Big pharma business models at risk from competition authorities' 'attack' on patent system, warns senior UK judge

Out-Law News | 19 May 2014 | 10:24 am | 4 min. read

Large pharmaceutical companies are at risk of going out of business and innovative drugs research and development (R&D) stalling if competition authorities continue to attack the patent system, a former senior UK judge has said.

Sir Robin Jacob, now professor at University College London, told an event hosted by Pinsent Masons, the law firm behind Out-Law.com, that the patent system is "under attack" from competition authorities, economists and academics and that the "anti-patent mood" may end up damaging the life sciences and communications industries in particular.

Sir Robin argued that competition law was ill-suited for interfering with businesses' use of intellectual property rights.

"Contrary to what [the EU's competition commissioner] Almunia said, competition law does not encourage innovation," Sir Robin said. "There is nothing in competition law which suggests that innovation, risky innovation, is worthwhile if it can be copied."

He criticised the European Commission for holding certain 'pay for delay' agreements in the pharmaceuticals industry to be anti-competitive. He said pharmaceutical giants "depend on innovation" and the ability to protect those creations with patents to survive.

"If they don't make inventions now using the money of now for the future they are out of business," Sir Robin said. "Their business model depends on innovation. The trouble with competition law as I see it is it doesn't understand or have mechanisms that deal with innovation, and the costs of innovation, and the risks of innovation. It looks now at this very large price which the public is paying and says there is something wrong here. That is why competition authorities really need to stand back because I think they are doing great damage."

"Of course you can have all your drugs cheap tomorrow but you won't have any new ones thereafter," he said. "Most pharma companies will tell you that the products they sell are being sold for their best uses or their only uses. Nobody is researching on new uses for old medicines because it won't pay."

Sir Robin also said that there is a risk that competition regulators' interference in the mobile patent wars could reduce incentives for companies to develop speedier wireless internet technology than is currently available.

"Have you noticed your phone sometimes clogs up – things don't always download as fast, you don't always get through?" Sir Robin said. "Have you thought about why? Because it doesn't work fast enough. What are we waiting for? 5G, 6G and 7G. If those guys out there don't create it now with the money coming in now we won't have any of them. My basic thesis is that the competition authorities are pushing in too far, the economists are pushing in too far, and that they should leave the patentees to get on with it. They can't last forever. They've only got 20 years from the day they apply for the patent."

Sir Robin refuted claims that patents hold up developments elsewhere in industry and that so-called patent thickets, where there is a large collection of patents associated with a type of technology, are not a problem but a "success" and a "sign of fertile, innovative ground".

Sir Robin's views were supported by Monckton Chambers barrister Ronit Kreisberger. She said that rulings by the European Commission that certain 'pay for delay' agreements were anti-competitive "pose a threat to innovation".

Kreisberger highlighted the damaging consequences in cases of this kind of finding agreements to have been put in place with the object of infringing competition even if the effects of those agreements on the market are not anti-competitive.

"['Pay for delay'] agreements which avoid the uncertainty of litigation and provide for a large [reverse] payment will be struck down as object infringements even if ... they do not in fact render the market any less competitive than it would be but for the settlement ... It is a classic error of over-regulation," Kreisberger said.

The barrister warned of the negative consequences of such findings for both new drug innovators and their generic rivals.

"For the innovators, if they are no longer entitled to settle patent disputes then patents are fundamentally downgraded," she said. "It is no longer an ownership right, it's simply a right to go to court to battle it out over the validity of that instrument and that seems to me a potentially dramatic recalibration of the value of the patent."

"Without the option to settle, generic companies ... may decide not to attempt the launch of certain generic drugs at all in Europe where there is no prize for being 'first past the post', unlike in the US. That is precisely the reverse of what the Commission intended," she said.

Dr Mike Walker, chief economic adviser at the UK's Competition and Markets Authority (CMA), defended the right of the authorities to intervene in cases where patent holders use the market power those patent rights give them to exclude rivals where that power is being "illegitimately extended" beyond the actual terms of the patent.

In relation to standard-essential patents (SEPs), Dr Walker said that, because there is uncertainty about what constitutes fair, reasonable and non-discriminatory (FRAND) licensing terms for SEPs, it is legitimate for the regulators to be concerned where patent holders seek and enforce injunctions against licensees willing to accept binding arbitration or a solution determined by a court.

Economist Dr Helen Jenkins, managing director of Oxera, also defended the role of economists in plotting long-term growth strategies. She said that there is evidence to suggest that there are other ways to ensure "genuine innovative activity" in a market instead of relying on a patent system to do so.  However, there was also evidence to suggest that innovation in the pharmaceuticals industry did depend on companies' ability to rely on patent protection, due in particular to the high costs involved in developing new drugs, she said.

She advocated, though, a closer review of the quality of patents at the point that patent applications are considered. Such a review could help weed out weak patents and resolve some of the tensions that arise between patent protection and competition, Dr Jenkins said.

Jenny Block, competition specialist at Pinsent Masons, said that the discussion showed just how challenging it was to tackle issues at the interface between competition law and intellectual property.

"Considerable care is needed in setting out appropriate principles for intervention", Block said. "The practical reality is that the landscape is unlikely to become much clearer any time soon. The recent decisions of the competition authorities continue to be litigated or appealed and the pace of change is relentless."

"With developments in the life sciences sector towards a much more sophisticated approach to personalised medicines through biologics, new targeted indications for medicinal products, and the challenging issues raised by biosimilars, what remains acceptable or otherwise from a competition law perspective is just as challenging as how the IP and regulatory worlds address such developments," she said.