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Saturday, June 29, 2013

Guest Post: The legality of 'reverse payments' in the E.U.

Posted on 8:43 AM by Unknown
The issue of reverse payments, appears to be a rather hot topic this year, with both the U.S. and the E.U. cracking down on this practice, where an innovator pharmaceutical company, which owns a patent, pays off a generic competitor to not enter the market. Last week we had a guest post by George Yu, on the U.S. Supreme Court's decision in the Acatavis case. Today we have for our readers a guest post by Gary Moss, a U.K. solicitor, specialising in patent litigation and the Head of EIP Legal, London.  

The legality of 'reverse payments' in the E.U.
by

Gary Moss

Gary Moss
Competition authorities around the world are taking considerable interest in how pharma companies are using their patents to maintain their positions in the market, and in particular, whether they are using them in a way which breaches anti-trust laws.  One item which appears to have particularly exercised them is the so called “reverse payment” where the pharma company / patent holder pays a sum of money to a “generic” in return, ostensibly, for the generic agreeing to drop its challenge to the pharma company’s patent and to stay off the market for a given time. 

 Spicy IP recently published herethe report on recent case on this topic which came up before the United States Supreme Court and which had been instigated by the Federal Trade Commission.

 The latest salvo was fired last week by the European Commission when it fined Lundbeck of Denmark and four other generic companies (Merck KGaA / Generics UK,, Arrow (now part of Activis), Alphapharma (now part of Zoetis) and Ranbaxy) a total of €146 Million.  The largest fine (€93.8 Million was levied on Lundbeck.  Rambaxy was fined €10.3 Million.

 According to the press release which was issued by the Commission (the full text of which can be found here)
 In 2002, Lundbeck agreed with each of these companies to delay the market entry of cheaper generic versions of Lundbeck's branded citalopram, a blockbuster antidepressant. These agreements violated EU antitrust rules that prohibit anticompetitive agreements (Article 101 of the Treaty on the Functioning of the European Union – TFEU)……..
Citalopram is a blockbuster antidepressant medicine and was Lundbeck's best-selling product at the time. After Lundbeck's basic patent for the citalopram molecule had expired, it only held a number of related process patents which provided a more limited protection. Producers of cheaper, generic versions of citalopram therefore had the possibility to enter the market. Indeed, one of them had actually started selling its own generic version of citalopram and several other producers had made serious preparations to do so.
Experience shows that effective generic competition drives prices down significantly, reducing dramatically the profits of the producer of the branded product and bringing large benefits to patients. For example, prices of generic citalopram dropped on average by 90% in the UK compared to Lundbeck's previous price level once wide-spread generic market entry took place following the discontinuation of the agreements.
But instead of competing, the generic producers agreed with Lundbeck in 2002 not to enter the market in return for substantial payments and other inducements from Lundbeck amounting to tens of millions of euros. Internal documents refer to a "club" being formed and "a pile of $$$" to be shared among the participants. Lundbeck paid significant lump sums, purchased generics' stock for the sole purpose of destroying it, and offered guaranteed profits in a distribution agreement. The agreements gave Lundbeck the certainty that the generics producers would stay out of the market for the duration of the agreements without giving the generic producers any guarantee of market entry thereafter. These agreements are very different from other settlements of patent disputes where generic companies are not simply paid off to stay out of the market.
 Unfortunately the Commission decision is not currently publicly available, nor is the Statement of Objections which was served on the various entities and which specifies the exact nature of the objectionable behaviour.  What is clear is that underlying this was some form of settlement agreement relating to patent litigation over citalopram.  To quote from Lundbeck’s press release (the full text of which can be found here)


Lundbeck strongly disagrees with the Commission's decision. It asserts that any settlement agreements involving a transfer of value from an originator to a generic company is a restriction of competition and the value transfer reflects an understanding that the patent is invalid or weak.  This approach is erroneous. There is no question about the validity of Lundbeck's process patents at issue.  Patent settlement agreements are efficiency enhancing and legitimate when there are bona fide grounds for dispute.
The agreements did not restrict competition in the market beyond the protection already offered by society via the patent rights Lundbeck already held and as has been confirmed by the European Patent Office (EPO). Over 600 meticulous analyses of the generic citalopram demonstrated that they were all produced with infringing processes. Furthermore, in many concurrent documents the generic companies acknowledged that their products violated Lundbeck's patents.
Lundbeck welcomes competition between companies. Lundbeck also strongly believes in and advocates for a level-playing field, which includes that intellectual property rights should not be  ignored and infringed by third parties, since this seriously damages innovators' investments and reduce their incentives to innovate.
The company acted transparently and in good faith in trying to protect our patents.
Ranbaxy has been similarly vitriolic in its condemnation of the decision.  It issued the following statement:
 "Ranbaxy is disappointed with the decision by the European Commission to rule its patent settlement agreement with Lundbeck, covering the molecule Citalopram, anti-competitive, and intends to appeal the decision in the General Court of the European Union…….These events took place over 10 years ago, and the company considers that the Commission has misunderstood the facts and misapplied the law.  It believes it has strong grounds of appeal.” 
An appeal against the Commission’s decision will lie to the General Court of the EU, with the possibility of a further appeal to the Court of Justice of the EU.  At that stage hopefully there will be provided greater transparency as to what exactly the Commission found so heinous.

This decision needs to be viewed in context.  In 2008 the Commission conducted an investigation into the pharmaceutical industry with particular reference as to how the industry (allegedly) used its patent in order to restrict competition.  Although the Commission made something of a song and dance about the outcome, identifying that generic entry into the market was delayed by a period on average of 7 months following patent expiration (EU Commissioner Neelie Kroes was quoted as saying “Overall it is indeed a conclusion that there is something rotten in the state”), to many commentators eyes the outcome was something of a damp squib.  The press release issued by the Commission at the end of this Inquiry can be found here. (For those people who are interested the writer recommends reviewing Robin Jacob’s (formerly Lord Justice Jacob) masterly presentation to the inquiry the text of which can be found here In its press release following the inquiry the Commission stated:

 To reduce the risk that settlements between originator and generic companies are concluded at the expense of consumers, the Commission undertakes to carry out further focused monitoring of settlements that limit or delay the market entry of generic drugs.

This latest action by the Commission needs to be seen in that light.

What is of interest to commentators is how the Commission intends to prove that the agreements under scrutiny did not constitute genuine attempts by the parties to settle their ongoing patent dispute?  Are they going to effectively attempt to retry the patent dispute which was settled to show that one or other of the parties was bound to win and thus had no legitimate interest in settling?  And are the parties going to be forced to prove exactly the opposite of what they would have been intending to prove had those cases not been settled – i.e. will Lundbeck be required to establish that the generic companies could have succeeded and shown that the patents relied upon were invalid?  Conversely will the generic companies need to show that their cases were not so strong that they could be certain of winning?  If so it will indeed make for an interesting spectacle.

 For the time being, however, in the absence of further detail that is all speculation. 

In the meantime the Commission has two other investigations on the go.  One relates to perindopril in which Servier, Teva, Mylan and several others are in the Commission’s sights, and the other relates to fentanyl, where Johnson & Johnson and Novartis / Sandoz are involved.  The former investigation relates to settlement of patent disputes, the latter involves a co-promotion agreement.  Interesting times - watch this space!




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