Lundbeck: First European Commission Decision on “Pay for Delay”

By Inside EU Life Sciences on August 14, 2013

On 19 June 2013, the European Commission imposed fines totaling EUR 146 million to Lundbeck and several producers of generic medicines, including Alpharma, Merck KGaA/Generics UK, Arrow, and Ranbaxy, for infringement of Article 101 TFEU. This is the first Commission decision dealing with so-called “reverse payment” patent settlements or “pay for delay” agreements.

Lundbeck is the manufacturer of Citalopram, a “blockbuster” antidepressant medicine. Lundbeck held patents covering both the citalopram molecule and the manufacturing process. In 2001, as the expiry date for the citalopram compound patent approached, several companies considered entering the market with generic versions of citalopram. However, Lundbeck reacted, warning that the generic products still infringed its crystallisation process patents. Patent disputes ensued. The parties ultimately settled these disputes on terms involving (i) payments from Lundbeck to the generic producers and (ii) a commitment of the generic manufacturers not to enter the market with the allegedly infringing generic citalopram.

As mentioned in its Press Release, the Commission found that Lundbeck’s agreements constituted restrictions “by object”, so that it was not necessary to establish anti-competitive effects. According to Commissioner Almunia, “Lundbeck did not prevent market entry by successfully enforcing its patent rights; rather, it simply paid other companies so that they would not compete […] they shared the monopoly rents among themselves”.

Lundbeck, Ranbaxy, and Mylan have already announced that they will appeal the Commission decision. The question whether a reverse payment settlement involving payment is an infringement “by object” is expected to be one of the basic issues on appeal. Given the amount of debate in the competition law field regarding the anti-competitive character of reverse payment patent settlements, it appears at least questionable whether such settlements should be simply treated as “by object” restrictions. In fact, the Commission itself appears to have looked at the Lundbeck’s agreements in 2004 and had not concluded that they restricted competition (Lundbeck’s Press Release on the European Commission Decision). Moreover, the US Supreme Court in FTC v. Actavis held that reverse payment settlements do not constitute per se violations, but rather must be analyzed under the rule of reason. Note that the US precedent must be read with caution given (i) the differences in the antitrust rules, and (ii) the differences in regulatory provisions in the pharmaceutical sector.

Another key issue on appeal is likely to be whether reverse payment settlement agreements are anti-competitive, when the settlement remains within the scope of the patent. The parties to the settlements argue that patents are generally presumed to be valid and that a settlement which remains within the scope, simply reflects the exclusionary effects of the patent. By contrast, according to the Commission, the existence of a payment is considered decisive in the legal analysis to determine whether the agreements infringe Article 101, even if the restrictions on entry imposed remain within the scope of the patent. The Commission considers that absent the payment, the generic manufacturer would have the possibility of having the patent invalidated or obtaining a ruling that it did not infringe the patent.

Given these fundamental open issues, there seems to be a long way to go, before sufficient clarity is achieved on reverse payment settlements in the EU. Among the developments which are expected to bring more transparency and legal certainty on the issue are the following:

The EU Courts’ future ruling(s), following the appeals of the parties in the Lundbeck case;
The Commission’s forthcoming decisions in “pay for delay” cases other than Lundbeck, such as Servier and Cephalon;
The Commission’s forthcoming decisions on investigations dealing with agreements delaying generic entry, even if these are not strictly speaking “reverse payment” patent settlements (J&J/ Novartis);
National competition authorities’ forthcoming decisions. For example, the UK’s Office of Fair Trading (OFT) sent a Statement of Objections to GlaxoSmithKline and certain generic manufacturers, concerning a reverse payment settlement for the anti-depressant medicine paroxetine (April 2013).