EU court adviser considers law on 'pay-for-delay' agreements

Out-Law News | 10 Jun 2020 | 3:46 pm | 3 min. read

Views recently expressed by an adviser to the EU's highest court offer further insight into how competition law restrictions apply to so-called 'pay for delay' agreements in the pharmaceuticals sector.

The opinion of advocate general (AG) Juliane Kokott was published in a case before the Court of Justice of the EU (CJEU) concerning an appeal raised by pharmaceuticals patent holder Lundbeck against a fine imposed on it by the European Commission in 2013 totalling nearly €94 million.

The Commission held that Lundbeck was responsible for breaching EU competition law by entering into agreements to delay the launch of rival products to a "best-selling" anti-depressant, citalopram, after the primary patent to the drug had expired. The Commission's decision was upheld previously by the EU's General Court, with the case now before the CJEU on final appeal.

AG Kokott has advised the CJEU to dismiss Lundbeck's appeal, but in doing so she made a number of observations about so-called 'pay-for-delay' agreements and competition law that are of relevance to the wider pharmaceuticals sector, said competition law expert Robert Vidal of Pinsent Masons, the law firm behind Out-Law.

According to Kokott, whose opinion is not binding on the CJEU judges who will consider Lundbeck's case in the coming months, companies holding patents over pharmaceutical products risk breaching EU competition law when they offer to pay generic medicines companies to delay the entry of rival products onto the market.

Vidal said that view echoes a judgment issued by the CJEU in a separate case earlier this year, in which the court considered reverse payment settlement agreements relating to another anti-depressant drug, paroxetine.

Under Article 101 of the Treaty on the Functioning of the EU (TFEU) there is a general ban on organisations putting in place agreements which may affect EU trade where those agreements "have as their object or effect the prevention, restriction or distortion of competition within the internal market".

In Kokott's view, the General Court did not err in ruling that pay-for-delay agreements made between Lundbeck and various generics companies were restrictions of competition ‘by object’, as the agreements went "beyond the specific subject matter of their intellectual property rights". This means that, although patents allow their holder the right to oppose infringements, they do not permit agreements to pay actual or potential competitors not to enter the market.

Vidal said that, as in the paroxetine case, the implication is that, where a transfer from a patent holder to a generic manufacturer can only be explained by "the common commercial interest of the parties not to engage in competition on the merits", this will constitute a ‘by object’ infringement of competition law.

Kokott also rejected Lundbeck’s claims that the Commission made an error of both calculation and principle when it imposed fines on it. She said that a literal reading of Article 101 of the TFEU makes it clear that the agreements in question were unlawful, and added that an agreement does not have to have been found unlawful in the past, or have a harmful effect on competition, to infringe competition law ‘by object’.

Vidal said that Kokott had also addressed the contentious question of when generic manufacturers can be said to be ‘potential competitors’ of pharmaceutical patent holders. The concept is important to determining whether the companies can be said to be active in the same market and therefore to any assessment of the impact on competition in the market of agreements between those companies.

Kokott said the General Court was correct to uphold the European Commission’s conclusion that Lundbeck and the generics companies were potential competitors at the time they made their respective agreements in this case.

Echoing the CJEU's views from the paroxetine case, Kokott said she believes that the existence of a patent is not an "insurmountable" barrier to entry for generic manufacturers and that they are still able to enter a market and compete with a pharmaceutical patent holder where patent rights are still in place, highlighting the fact that generics can still enter the market if a patent is invalidated or if it launches ‘at risk’ of a future finding of infringement.

Because "uncertainty surrounding the validity of patents… is a fundamental characteristic of the pharmaceutical sector", Kokott said she is of the view that, so long as a generic manufacturer has "a firm intention and an inherent ability" to enter the market, it will constitute a 'potential competitor'. This will be the case even where the generic does not hold a marketing authorisation (MA) for its version of a product, she said. Requiring a company to hold a MA to be considered a potential competitor would prevent the TFEU prohibition on anti-competitive agreements from applying to the preparatory stage of generic market entry and have resultant anti-competitive effects, according to Kokott.

Vidal said: "In practical terms settlement agreements need to be reviewed with care where one could argue some form of consideration has been used to incentivise a potential delay in market entry. More controversially Kokott does not appear to believe that the lack of an MA should be regarded as an 'insurmountable barrier' to competition even though it is illegal to launch a product in the EU without one. The justification for this conclusion is that she believes an alternative view would dilute the effectiveness of competition law."

The CJEU is expected to issue a formal ruling on the case in the coming months.