Three Years On: The European Commission (Finally) Proceeds Against Patent Settlements

August 2, 2012

In July 2009, the European Commission (EC) published the results of its study into competition in the pharmaceutical sector in the EU. One of the main findings was that generic entry was being delayed and that originator companies were using a variety of instruments, including potentially anticompetitive settlement agreements, to extend the commercial life of their products without generic entry for as long as possible. Increased competition law scrutiny was promised.

Three years later, at the end of July 2012, and just before the EC’s staff headed off on their holidays, it has made good on its promise. The EC sent statements of objections (preliminary statements of its case, but indicating that it has substantial prima facie concerns) to a number of companies concerning potentially anticompetitive activities, including the use of reverse payment patent settlements, relating to two products: citalopram (an antidepressant) and perindopril (a cardiovascular medicine).

The cases are without doubt high profile since in particular they are the first to address the use of reverse payment patent settlements in the pharmaceutical sector. However, on the facts available, they do not appear to be surprising, given the stance taken by the EC in this area, and in particular on the issue of such settlements.

In the citalopram case, the EC’s concern is that Lundbeck and several generic competitors entered into agreements that may have hindered the entry of generic citalopram into markets in the EU, causing “substantial consumer harm” in the form of high prices. The companies concluded these agreements when generic entry became in principle possible, because certain of Lundbeck’s citalopram patents had expired. The agreements foresaw substantial value transfers from Lundbeck to the four generic competitors. In turn, the generic companies abstained from entering the market with generic citalopram. Lundbeck’s value transfers to the generic competitors included direct payments as well as other forms such as purchase of generic citalopram stock for destruction or guaranteed profits in a distribution agreement.

The EC’s concerns in the perindopril case are similar. In exchange for payments by Les Laboratoires Servier, several generic companies may have agreed not to enter the market with their cheaper generic products and/or not to further challenge the validity of the patents that protected Servier’s more expensive medicine. The case differs from that concerning citalopram, however, in that the EC’s concerns also relate to unilateral behavior by Servier, since it “appears to be” dominant in the market for perindopril. Servier may have implemented a “comprehensive strategy” to prevent market entry of cheaper generic versions of perindopril, when perindopril was about to reach the end of its patent protection. Among the practices used by Servier were patent acquisitions that could potentially shut out competitors from the market and “inducing” its generic challengers to conclude the patent settlements.

These cases have been a long time coming, but from the facts available in the public domain, it is not surprising that the EC has chosen to proceed in them. Both concern so-called reverse payment patent settlements of a particular type; the EC has long and consistently expressed the view that if an originator company eliminates or delays cheaper generic competition through significant payments or other benefits to a generic company for discontinuing or delaying the launch of generic medicine challenging the originator’s patent, this can lead to substantial consumer harm. The EC considers this to be a form of collusion since the companies involved in effect share the originator’s “monopoly rents.”

On the issue of Servier’s behavior, again the EC has long held the view that unilateral practices of dominant companies, such as those aimed at shutting out generic competitors from the market, can cause serious competition problems. It is supported in this regard by case law, including the seminal AstraZeneca case. The EC found there that the company had misused the regulatory framework to prevent or, at the very least, delay the market entry of competing generic products. The EU General Court has confirmed the EC’s findings that such behavior was illegal, although this is now on appeal to the EU’s highest court, the Court of Justice.

The EC’s citalopram and perindopril cases are reminders to the pharmaceutical industry that the EC is still watching it very carefully. Companies should consider whether their compliance procedures need updating. Competitors potentially affected by abusive behavior of originator companies have an ally in the EC. It is still looking for cases.