As its name indicates, this paper – which can be found here – compares the European and American approaches to pay-for-delay agreements – i.e. those agreements between an originator and a generics manufacturer where the former pays the latter to settle a patent injunction and agrees conditions to delay generic entry into the market. This payment goes against the standard expectation that a defendant in a patent suit would pay an IP-holding plaintiff to settle, but it is nonetheless economically rational for both parties: ‘the profit that the generic entering the market anticipates selling at a significant discount to the price of the brand-name product will be much less than the profit the brand-name drug company loses from the same sales applying the monopolistic price’. Settling the dispute eliminates the potential for competition and allows the parties to share profits that would otherwise be eroded by lower prices.

The argument is that, while the case-mix on each side of the Atlantic is substantially affected by the respective regulatory frameworks, the ultimate goal of both systems is the same: to balance the likely effects of patent settlements on competition with the risk of allowing monopoly positions created by IP rights to be illegitimately extended.

The paper is structured as follows:

  • Section 2 analyses the US and EU regulatory frameworks, in order to highlight similarities and differences between them.

It describes how, in the US, drugs must be approved by the DFA on the basis of a detailed application. Generics can be launched following a much simpler piggybacking process that must demonstrate bioequivalence of the generic with the branded drug. This process requires the generic to submit a statement that the generic drug does not infringe any patent listed with the FDA as covering the patented drug. If that statement holds that a covering patent is invalid or will not be infringed, the generic manufacturer must provide written notice to each listed patent owner. If, in reaction to this notice, the patent owner initiates a patent suit within 45 days of this notice, generic approval is automatically stayed for 30 months – unless, before that time, the patent expires or is judicially determined to be invalid or not infringed.

At the same time, in order to encourage both generic entry and challenges to weak patents, the first generic manufacturer who applies for marketing authorisation will benefit from a 180-day period of marketing exclusivity. This exclusivity period is very valuable to generic manufacturers, as they can sell their product at a price significantly higher than they would be able to if multiple generics were on the market. As a result, this regime has created a ‘unique incentive structure’ for both patent owners (which adopt drug lifecycle strategies to minimise losses in patent litigation) and generic companies (who are paid to settle a patent suit instead of risking losing the case) to settle.

In the EU, a brand-name drug manufacturer must obtain a marketing authorization (MA) covering the Member States in which the drug will be marketed. In addition to the possibility of obtaining independent marketing authorisations in each relevant member state, there are three different methods for obtaining EU-wide authorisation – some centralised, others r decentralised – which lead to different scopes for the marketing authorisations obtained.  The submission strategy for a given product will depend on the nature of the product, the target indications, the history of the product, and the marketing plan.

If the MA is requested for a generic version of a previously authorized drug, it is possible for the applicant to file a so-called ‘abridged’ application – but marketing will only be possible after the expiration of IP protection (which may extended through supplementary protection certificates) or of the period of market protection (usually 10 years since the product was first placed in the market).

  • Section 3 compares the case law on both sides of the Atlantic.

In the US, pay-for-delay agreements have been the subject of extensive case law. Originally, there was a debate regarding how to treat these agreements. Some courts found that pay-for-delay was a per se restriction of competition, while others found them to be per se legal as long as they fell within the scope of the patent in suit. At the same time, other courts adopted an abridged rule of reason to deal with these cases. The matter eventually reached the Supreme Court, which in Actavis decided that pay-for-delay agreements have to be assessed in accordance with the rule of reason. However, this decision has not solved all controversies on this topic, with lower courts still having to decide: (i) whether the Actavis treatment of reverse payment should be limited to cash-only payments, or whether it should also cover other forms of valuable agreements; and (ii) what payments are too large and unjustified, and how their assessment fits within the rule-of-reason.

In the EU, the case law is more limited and recent than in the US. It comprises merely four cases: the Citalopram case (also known as Lundbeck case), the Perindopril case (also known as Servier), the Fentanyl case and the Modafinil case. The paper describes the Lundbeck case in detail, and devotes particular attention to the classification of the payment as an object restriction under EU law.

  • Section 4 draws the strands together to compare the EU and the US approaches.

It concludes that the difference between the two regulatory environments is crucial for competition enforcement. In particular, the incentives for generic companies to become the first challenger of a patent-protected product, such as those present in the US, do not exist in the European context. This is clearly reflected in the case law: in the US, the majority of cases concern generic entry before patent expiry, while European case law concerns situations where the compound patent has already expired. At the same time, the US and the EU approaches are closer than might at first appear, since they are based on the same criterion – i.e. the size of the payment – and on the same legal assumption – i.e. the rejection of the scope of patent test – leading to similar outcomes.

The author identifies an issue common to all reverse payment settlement cases: how ‘to balance their likely effects on competition with the risk of protecting unjustified monopoly positions through potentially invalid patents.’ Courts have demonstrated a reluctance to apply a genuine case-by-case approach because it would require the sort of inquiry into the merits of a patent that a settlement seeks to avoid, and which is also difficult for courts to resolve. Ultimately, she suggests that antitrust should not deal with IP issues; the problems associated with patent settlements should be solved by IP law and sector-specific regulation. Competition law should only apply extraordinarily. Even then it should try to benefit from the input of IP enforcement bodies when assessing patent strength, and pursue a detailed effects-based analysis.

Comment; This is a very detailed and well researched piece that should be useful to anyone interested in the topic – and in the differences between the EU and the US. As is often the case in these papers, I very much enjoyed the descriptive sections but I am not fully convinced by the normative argumentation.

While the approach takes a critical position on the EU approach in Lundbeck, arguing that such cases should be subject to an effects assessment, it does not really address the thorny issues of how to balance innovation and price effects, or provide criteria to identify those ‘exceptional’ cases where competition law might have a role to play. This is not to say I don’t like it – I could not do better myself –, but it is very high level and unlikely to provide guidance to decision-makers.

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