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The judgment by the General Court of the European Union (EGC) has partially annulled the decision issued by the European Commission (EC) in July 2014, sanctioning Servier laboratories and generic companies for delaying the entry to market of perindopril, a medicine used to treat heart failure. The EGC confirmed the existence of collusive practices but annulled the infringement for abuse of dominant position.

The EC imposed a fine of €330 million on the Servier laboratory and a total of approximately €97 million on the generic manufacturers (€13.9 million on Niche/Unichem, €17.1 million on Matrix (now Laboratorios Mylan), €15.5 million on Teva, €10 million on Krka and €40 million on Lupin) for infringing Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).

Pay for delay

Following the rationale applied in the Lundbeck case, the EGC confirmed that entering into pay-for-delay agreements breached Article 101 TFEU.

Under these agreements, the company holding the patent for a medicine would pay another independent laboratory to avoid possible infringements of its patent, which could lead to delays in launching or bringing a generic medicine to market. In the framework of these agreements, generic laboratories often agree not to compete in the market and not to question the validity of the patent in question, thus avoiding litigation between the parties in exchange for payment. The EC has shown its concern over these practices in recent years, as, in its view, these practices keep prices artificially high, exclude competitors from the market and can extend the exclusivity afforded under the patent for a period beyond the corresponding period granted.

Therefore, and based on the inquiry carried out on the pharmacy sector in 2008, it monitored settlement agreements to identify those agreements that, instead of resolving a dispute over a patent through settlement (which is lawful and contributes to the normal functioning of the market), seek to delay the entry to market of medicines. Based on this inquiry, the EC sanctioned various laboratories for having carried out these practices in recent years in the Lundbeck cases, confirmed by the EGC and pending resolution from the CJEU, Johnson & Johnson in 2013, and in the current case of Servier in 2014.

In the current case, the EGC clarified that to consider a pay-for-delay agreement to be restrictive of competition by object, a detailed analysis must be carried out of each agreement, particularly examining the following areas:

  • the existence of a real and concrete possibility that generic competitors would have entered the market had these agreements not been signed, (ii) whether the generic companies had agreed to limit their individual efforts to launch the generic medicine on the market for the term of the agreement, and (iii) whether the compensation paid under the agreement substantially reduced the incentives that the generic companies had to enter the market. The presence of these elements is indicative that the agreement was restrictive of competition by object.

The EGC also held that, if there is no incentive, the agreement could be considered restrictive of competition by its effect and the practice would not be able to be sanctioned without carrying out the corresponding examination. Therefore, in the Servier and Krka cases, it declared that the agreements were not restrictive of competition by object and annulled the sanction.

Abuse of dominant position

However, the EGC annulled the sanction for breaching Article 102 TEFU.

It did not question the possibility of sanctioning the pay-for-delay agreement as an infringement of Article 102 TFEU in general. However, according to the court, in this case in particular, the EC had considered an incorrect definition of the relevant market, too reduced, when it considered that the relevant product market was limited to the molecule belonging to the ACE inhibitor class of medicine, i.e., perindopril, in its reference and generic versions.

The EGC recalled that competitive relationships in the pharmaceutical sector differ from the competitive interactions normally present in other economic sectors, such as price. The demand for prescriptions for medication is largely determined by the doctors prescribing the medication who are mainly guided  by its therapeutic use and not by its cost. Therefore, there is competitive pressure on the market as a result of qualitative factors, and not exclusively based on price.

Finally, the court concluded that the EC had been mistaken when it defined the relevant market. For example: (i) considering that perindopril was different from other ACE inhibitors from a therapeutic point of view, (ii) underestimating the likelihood that patients treated with perindopril would be able to use other medications, and (iii) placing too much importance on the price factor when looking at the competitive restrictions.

Conclusions

The EGC confirmed that payment settlement agreements can be restrictive of competition by object when (i) the object of the agreement is to avoid a potential competitor from entering the market, and (ii) this can be proved. Those agreements that serve to resolve disputes arising in relation to patents fall outside this scope. In relation to the abuse of a dominant position, it is necessary to carry out an exhaustive examination of competitive restrictions to define the relevant market.

Although the court is yet to rule on the appeal on the issue of pay for delay in the Lundbeck case, this judgment gives guidance as to the limit of payment settlement agreements entered into between patent-holding manufacturers of medicines and generic companies.

The EGC’s press release and judgments are available here.

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