On Thursday the General Court (the “GC”) held the first two hearings  in the Lundbeck case.

Generics UK, now part of the Mylan group, and its former parent Merck KGaA (“Merck”) challenged the European Commission’s (the “Commission”) analysis, arguing that the Commission had wrongfully concluded that Generics UK’s settlement agreement with Danish originator Lundbeck restricted competition ‘by object’, such that it infringed article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”).

Unlike its subsequent analysis in Servier where the Commission analysed by the ‘object’ and ‘effect’  of the agreements, in Lundbeck the Commission did not analyse the effects of the parties’ conduct.

The hearings provided the first opportunity to hear both the arguments of those challenging the Commission’s decision and the Commission’s defence. These appeals are important not only because they are the GC’s first chance to consider the Commission’s approach to patent settlement agreements, but also because they will almost certainly shed light on the way the GC will apply the Court of Justice’s  clarification of the circumstances in which a ‘by object’ analysis is appropriate, from the Cartes bancaires judgment. In Cartes Bancaires, the Court of Justice interpreted the ‘by object’ concept narrowly, finding that only certain types of coordination between undertakings  (e.g., horizontal price fixing by cartels) can be regarded as being harmful ‘by their very nature’ because it is so likely to have negative effects that it is redundant to prove that it has actual effects on the market. Coordination between companies involves a restriction ‘by object’ where such coordination “reveals in itself a sufficient degree of harm to competition”.

Before the GC the Commission argued that Cartes Bancaires does not change its view of pay-for-delay agreements.  Not surprisingly, both Generics UK and Merck  both claimed that the Commission should have carried out a full analysis of the context of the alleged infringements.  They also argued that the Commission had committed a manifest error of assessment when it found that the agreements were intended to restrict Merck (Generic UK)’s activities, and that the restrictions imposed exceeded the scope of Lundbeck’s existing patents. The Commission responded that it had reached its conclusion on the basis of the content, context and purpose of the agreement, and that the content of the agreement showed that it was restrictive ‘by object’.  Generics UK and Merck argued that the Commission had failed to take account of the presumptive validity of the patents in its analysis, and that the existence of a payment is not sufficient to show that the agreement restricted competition ‘by object’.

Merck and Generics UK also challenged the Commission’s conclusion that they and Lundbeck were potential competitors, arguing that the Commission had wrongly concluded that they had a real and concrete possibility of entering the market (and that such entry would have been economically viable). The Commission noted that it had analysed whether, in light of the structure of the market and the economic and legal context, there were real concrete possibilities for Merck (Generics UK) to enter the market to compete with Lundbeck. It argued that the steps taken to launch a rival product (i.e. licenses and authorizations had been obtained) showed that they were ready to enter the market.  As a result, the Commission concluded that Lundbeck’s payments were an inducement to delay market entry.

In addition, Merck and Generics UK argued that the Commission had wrongly concluded that the conditions set out in Article 101(3) of the TFEU were not fulfilled.

A serious of hearings in the appeals by Lundbeck, Alpharma, Arrow and Ratiopharm will be held in the upcoming weeks, before the judges complete their deliberations in this landmark case.