Paroxetine pay-for-delay ruling in the European court

Agreements between an innovator company and potential generic suppliers are likely to attract the attention of the competition authorities. However those relationships are structured, there’ll be a suspicion that the innovator is taking steps to shore up its monopoly position, and trying to fend off price erosion for as long as possible.

In a long-running dispute between the UK’s Competition and Markets Authority, and GSK and a group of generic companies, these issues came under the microscope. Now that the European Union’s top court, the CJEU, has given its ruling, defining a strategy for pursuing and settling patent litigation looks more difficult than ever.

A little background

The agreements under the spotlight in this litigation go right back to the early years of the century. GSK’s active ingredient patent for paroxetine expired in 1999, with the data exclusivity period expiring soon afterwards. GSK had a portfolio of secondary patents, including protection for a way of producing anhydrate forms of the drug. Nevertheless, generic competitors started circling with a view to cashing in on GSK’s blockbuster antidepressant.

In 2001 and 2002 GSK entered into three agreements with generics companies – these form the basis of the competition enquiry. The first agreement appointed generic producer IVAX as a ‘sole distributor’, permitted to sell up to 770,000 packs of paroxetine hydrochloride into the UK market, with an annual ‘promotional allowance’ payable by GSK to IVAX.

Agreements two and three both flowed from ongoing patent litigation over GSK’s anhydrate patent. The agreements involved payments by GSK to generic producers Generics (UK) and Alpharma for the purchase of existing stock, legal costs and marketing allowances in exchange for agreements not to enter the UK market other than through sub-distribution arrangements via IVAX.

The UK competition watchdog, the CMA, opened an investigation in 2011, culminating in an infringement decision in 2016 and fines against GSK, Generics (UK) and Alpharma totalling nearly £45m. The fined companies appealed to the Competition Appeals Tribunal, with some of the key points referred on to the European court.

Points for the CJEU to decide

The questions the CJEU addressed in its ruling are important for both innovator and generic companies. They address the tension between patent rights and free competition. IP rights are, of course, inherently restrictive of competition, but their existence is accepted within competition law. How IP rights are deployed does come into question, however leading to a lot of uncertainty and dispute over the years.

The CJEU’s ruling is detailed and technical, but very briefly, it covers the following points:

  • EU law against anti-competitive agreements (Article 101(1) TFEU) looks for restrictions or distortions of competition. Analysing an agreement for these purposes involves identifying whether the parties to the agreement are or could be in competition with each other. Can a patent owner and a potential infringer be considered actual or potential competitors at all?#
    • Yes they can. The CJEU ruled that, in a situation where the active ingredient is off-patent, the holder of a process patent and a potential generic market entrant can sometimes be treated as potential competitors.
  • In a situation like this, a settlement agreement which includes obligations not to enter the market or seek revocation of the process patent in exchange for transfers of value from the patent owner can fall foul of competition law. This is so if there is no explanation for the transfers of value other than preventing competition, and the agreement has no proven pro-competitive effects.
  • It is not necessary to demonstrate that the patent revocation proceedings were likely to succeed or that a less restrictive settlement agreement might have been reached.
  • The CJEU also looked at a second kind of competition law breach – abuse of a dominant position (Article 102 TFEU). Can a process patent holder settling invalidity proceedings with potential competitors be an abuse of a dominant position?
    • Yes it can, the CJEU ruled, if the settlement agreements form part of a wider strategy to restrict competition.

Take away points

The CJEU’s decision does not of course rule out settlement agreements in patent litigation. However, it does raise red flags as to how far a patent holder can legitimately go with a strategy of settling disputes with generic competitors. It is worth noting that the ruling focuses on the fact that the disputed patent claimed a process for the manufacture of paroxetine hydrochloride anhydrate, the active ingredient patent having expired. This made it easier for the CJEU to conclude that GSK and the generics were indeed potential competitors. Secondary patents to shore up a valuable pharmaceutical market are often treated with suspicion by both courts and competition regulators. Whether the same approach would be taken to litigation over an active ingredient patent is doubtful.

Although a strategic approach to litigation is standard business practice, patterns of behaviour that look like game-playing rather than genuine efforts to enforce IP rights are likely to attract adverse attention. Patent-holders, and particularly those in the pharmaceutical sector, would do well to consider this ruling when defining litigation strategy.

Further CJEU rulings in this area are expected in the Lundbeck (C-591/16) and Servier (C-176/1, C-201/19) litigation.

Does Brexit make any difference? EU competition law, and rulings of the CJEU, do apply in the UK during the transition period (to the end of 2020). The UK is likely to continue to follow the same legal structure in the short term. In the longer term, however, divergence from EU legislation and case law is certainly possible, although any activity that has an effect on EU markets will still be subject to EU rules and enforcement.

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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