sold by the originator company itself. See Autorité de la concurrence, “Décision n° 13-D-11 du 14 mai 2013 relative à des pratiques mises en oeuvre dans le secteur pharmaceutique”, available on the Internet at http://www.autoritedelaconcurrence.fr/pdf/avis/13d11.pdf (last accessed on 9 January 2014).
19 Lemley and Shapiro, “Probabilistic Patents”, supra note 14, at p. 92.
20 Pharmaceutical Sector Inquiry, supra note 6, at paragraphs 119 et sqq.
21 An overview of healthcare coverage in the US and EU, and its effects on pharmaceutical prices, is provided by the US International Trade Commission Investigation No. 332–419, Pricing of Prescription Drugs (2000). See also the study commissioned by the EU Commission and drafted by the Österreichisches Bundesinstitut für Gesundheitswesen, “Surveying, Assessing and Analysing the Pharmaceutical Sector in the 25 EU Member States” (2006), available on the Internet at http://ec.europa.eu/competition/mergers/studies_reports/oebig.pdf (last accessed on 9 January 2014).
22 A reduction in public spending, which results in lower returns for the producer, is likely to determine a contraction in R&D spending by the affected company, as explained in Giaccotto, Carmelo, Santerre, Rexford E. and Vernon, John A., “Drug Prices and Research and Development Investment Behavior in the Pharmaceutical Industry”, 48(1) Journal of Law and Economics (2005), pp. 195 et sqq. CrossRefGoogle Scholar The reduced R&D investments may significantly impact the development of new drugs, ultimately harming consumer welfare.
23 E.g. see the European Commission Communication COM (2008) 666 of 10 December 2008, which acknowledged that “[c]ompetition with off-patent products enables sustainable treatment of more patients with less financial resources”, to the effect that “[t]he generated savings create financial headroom for innovative medicines”.
24 See Commission Decision of 15 January 2008 initiating an inquiry into the pharmaceutical sector pursuant to Article 17 of Council Regulation (EC) No 1/2003, OJ [2008] C 59/06.
25 Whose size, in 2007, was estimated at € 122 billion on an exfactory basis, or almost 2% of the annual gross domestic product of the EU member states.
26 Pharmaceutical Sector Inquiry, supra note 6.
27 Generic companies won 62% of all the reported litigation cases in which a final judgment was delivered (see ibid., paragraph 622).
28 Ibid., paragraphs 586 et sqq.
29 The inquiry noted that the parties’ propensity towards settlement agreements depended upon five main factors, which included the probability of winning or losing the case, the inherent uncertainty involved in patent litigation, the expected costs of the action, the country where litigation took place, and its expected duration (ibid., paragraphs 730 et sqq.).
30 Ibid., page 269: the value transfer could either be direct (payment of a lump sum) or indirect (purchase of stock, conclusion of a supply or distribution agreement, granting of a patent license).
31 Ibid., paragraph 765.
32 European Commission, “1st Report on the Monitoring of Patent Settlements”, 5 July 2010, available on the Internet at http://ec .europa.eu/competition/sectors/pharmaceuticals/inquiry/patent _settlements_report1.pdf (last accessed on 9 January 2014).
33 Ibid., paragraph 37.
34 European Commission, “2nd Report on the Monitoring of Patent Settlements”, 6 July 2011, available on the Internet at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent_settlements_report2.pdf (last accessed on 9 January 2014).
35 European Commission, “3rd Report on the Monitoring of Patent Settlements”, 25 July 2012, available on the Internet at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent_settlements_report3_en.pdf (last accessed on 9 January 2014).
36 European Commission, “4th Report on the Monitoring of Patent Settlements”, 9 December 2013, available on the Internet at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent_settlements_report4_en.pdf (last accessed on 9 January 2014).
37 The 10% figure refers to the total amount of patent settlements concluded in any EU member states, with the exception of Portugal, where the newly adopted Law 62/2011 of 12 December 2011 caused a steep increase in the number of settlement, as explained ibid., at paragraph 27.
38 European Commission MEMO/09/322 of 8 July 2009, Case COMP/39612.
39 See Josef Drexl, “Are Patent Settlements Anti-Competitive?, 18 October 2013, available on the Internet at http://www.ipdigit.eu/wp-content/uploads/2013/10/Drexl-Brüssel-oct-2013.pdf (last accessed on 9 January 2013).
40 European Commission IP/12/835 of 30 July 2012.
41 In the UK, the Secretary of State for Health and the English National Health Service filed lawsuit against Servier and the generic manufacturers before the High Court for England and Wales, alleging violation of Articles 101 and 102 TFEU, and claiming £ 220 million in damages. In light of the overlapping between the lawsuit and the Commission's investigation, the court decided to stay the action until the conclusion of the oral hearings before the Commission. See [2012] EWHC 2761 (Ch).
42 European Commission IP/11/511 of 28 April 2011, Case COMP/39686.
43 15 USC § 45.
44 FTC, “Cephalon Complaint”, 13 February 2008, available on the Internet at http://www.ftc.gov/sites/default/files/documents/cases/2008/02/080213complaint.pdf (last accessed on 9 January 2014), at p. 2.
45 European Commission IP/10/8 of 7 January 2010, Case COMP/39226.
46 The Commission found that, at the time of conclusion of the agreements at issue, one of the generic manufacturers had already started selling a generic version of citalopram, while several other companies had made serious preparations to enter the market.
47 European Commission IP/12/834 of 25 July 2012.
48 European Commission IP/13/563 of 19 June 2013. A public version of the decision, at the time of writing, had not yet been made available.
49 Ibid.
50 See Case T-460/13, Ranbaxy Laboratories and Ranbaxy UK v Commission OJ 2013 C 325/43; Case T-467/13, Arrow Group and Arrow Generics v Commission OJ 2013 C 313/32; Case T-469/13, Generics (UK) v Commission OJ 2013 C 325/45; Case T-470/13, Merck v Commission OJ 2013 C 325/43; Case T-471/13, Xellia Pharmaceuticals and Zoetis Products v Commission OJ 2013 C 325/47; and Case T-472/13, H. Lundbeck and Lundbeck v Commission OJ 2013 C 325/47.
51 European Commission IP/11/1228 of 21 October 2011, Case COMP/39685.
52 European Commission IP/13/81 of 31 January 2013.
53 European Commission IP/13/1233 of 10 December 2013. A public version of the decision, at the time of writing, had not yet been made available.
54 European Commission Communication C(2013) 924 draft.
55 European Commission C(2013) 921 draft.
56 Draft revised Guidelines, supra note 54, at paragraphs 226–227.
57 Supra note 15.
58 Supra note 38.
59 Draft revised Guidelines, supra note 54, at paragraph 123. The principle is also enshrined in Article 5.1(b) of the draft revised TTBER, supra note 55, which includes termination clauses related to invalidity challenges among the list of excluded restrictions.
60 Pharmaceutical Sector Inquiry, supra note 6, at paragraph 763. Similarly, the European Commission Answer of 7 August 2013 to the European Parliamentary Question E-007386-13, of 21 June 2013, highlighted that “these types of agreement may infringe antitrust law, like in the U.S.”.
61 Supra note 36, at paragraph 47 and footnote 16.
62 Supra note 32, at paragraph 4.
63 See infra note 74.
64 Supra note 50.
65 In this perspective, see Michael J. Clancy, Damien Gerardin and Andrew Lazerow, “Reverse-Payment Patent Settlements in the Pharmaceutical Industry: An Analysis of US Antitrust Law and EU Competition Law”, 27 October 2013, available on the Internet at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2345851 (last accessed on 9 January 2014).
66 The diffusion of reverse payment settlements, in the US, is primarily due to the legislation enacted with the Hatch-Waxman Act (21 U.S.C. Section 355, and 35 U.S.C. Sections 156, 271 and 282), which aims to encourage generic entry, allowing generic companies to file an Abbreviated New Drug Application for medicines bioequivalent to drugs previously approved by the Food and Drug Administration, accompanied by a certification that the patent protecting the brand drug is invalid or will not be infringed (21 U.S.C. Section 355(j)(2)(A)(vii)(IV) - so called “paragraph IV certification”-). The first applicant is rewarded with a 180-day period of exclusivity.
67 See, inter alia, Yvon, Anne-Marie C., “Settlements Between Brand and Generic Pharmaceutical Companies: A Reasonable Antitrust Analysis of Reverse Payments”, 75(3) Fordham Law Review (2006) pp. 1883 et sqq. Google Scholar; Opderbeck, David W., “Rational Antitrust Policy and Reverse Payment Settlements in Hatch-Waxman Patent Litigation”, 98 The Georgetown Law Journal (2010), pp. 1303 et sqq. Google Scholar; and Gurgula, Olga, “Restrictive Practices in Pharmaceutical Industry: Reverse Payment Agreements”, 5 Global Antritrust Review (2012), pp. 58 et sqq. Google Scholar
68 Brief for the Petitioner in Federal Trade Commission v Actavis et al., 133 S. Ct. 2223 [2013] (No. 12-416), at p. 15. The FTC compared reverse payment settlements to unlawful horizontal restraints of trade.
69 In re Cardizem, 332 F.3d 896 [2003].
70 In re Ciprofloxacin Hydrochloride, 604 F.3d 98 [2010].
71 Schering-Plough, 402 F.3d 1056 [2005].
72 570 US 756 [2013]. The case originated from a lawsuit filed by the FTC against four pharmaceutical companies, which had allegedly signed pay-for-delay agreements in violation of Section 5 of the FTC Act (15 U.S.C. 45). The contested settlements had been concluded between Solvay Pharmaceuticals, which held a patent on the brand drug AndroGel, and the companies Actavis, Paddock and Barr, in the context of patent infringement actions initiated by Solvay when the other pharmaceutical companies, on the verge of marketing generic versions of the brand drug, had filed paragraph IV certifications that the originator company’s patent was invalid, and that their generic drugs did not infringe it. Under the agreements reached between the parties, the generic companies accepted not to market generic AndroGel for a specified number of years, as well as to contribute to the promotion of the brand drug to doctors, in exchange for hefty payments by Solvay, which amounted to millions of dollars. The District Court and the Eleventh Circuit dismissed the FTC's complaint, focusing, in particular, on the patent-scope test. The courts concluded that the anti-competitive effects stemming from the pay-for-delay agreements fell within the scope of the exclusionary right conferred by the patent, observing that patents enjoy a presumption of validity, and that the settlement of disputes constitutes a primary objective of public policy.
73 “That is”, explained the Supreme Court, “because the likelihood of a reverse payment bringing about anticompetitive effects depends upon its size, its scale in relation to the payer's anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification” (ibid., at p. 20).
74 Although it hints at a link between the entity of the value transfer and the weakness of the originator company's patent, a consideration which appears to be equally present in the Commission’s attitude. Strong reliance on this link could effectively call into question the applicability of the rule of reason, re-opening the debate on the presumptive unlawfulness of pay-for-delay agreements featuring considerable value transfer to the generic company.
