On March 25, 2021, the CJEU handed down eagerly awaited judgments dismissing the appeals of Lundbeck and four sanctioned generic drug manufacturers and confirming the €146 million in fines imposed by the European Commission in 2013 for delaying the market entry of a generic version of the antidepressant citalopram.
The full text of the judgments is available here:C-591/16 P (Lundbeck/Commission); C-586/16 P (Sun Pharmaceutical Industries and Ranbaxy (UK)/Commission); C-588/16 P (Generics (UK)/Commission); C-601/16 P (Arrow Group and Arrow Generics/Commission); C-611/16 P (Xellia Pharmaceuticals and Alpharma/Commission); and C-614/16 P (Merck/Commission).
Background
Lundbeck, a Danish pharmaceutical company, held several patents (original patents protecting the active ingredient in a medicine and patents on production) allowing it to market a very effective antidepressant whose active ingredient was citalopram.
The original patents expired in 2002, and Lundbeck only kept patents on procedure, which offered more limited protection. At that time, Lundbeck was already immersed in a legal battle against generic drug manufacturers to invalidate those patents and enter the market with their cheaper versions of the drug.
In this context, Lundbeck reached settlement agreements with four generic medicines manufacturers, Alpharma, Merck/Generics UK, Arrow and Ranbaxy.
The agreements came to light during the European Commission’s investigation into the pharmaceutical sector, leading the Commission to adopt a decision in June 2013 and slapping Lundbeck and the other pharmaceutical companies with fines amounting to €146 million. The Commission confirmed that Lundbeck had agreed to pay the generic drug manufacturers significant sums, buy their stock and offer guaranteed net profits under a distribution agreement, but it concluded that its sole purpose was to delay the entry of generic versions of its medicine in the market and block competition.
The Commission specifically determined that the generic drug manufacturers were at least potential competitors of Lundbeck, and it determined that agreements such as those at issue, known as pay-for-delay agreements, constituted an infringement of article 101 of the TFEU by their object, and were particularly detrimental to patients and national health systems, already constrained by tight budgets.
All the companies appealed the Commission’s decision. The General Court confirmed the decision in 2016 and the CJEU has followed its lead in all the appeals filed against the first instance judgments.
CJEU judgments
The CJEU based its judgment largely on another one of November 2020, in another pay-for-delay case that emerged from the UK’s Competition Market Authority’s proceedings against manufacturers of another antidepressant, paroxetine, see the Judgement TSJUE 01.30.2020, Case C-307/18 (ECLI:EU:C:2020:52).
The CJEU first reminded that to determine whether a company is a potential competitor, it must be established, based on the context in the sector and the patents held by the originator manufacturers, whether the generic medicines manufacturer “has 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 insurmountable.”
Accordingly, the CJEU ruled that the existence of a patent protecting the manufacturing procedure of an active ingredient that is in the public domain cannot be considered an insurmountable barrier. Therefore, there were real and specific possibilities that the generic drug manufacturers with which Lundbeck had reached out-of-court agreements could enter the market, so they were potential competitors. The fact that the patent was declared valid in a subsequent dispute bears no relevance in assessing potential competition at the time the agreement was entered into. The CJEU also ruled that the agreement being considered as a restriction “by object” must be interpreted restrictively and can only be applied to some agreements between undertakings that seriously damage competition, meaning it is not necessary to assess their effects. Therefore, CJEU has ratified and consolidated its position on restrictions of competition by object established in Groupement des Cartes Bancaires and, more recently, in Budapest Bank Case, see judgments Judgement TSJUE 09.11.2021 Case C-67/13 P (ECLI:EU:C:2014:2204) and Judgement TSJUE 04.02.2020 Case C-228/18 (ECLI:EU:C:2020:265).
As the CJEU noted, the settlement of patent disputes can be classified as a restriction of competition by object if the transfer of value from the patent holder to the generic medicines manufacturer “can only be explained by the parties’ common ultimate commercial interest in not competing on the merits.”
Essentially, if the payments or other commercial agreements providing profits to a generic drug manufacturer are sufficiently significant to keep it out of the market, and the only discernible aim of the agreement is to restrict competition, the parties will have infringed article 101.1 of the TFEU, regardless of whether they are aware they are breaching competition rules.
Concluding thoughts
The courts’ position on pay-for-delay agreements shows that agreements entered under patent proceedings can breach competition regulations if the transfer of value can only be explained by a desire to avoid or delay potential competitors joining the market.
The judgment dismissing the appeal filed by Alpharma includes the interesting development that, when sector investigations are opened, the companies affected must anticipate that individual proceedings may be brought against them in the future and, therefore, they must comply with a specific duty of care and diligence from the start of the investigation. This duty holds practical significance for companies, as it requires them to keep all the evidence they may need in subsequent administrative or court proceedings.
The CJEU will have further opportunities to develop its position on these agreements, as two more appeals are yet to be resolved in the Servier (C-176/19) and Cephalon (T-74/21) cases. In these cases, the CJEU could provide additional information or criteria on the factors to be taken into account when considering that a settlement breaches competition rules.