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Advocate General advises EU Court of Justice to confirm fine for pay-for-delay agreements by Lundbeck

11/06/2020
Advocate General advises EU Court of Justice to confirm fine for pay-for-delay agreements by Lundbeck
Photo: Artfilmphoto/shutterstock.com

In an opinion of 4 June 2020, Advocate General Kokott has advised the Court of Justice of the European Union (“CJEU”) to uphold a 2013 fine imposed by the European Commission (“Commission”) on pharmaceutical company, Lundbeck, for reverse payment patent settlements.

 

Background

In 2002, Lundbeck faced the expiry in the EEA of its patents protecting the active ingredient ‘citalopram’, which was being used in one of its antidepressant medicinal products. While Lundbeck was still the holder of secondary patents protecting certain manufacturing processes of that active ingredient, it made payments to four manufacturers of generic medicinal products (Generics UK, Alpharma, Arrow and Ranbaxy) in exchange for which those manufacturers agreed to refrain from entering the market.

In a decision of 19 June 2013, the Commission found that the true aim of these reverse payment patent settlements or “pay-for-delay” agreements was not to resolve a patent dispute, but to forestall or delay potential competitors’ market entry. Therefore, the Commission - deciding for the first time on such reverse payment patent settlements - imposed a fine of almost 94 million euros. Lundbeck appealed that decision, but the General Court’s judgment of 8 September 2016 upheld the Commission’s decision. Lundbeck then appealed the General Court’s judgment, and the CJEU has still to make its final ruling in this case. The preceding opinion of Advocate General Kokott has now advised the CJEU to uphold the General Court’s judgment confirming the Commission’s fine.

 

Existence of process patents does not exclude potential competition

An agreement between the original manufacturer holding the patent and a generic manufacturer can only be anticompetitive if the original and generic manufacturers are (at least potential) competitors. According to Advocate General Kokott, the fact that patents protecting certain processes for the manufacture of citalopram, which were still held by Lundbeck at the time when the agreements were concluded, did not constitute insurmountable barriers to the entry of the manufacturers of generic medicinal products to the market – so they could be considered as potential competitors. Unlike a compound patent, those process patents — irrespective of whether or not they are valid — do not prevent the generic manufacturers from entering the market with the relevant active ingredient manufactured under other processes. It is likely that a generic manufacturer will then face disputes and legal proceedings with the original manufacturer, but the uncertainty as to the validity of patents protecting an originator medicinal product and as to whether generic versions of that product infringe those patents is considered to be a fundamental characteristic of the competitive relationships in the pharmaceutical sector.

When assessing the anticompetitive nature of a patent settlement, Advocate General Kokott has argued that it is not for the Commission, by assessing the strength of the patents concerned or whether generic products infringe them, to make predictions concerning the outcome of disputes between patent holders and generic manufacturers, in order to assess the competitive relationships between them. The Commission’s assessment must rather concern the question of whether, despite the existence of patents, the manufacturers of generic medicinal products have real and concrete possibilities of entering the market at the relevant time.

 

Infringement by object

Advocate General Kokott has further taken the view that these reverse payment patent settlements went beyond the specific subject matter of Lundbeck’s intellectual property rights, which indeed included the right to oppose infringements, but not the right to conclude agreements by which actual or potential competitors were paid to not enter the market. In that regard, a patent dispute settlement agreement must be classified as a restriction of competition by object if the value transfer from the patent holder to the manufacturer of generic medicinal products has no explanation other than the common commercial interest of the parties not to engage in competition on the merits. However, Advocate General Kokott has taken the view that Lundbeck did not adduce any evidence capable of demonstrating that its value transfers to the generic manufacturers were justified given the agreement’s legitimate objectives, such as compensation for the costs associated with the dispute, the actual supply of goods or services, or the discharge of financial undertakings given by the patent holder.

 

Conclusion

The Advocate General’s opinion does not come as a surprise. In a recent judgment of 30 January 2020, the CJEU seized the opportunity of a preliminary ruling reference to determine, for the first time, its criteria governing whether and when a settlement agreement concerning the dispute between an originator (GSK) and generic(s) is contrary to EU competition law. The Advocate General’s opinion is in line with that judgment. Although this opinion is not binding on the CJEU, the CJEU is expected to follow the opinion when making the final ruling in the Lundbeck saga.

Contact

Carmen Verdonck

Partner

Beatrijs Gielen

Associate

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