Anticompetitive Patent Settlements – Where Are We Ten Years After the European Commission’s Pharmaceutical Inquiry?

In 2009, the European Commission published a final report on its market inquiry into the pharmaceutical sector. The report revealed the authority’s concerns regarding market practices of pharmaceutical originator companies aimed at delaying the market entry of cheaper generic pharmaceutical products. One of the delaying practices identified by the European Commission were patent settlements between an originator and a generic company including: (i) a value transfer from the originator to a generic company, and (ii) an obligation of a generic company not to enter the market. These patent settlements were called pay-for-delay agreements since the payment was allegedly made in exchange for the non-market entry obligation. The European Commission continued the investigation of patent settlements by its continuous monitoring. It also initiated antitrust proceedings that terminated with huge fines imposed on pharmaceutical companies. The appeals are now pending before the EU courts. Ten years after the publication of the final report on the market inquiry, this article aims to summarise the development of the case law and provide its critical analysis. The article focuses on the analysis of pay-for-delay agreements as infringements of Article 101 TFEU only and does not consider the conclusion of these agreements as an abuse of a dominant position.

The Role of Risk Aversion in Reverse Payment Agreements

Both the courts and the economists have identified risk aversion as a justification for reverse payment agreements, especially the risk aversion of brand-name companies. However, existing economic researches show whether risk aversion can be a rationale for reverse payment agreements depends on the type of reverse payment agreements reached. In “complete” settlement agreement where a brand-name drug manufacturer provides consideration to a generic drug company to completely settle the patent litigation, with agreed-upon entry dates for the generic, risk aversion does not provide a justification for reverse payment, but asymmetry in risk aversion can be a rationale for reverse payment. In “partial” settlement agreement where a branded drug manufacturer provides consideration to a generic drug company in exchange for the generic to agree not to enter the market while they continue the patent litigation, it is not the risk aversion of the brand company, but the risk aversion of the generic company that can facilitate the parties to reach a partial settlement agreement with reverse payment that serves the procompetitive purpose.

PROJECT MANAGEMENT VALUES DRIVEN IN PHARMA INDUSTRY

In the pharmaceutical industry, project management is key to addressing the unique regulatory, compliance and quality related needs of the industry. As the process of drug development and the critical issue of time to market can capitalize on project management techniques to effectively apply scheduling, risk management, and comprehensive quality assurance and control to the process of bringing a drug to market in a cost-effective but safe way. “JUST DO IT” is the approach that XYZ Generic Company was using before this project arrives. Disclaimer statement: The writing and views expressed are those of purely of author’s personal view and is not related to the organization, where authors are working.

Earning Exclusivity: Generic Drug Incentives and the Hatch-Waxman Act

“Reverse” or “exclusion” payments to settle pharmaceutical patent lawsuitsare facilitated because the Hatch-Waxman Act has been interpreted to give180 days of generic exclusivity to the first generic company to file forFDA approval, whether or not that company succeeds in invalidating thepatent or finding a way to avoid infringement. As a result, the patenteecan “buy off” the first generic entrant, paying them to delay their entryinto the market while still offering them the valuable period of genericexclusivity. And if that first generic is entitled to its 180 days, no oneelse can enter until after the exclusivity period has expired or beenforfeited. The result is that the 180-day exclusivity period is not servingits purpose of eliminating weak patents. True, it is encouraging lots ofchallenges to those patents. But it is encouraging the challengers toaccept compensation to drop those challenges, rather than taking them tojudgment and benefiting the rest of the world.We propose a change to the Hatch-Waxman statutory scheme. Our alternativeis straightforward: first-filing generic drug companies should be entitledto 180 days of exclusivity only if they successfully defeat the patentowner, for example, by invalidating the patent or by proving that they didnot infringe that patent. The point of 180-day exclusivity was to encouragechallenges to patents because the invalidation of bad patents benefitssociety as a whole. Society doesn’t benefit from a private deal to drop achallenge. That doesn’t mean settlement is never a good idea; it is acommonplace in our legal system. But it seems bizarre to insulate a companyfrom competition just because it settles the case. Indeed, we expect thatour proposal, if implemented, would facilitate more rational settlements,in which the settlements that result accurately reflect the likelihood ofsuccess in litigation.

Reverse Payment Patent Settlements in the Pharmaceutical Sector and Competition Law – Do Lundbeck and Actavis Help to Bridge the Views Across the Atlantic Regarding the Delayed Market Entry of Cheaper, Generic Medicines?

Competition law and Intellectual Property law are remarkably divergent in scope and thus make for uneasy bedfellows. Although they both purport to help the consumer, their effects on the common market can be strikingly different. Recent decisions in the European Union and the United States of America have brought into focus the role of reverse payment patent settlement agreements. These agreements are generally of a commercial nature, and are agreements to settle actual or potential disputes which are related to patents. The questions which are sought by the parties to mutually settle range from infringement of a patent or the validity of a patent. When such a settlement agreement between a patent holder (in this instance the originator company) and a patent challenger (being a generic company) involves a value transfer from the originator to the generic company, coupled with a provision to limit or restrict the generic company’s ability to market its own product on the market, then certain interesting areas of conflict tend to come forward. The question arises whether this is simply a case of a company paying off its competitors to stay out of its market and delay the entry of cheaper, generic medicines, and is thus purely anticompetitive and harmful to consumers? Or whether the right to settle a patent dispute within the scope of patent laws is something which is outside the domain of Competition law? The European Commission and the Federal Trade Commission have displayed similar levels of distrust towards such commercial settlement agreements, and now the United States Supreme Court has weighed in with its own opinion. It remains to be seen how this matter will develop further in the courtrooms on both sides of the Atlantic.