On 6 February 2013 the Italian Competition Authority opened proceedings against the Roche Group and the Novartis Group in relation to an alleged anticompetitive agreement for excluding the ophthalmic use of Roche’s Avastin in order to advantage the sales in Italy of Lucentis, which was distributed by Novartis, in breach of Article 101 of the Treaty on the Functioning of the European Union. The Authority visited the Italian premises of Roche and Novartis on 14 February 2013.
On 16 July 2012 the U.S. Court of Appeals for the Third Circuit held that payments from a patent holder to a generic manufacturer of pharmaceutical products who agrees to delay entry into the market are presumptively illegal, unless the payment is shown to be made for a purpose other than delayed entry or to offer a pro-competitive benefit.
The ruling is noteworthy because it rejects the scope of the patent test approach employed by the Courts of Appeal for the Second, Eleventh and Federal Circuits (See e.g. Newsletter 3/2012 p. 4, 3/2010 p. 2 and 1/2008 p. 2). Under the scope of the patent test, reverse payment settlements are considered lawful when the settlement does not extend beyond the scope of the patent in question, unless the patent was procured by fraud or the enforcement action was objectively baseless.
The Third Circuit refused to follow the scope of the patent test since, according to the court, the test improperly restricts the application of antitrust law and is contrary to the policies underlying the Hatch-Waxman Act (Pub. L. No. 98-417, 98 Stat. 1585 (1984); see 21 U.S.C. § 355 for the relevant passage) and U.S. Supreme Court case-law, as outlined below.
The court criticized the scope of the patent test on the grounds that the test presumes that the patent is valid almost without chance of rebuttal. As a practical matter, that approach does not subject reverse payment settlements to any antitrust scrutiny. The test also effectively presumes that the patent holder would have prevailed, even though the very issue of validity would be litigated in the underlying patent suit. According to the court, there is no significant policy basis for such a presumption of validity. In particular, the presumption of validity of patents is not a substantive right of patent holders, but merely a procedural presumption. The presumption that the patent holders would have been able to exclude generic competitors is also especially inappropriate when the underlying suit concerns infringement because in infringement cases it is the patent holder who bears the burden of showing infringement.
The court noted that studies indicate that many granted patents are later found to be invalid or not infringed, which reinforces the conclusion that reverse payments could allow patent holders to protect themselves from competition and invalidation of weak patents. The court also questioned the suggestion that other generic manufacturers would invalidate weak patents when a reverse payment settlement prevents an initial challenger from doing so. The court noted that the first challenger would be the most motivated one to challenge a patent because it would benefit, if successful, from a 180-day period of exclusivity under the Hatch-Waxman Act. Upholding the scope of the patent test would also enable the monopolist patent holder with its high profits to make reverse payments to several subsequent challengers.
The court explained that holding reverse payment settlements presumptively illegal is supported by U.S. Supreme Court case-law that supports elimination of weak patents, which other courts following the scope of the patent test have overlooked. According to the court, reverse payment settlements are contrary to that public interest as well as the Hatch-Waxman Act that specifically seeks to promote the entry of generic producers of pharmaceuticals by encouraging challenges of weak or narrow patents. The court further explained that the judicial preference for settlement, which could be served by the scope of the patent test, should not outweigh the objective to protect consumers from unjustified monopolies. Moreover, settlements not involving reverse payments – which comprise the vast majority of pharmaceutical settlements – would not be deterred by the approach of the court since only settlements in which reverse payments are made would be subject to presumptive illegality.
The Third Circuit remanded the case back to the U.S. District Court of New Jersey to be reconsidered under this “quick look” type of rule of reason analysis. However, petitions for certiorari have been filed with the U.S. Supreme Court (Dockets 12-245 and 12-265) which may bring the issue of appropriate antitrust standard for reverse payment settlements before the Supreme Court. A petition for certiorari was also filed in another reverse payment settlement case by the U.S. Solicitor General on behalf of the FTC (see Newsletter 3/2012 p. 4 for the 11th Circuit ruling in that case). The Supreme Court has denied petitions for certiorari in previous cases (see Newsletter 2/2011 p. 3 and 4/2009 p. 2), but at least this time there is an apparent conflict between the Third Circuit and the Second, Eleventh and Federal Circuit. [Juha Vesala]
On 25 and 30 July 2012, in relation to the Citalopram case and the Perindopril case respectively, the European Commission sent statements of objections (“SOs”) to more than a dozen companies in connection with these two antitrust investigations in the pharmaceutical sector. The Commission also issued a note highlighting its current enforcement action in pharmaceutical sector following its inquiry.
In the Perindopril case, the SO was sent to the French pharmaceutical company Servier and several of its generic competitors – a list of which is available in the Commission press release – in connection with practices potentially delaying the generic entry of perindopril, a cardio-vascular medicine, possibly in breach of the EU Antitrust rules that prohibit restrictive business practices and the abuse of a dominant market position, respectively Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”). The Commission had opened proceedings against Servier and other companies on 8 July 2009 (see Newsletter 4/2009 for additional background).
The Commission’s objections relate to two specific sets of practices by Servier, aimed at delaying or preventing the market entry of cheap generic versions of perindopril and ultimately to preserve Servier’s dominant position with regard to perindopril, which was about to reach the end of its patent protection. Firstly, as part of a comprehensive strategy, Servier acquired scarce competing technologies to produce perindopril, rendering the generic market entry more difficult or delayed. Secondly, in exchange for payments by Servier, generic competitors were induced to conclude patent settlements and/or not to challenge the validity of the patents that protected Servier’s branded drug.
In the Citalopram case, the Commission took the preliminary view that Lundbeck concluded agreements with generic companies to prevent the market entry of competing generic versions of its best-selling medicine citalopram, a blockbuster antidepressant, in breach of Article 101 TFEU. In fact, the agreements foresaw direct payments from Lundbeck to the generic competitors as well as the purchase of generic citalopram stock for destruction or guaranteed profits in a distribution agreement. In essence, generic manufacturers subsequently abstained from entering the market with generic citalopram for up to two years, although in principle they could do so when certain of Lundbeck’s citalopram patents had expired.
Together with the Servier investigation this is the first case that deals with the so-called “pay for delay” agreements. According to the Commission, such practices, if established, would be likely to cause significant consumer harm as national health services or insurance schemes are then forced to continue paying for the more expensive patent protected versions of a medicine when, absent the practices, cheaper generic medicines would have been available earlier. [Gabriele Accardo]
On 21 October 2011 the European Commission issued a press release stating that it is investigating whether contractual arrangements between US-based pharmaceutical company Johnson & Johnson and the generic branches of the Swiss-based company Novartis had the object or effect of hindering market entry of generic versions of Fentanyl, a pain killer for chronic pain, in The Netherlands.
On 6 July 2011 the European Commission published a report that summarizes its monitoring of patent settlements in the pharmaceutical sector in 2010. The Commission’s efforts focus on potentially problematic agreements, such as those that may limit generic entry due to payments from the originator to the generic company, or so-called “pay-for-delay” agreements (see Newsletter 1/2011 p. 6 Newsletter 1/2010 p. 6, and Newsletter 4/2010 p. 7, for more background).
On 18 May 2011 the U.S. Federal Trade Commission (“FTC”) filed an amicus brief before the U.S. Court of Appeals for the Third Circuit (“3rd Circuit”) in support of plaintiffs in a private antitrust suit that challenges settlements of patent disputes between branded and generic manufacturers of K-Dur 20.
In its amicus brief the FTC argues that the 3rd Circuit should reverse the district court’s decision and remand it for reconsideration.
According to the FTC, the district court’s approach conflicts with basic antitrust principles as well as with patent law and the policies of Hatch-Waxman Act to promote the entry of generics drugs. According to the FTC, reverse payment settlements should be considered presumptively illegal and condemned unless established that they do not harm competition (see also Newsletter 4/2009 p. 2 for an earlier amicus brief by the U.S. Department of Justice). [Juha Vesala]
On 28 April 2011, the European Commission communicated that it is investigating whether an agreement between US-based Cephalon and Israel-based generic drugs firm Teva may have had the object or effect of hindering the entry of generic Modafinil (a drug used for sleeping disorders) in the European Economic Area (“EEA”) in breach of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”).
The investigation relates to a December 2005 settlement between Cephalon and Teva about patent infringement disputes in the United Kingdom and the United States concerning Modafinil. Under the settlement agreement, Teva undertook not to sell its generic Modafinil products in the EEA markets before October 2012. The settlement agreement is also subject to antitrust litigation in the United States initiated by the US antitrust authority FTC.
In 2008 and 2009 the Commission carried out a broad inquiry of the pharmaceutical sector, pointing out in particular the potential anticompetitive effects arising from certain business practices, notably certain types of patent settlements between originator and generic companies aimed at delaying the arrival into the market of cheaper generic medicines (sometimes also referred to as “pay-for-delay” settlements). [Gabriele Accardo]
On 7 March 2011, the U.S. Supreme Court denied certiorari in the latest attempt to bring reverse payment settlements before the Court (Louisiana Wholesale Drug Co., Inc., et al. v. Bayer AG, et al., see Newsletter 5/2010 p. 2 and 3/2010 p. 2 for background of the case).
The denial comes despite considerable criticism of the “scope of patent” standard applied by the Second Circuit (from the Court of Appeals that heard the case) and some other circuit courts pursuant to which reverse payment settlements that do not extend beyond the scope of the patent are held virtually per se legal under antitrust laws. The U.S. Department of Justice and the Federal Trade Commission have strongly questioned the appropriateness of such a standard (see e.g. Newsletter 5/2010 p. 2, 3/2010 p. 2, 4/2009 p. 2 for their amicus curie filings in the case before the Second Circuit).
In 2009, the U.S. Supreme Court also denied certiorari (see Newsletter 2009/4 p. 2). [Juha Vesala]
On 17 January 2011, the European Commission announced a new round of selected patent settlements review. The monitoring exercise concerns patent settlement agreements concluded by a limited number of originator and generic companies between 1 January 2010 and 31 December 2010.
The Commission carried out a first monitoring exercise in early 2010, following a broader competition inquiry in the pharmaceutical sector which showed that certain patent settlements between originator and generic companies may cause consumer harm because they delay the market entry of cheaper generic medicines (see Newsletter 1/2010 p. 6, and Newsletter 4/2010 p. 7, for more background).
The Commission will publish a report providing a statistical overview in the first half of 2011. [Gabriele Accardo]