First EU Fines for “Pay-For-Delay” Patent Settlement
On 19 June 2013, the European Commission (EC) imposed a fine of €93.8 million on Danish pharmaceutical company Lundbeck and fines totalling €52.2 million on several producers of generic medicines for infringing EU competition law.
According to the EC, after Lundbeck’s basic patent for its branded citalopram molecule (a blockbuster antidepressant) had expired, it only held some related process patents which provided a more limited protection. However, instead of taking advantage of this situation by starting to compete, the generic producers agreed with Lundbeck not to enter the market in return for substantial payments and other inducements from Lundbeck. This gave them, in the EC’s view, the “equivalent of what they would have earned if they had entered the market” and the parties therefore “shared the monopoly rents among themselves”. The EC saw this arrangement as a type of cartel and fined it accordingly.
The EC was careful to point out in its announcement that the overwhelming majority of patent settlement agreements are entirely legitimate because they do not involve any payments by originators to exclude generic companies. Nevertheless, originator and generic companies must continue to be very careful in this area. In addition, in principle, there is no reason why settlement agreements of this nature in other industries would not also raise similar issues.
EU Private and Collective Actions: Another Big Step on the Road
After a very long period of gestation, on 11 June 2013, the EC published two documents that together make up its private antitrust enforcement package and two further documents that deal with collective redress mechanisms in the EU Member States.
The private antitrust enforcement documents are a proposal for legislation on certain rules governing antitrust damages actions (such as claims following a decision by the EC to fine a cartel) and a communication on how to quantify harm caused by infringements of the EU antitrust rules. The legislative proposal contains specific measures that would apply in each Member State of the EU to improve the national legal frameworks governing actions for damages. The communication specifically addresses the problem of determining the specific amount of harm suffered as a result of a competition law infringement, which is currently one of the main obstacles to obtaining effective compensation.
The collective redress documents are a non-binding recommendation on common principles for collective mechanisms to be put in place in each EU Member State for violation of EU law (not just antitrust law) and a communication called “Towards a European horizontal framework for collective redress”. The recommendation and communication on collective redress set out a series of common, non-binding principles to apply in the Member States, intended to assist citizens and companies in the enforcement of the rights granted to them under EU law (of all types). The EC is keen to point out that this needs to be clearly distinguished from U.S.-style “class actions”.
The area of antitrust damages actions continues to develop rapidly in the EU and the EC’s proposals will serve to facilitate this. The EC also wants collective redress to develop in the EU, but it remains to be seen to what extent the non-binding principles will gain traction amongst the widely differing legal regimes and litigation cultures in the EU.
Proposal To Extend EU Merger Rules to Cover Non-controlling Minority Shareholdings
On 20 June 2013, the EC announced a consultation on whether to extend the EU Merger Regulation (EUMR) rules to cover the acquisition of non-controlling minority shareholdings by one competitor in another or between companies in a vertical relationship.
The EUMR requires pre-merger filing and clearance of large mergers in the EU. One option that is proposed is simply to extend this system to non-controlling minority shareholdings. This would mean that all such shareholdings would have to be notified to the EC in advance and could not be implemented before the EC had cleared them.
The proposal potentially has wide implications. In addition to applying to transactions between trading companies, the EUMR applies to transactions by investment funds, and all investee companies managed by a management company are treated as forming part of that company’s group. Therefore, the proposal could catch an investment company building up minority stakes in a number of competing businesses, even if through different funds that it manages.
The consultation closes on 20 September 2013.
New EU Regional Aid Guidelines: Cutting Red Tape to Foster Investment in the EU
After extensive consultations with stakeholders, the EC has adopted new Regional Aid Guidelines (RAG). The new RAG, which will enter into force on 1 July 2014, cover the period 2014–2020. They allow EU Member States to grant regional aid in an increased number of geographic areas in the EU. The new RAG will apply to all sectors, save for fisheries/aquaculture, agriculture, transport (including aid to airports) and energy, which are or will be dealt with in sector-specific notices.
Under the new RAG, more aid categories will be exempted from the obligation of prior notification to and approval by the EC, thereby cutting the red tape requirements before Member States are able to grant small aid amounts for regional development. However, large aid measures will continue to be subject to in-depth assessment by the EC.
A stricter approach will also be taken for aid to large companies in the more developed assisted areas. However, if it is shown that the aid allows investments for new economic activity or initial investments intended to diversify the activities of a business into new products or process innovation, the aid will be authorized.
In order to gain a full picture of the geographic areas in which companies might be able to obtain additional aid, it is necessary to wait until the new regional aid maps for each Member State are approved by the EC. However, it is already clear that the reduced formalities under the new RAG will make it easier to obtain aid under certain circumstances. Once the new regional aid maps do become available, investors from both EU and non-EU countries can look in detail at funding possibilities in relevant EU regions for projects implemented in 2014–2020.
International Trade and Competition Team Joins McGuireWoods in Brussels
McGuireWoods LLP announced on 13 June 2013 that it is expanding its Competition, EU Regulatory and International Trade practice with the addition of a four-member team in the firm’s Brussels office. The team will significantly enhance the firm’s abilities to represent clients in these areas of law.
Additional European competition law news coverage can be found in our news section.