Pay for delay settlements and competition: CJEU guidelines

The Court of Justice of the European Union (CJEU) by judgment of January 30th, 2020 (case C-307/18), ruled on the matter of settlement agreements of disputes between manufacturers of originator medicines, who are patents holders, and manufacturers of generic medicines, giving assessment criteria on the agreements and their anti-competitive reach.

The judgment offers important clarifications on the lawfulness, on a competitive point of view, of the agreements between originators and generalists, aimed at delaying the market entry of some of the equivalent generic drugs, upon payment by the originator medicine manufacturers (‘pay for delay agreements’). In some cases, as the one examined in the judgment, these deals are included in settlement agreements aimed at finding an amicable solution of patent disputes.

In particular, the CJEU decided, in the preliminary ruling, on the case brought by the originator company GlaxoSmithKline (“GSK”) and others generic drugs manufacturers against the decision of English antitrust authority that had asserted the existence of “pay for delay” agreements related to an antidepressant drug containing an active ingredient called paroxetine.

The GSK’s patent for the active ingredient was expired, but not its secondary patents for the manufacturing processes and a particular formulation of paroxetine. It was indeed on these patents that the generic drugs manufacturers pursued actions for the nullity of the patent (with following actions of infringement by GSK).

The parties had concluded these disputes with settlement agreements that were qualified by the English antitrust authority as anti-competitive deals, as well as abuse of dominant position pursuant to the national law, i.e. Articles 101 and 102 TFEU.

As known, in accordance with article 101 (1), TFEU, all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market are incompatible with the internal market and are prohibited. To impose a penalty, these settlements must also have a negative and appreciable effect on competition in the internal market.

In this regard, the CJEU clarified that, in accordance with article 101 TFEU, an originator who is the holder of a manufacturing process patent for an active ingredient and the manufacturers of generic medicines who are preparing to enter the market of the medicine containing that active ingredient, are potential competitors, when it is established that the manufacturer of generic medicines has in fact a firm intention and an inherent ability to enter the market and that its market entry does not meet particular insurmountable barriers.

Moreover, the CJEU stated that “pay for delay” settlements are to be qualified as ‘restrictions by object’ of the competition, “if it is clear from all the information available that the net gain from the transfers of value by the manufacturer of originator medicines in favour of the manufacturer of generic medicines can have no other explanation than the commercial interest of the parties to the agreement not to engage in competition on the merits unless the settlement agreement concerned is accompanied by proven procompetitive effects capable of giving rise to a reasonable doubt that it causes a sufficient degree of harm to competition. Therefore, if these agreements are capable of causing sufficient harm to competition, in such a degree as to make the examination of the effects unnecessary, there will be restrictions by object.

The settlement agreements of a dispute are further prohibited when, even if an anticompetitive object is not established, they have an appreciable effect on competition. According to the CJEU, the demonstration of the existence of the appreciable potential or real effects on competitors of a settlement agreement, and, therefore, its characterization as a ‘restriction by effect’, does not need a finding that, in the absence of that agreement, either the manufacturer of generic medicines who is a party would probably have succeeded in the proceedings relating to the process patent concerned, or that the parties to that agreement would probably have concluded a less restrictive settlement agreement.

With regards to the abuse of a dominant position, the CJEU stated that to verify the existence of such abuse, in accordance with article 102 TFEU, regarding the pay-for-delay agreements “there must be taken into consideration, for the purposes of definition of the product market concerned, not only the originator version of that medicine but also its generic versions, even if the latter would not be able to enter the market legally before the expiration of that process patent, if the manufacturers concerned of generic medicines are in a position to present themselves within a short period on the market concerned with sufficient strength to constitute a serious counterbalance to the manufacturer of originator medicines already on that market (…)”.

The CJEU, thus, affirmed that pay for delay agreements constitute an abuse of dominant undertaking, pursuant to Article 102 TFEU, when they were concluded to limit competition and, in particular, with the only aim to preclude an effective entry in the market to generic medicines manufacturers.

In conclusion, the judgment in exam provides important guidelines to evaluate and analyze pay for delay agreements and clarifies many aspects which are objects of several debates.