Lundbeck v European Commission - a rotten decision or effective competition law enforcement?

This GuestKat was entertained yesterday evening at Monckton Chamber's event at the Goldsmith Centre in London entitled "Recent key developments in competition law and regulation in the pharmaceutical sector". The main focus of the seminar was on last month's decision of the General Court in Case T‑472/13, Lundbeck v European Commission. This is the first time that the General Court has ruled that so called 'pay-for-delay' agreements breach EU antitrust rules, and the General Court upheld fines of €146 million on Lundbeck and the generic companies involved.

The speakers were Ronit Kreisberger, Ben Rayment, and George Peretz QC, and the session was chaired by Sir Robin Jacob.  Each of the speakers have been involved in the case, and were not expressing their own views or those of their clients in the debate.

Background

The case concerns the Danish Pharmaceutical company Lundbeck's anti-depressant citalopram drug. Lundbeck's compound patent for citalopram had expired by 2002, but it also held a crystallisation patent that protected citalopram when produced using a crystallisation process. Lundbeck concluded a series of settlement agreements with four generic manufacturers (Alpharma, Arrow, Generics UK and Ranbaxy), and these agreements were the subject of the General Court's analysis. Under these agreements, Lundbeck made substantial payments to each of the generic companies, and the generic companies agreed not to enter the citalopram market for a defined period. The Commission's decision had found that the concluded agreements harmed patients and health care systems, in that they allowed Lundbeck to keep the price of its blockbuster drug citalopram artificially high, in breach of Article 101 of the TFEU.

Debate

Never one to sit on the fence, Sir Robin kicked off proceedings by labelling the decision a rotten case, and invited Ronit Kreisberger and Ben Rayment to take the floor in the debate.
One key issue is that the Commission declined to perform any analysis of economic effects in its decision - it only assessed the object of the settlement agreements. The audience was reminded that where an agreement has an anti-competitive object, the Commission is not put to proof on the effects of that agreement. This promotes legal certainty, and has a deterrence effect. So far so good. But did the settlement agreements deserve to be assessed on an object basis only?

As a threshold issue, article 101 is not triggered unless the parties to the agreements are actual or potential competitors.  The generic companies maintained that they were not potential competitors: they could not launch a generic form of citalopram because they were prohibited from doing so by Lundbeck's crystallisation patent. This was rejected by the General Court on the basis that the patent was not an insurmountable barrier to entry due to the presence of a number of factors, which included the following: the parties' internal documents suggested that the patent might be 'weak', litigation was unlikely even if the generics had launched, and the generics' investments were substantial which provided evidence of their intentions to develop and launch generic citalopram.  The General Court stated that the generic manufacturers could have developed citalopram using alternative processes [Merpel wonders whether these were really practical alternatives, given that the generic companies would have relied on Lundbeck's data to obtain marketing authorisation from the regulator].  This essentially involves a 'counter-factual' assessment. Is such an assessment appropriate for an abbreviated 'object' inquiry? Where does this leave pharmaceutical companies in circumstances where some but not all of these factors are present?  [There is no right under competition law to launch an infringing product, says Merpel!].

On the other hand, certain evidence pointed in the direction of the agreements having an anti-competitive object. The settlements covered all citalopram - irrespective of the production method, and were therefore inconsistent with the scope of the crystallisation patent.  Another oddity is that the generic companies only agreed to delay entry for a period of 2-3 years - this was significantly shorter than the term of the crystallisation patent and would therefore not have guaranteed ‘early entry’.  It is worth noting that the Commission did not itself assess the validity of the patent - it merely reviewed the parties' documents on this issue.

Conclusions

The General Court appeared according to some participants to proceed on the basis that because some patents will fall when subjected to revocation actions,  all patent settlement agreements should be treated as presumptively unlawful.


IPKat: getting her claws out

Should this be an area that is the subject of ex post competition enforcement or would ex ante regulation be more appropriate? There were a number of thought provoking questions for the panel from the floor:

1. Is the Commission adopting different standards in comparable contexts? The Commission appears very sceptical of 'potential competitor' entry in the merger context, yet in these 'pay for delay' cases, the Commission is willing to label generic manufacturers as potential competitors even though it is highly uncertain what would have happened in those markets 'but for' the settlement agreements. The speakers were divided in terms of whether those contexts were comparable, and whether a similar approach should be applied in both contexts.

2. What practical steps can a patentee take to ensure that it does not fall foul of antitrust provisions? It was noted that the settlement agreements in issue were particularly badly drafted.  It is key that the scope of any settlement does not extend beyond the scope of the relevant patent(s).

Following judgment, Lundbeck issued a press release expressing disappointment with the General Court's conclusions, and strongly disagreeing with the judgment. Lundbeck is considering an appeal to the European Court of Justice. The Commission's press release can be found here.

A further report on the second case discussed at this seminar, R (Roche Registration Ltd) v Secretary of State for Health, will be posted on this blog in due course.