This article – which can be found here – criticises the adoption of a ‘by-object’ approach in the EU for pay-for-delay agreements, and argues that Europe should instead adopt a test along the lines of the rule of reason approach delineated by the US Supreme Court’s decision in Actavis.
This paper is structured as follows:
- Section 2 compares the EU and US regulatory frameworks. While broadly consistent with the papers above, this paper emphasises two points which merit attention.
First, it is pointed out that the existence of a period of exclusivity for the first generic entry can, when coupled with the possibility of the generic supplier settling a patent validity claim with the branded drug originator, skew the incentives of the parties in favour of settlement to the disadvantage of final consumers. Instead of solving the patent dispute in court, the parties settle their dispute. The generic company is nonetheless granted the 180 days of generic exclusivity. The parties can therefore stipulate the actual start date of the generic exclusivity as part of their settlement agreement, thereby delaying subsequent generic entry. At the same time, this regulatory bottleneck renders the brand company’s patent monopoly effectively unchallengeable for the entire duration of the patent life. In return for this delayed entry of the first-filing generic company, the brand company typically compensates the generic applicant with a payment that is ideally larger than the estimated profits of the generic company.
In Europe, drug approval regulation does not automatically create a temporary duopoly without potential for further entry simply by granting the first generic market authorisation, as in the US. Achieving market foreclosure thus becomes more complex, and is potentially very difficult as soon as several potential competitors are equally strong or equally willing to take the risk of undertaking patent infringement litigation. Nonetheless, a pay-for-delay settlement could still be a viable option to foreclose the market if the market in question is not very diverse.
- Section 3 assesses the by-object approach adopted in Lundbeck, and concludes that it is inappropriate – pay-for-delay should be subject to an effects’ analysis.
This criticism builds on a number of arguments. It is generally accepted that settlements are a legitimate means by which to end disputes, especially in patent litigation, which is costly and time-consuming. Further consideration has been given to the fact that the relevant settlements concern patents which grant exclusive rights that entitle the holder to exclude infringing products. It would therefore be difficult to categorise such settlements as restrictions by object. Furthermore, a large number of settlements identified in the European pharmaceutical sector inquiry were found not to restrict generic entry into the market; some even had pro-competitive features and only a minority gave rise to competition concerns. As such, it is hard to understand why such settlements are said to have such deleterious effects as a rule that they should be prohibited by object.
It is also argued that one has to keep in mind that the anticompetitive potential of pay-for-delay settlements in Europe is likely to be smaller when compared to the USA, given the different regulatory frameworks that apply in each jurisdictional context. And yet, the US has consistently adopted an approach akin to the effects’ analysis when dealing with pay-for-delay agreements – going as far as refusing to adopt an abbreviated analysis under the ‘quick look’ approach – because of the complex nature of the conduct and of the possibility of convincing justifications for such settlements.
- In the light of the above, section 4 sets out and analyses a possible effects-based approach for pay-for-delay settlements in Europe.
It begins by reviewing the US Supreme Court decision in Actavis – which adopted a full-blown approach for pay-for-delay settlements – and the FTC’s amicus curiae brief in Effexor XR – which argues that the Actavis rule should be extended to non-cash payments as a form of value transfer. The Actavis judgment also held that: (i) the size of payment from a branded drug manufacturer to a generic supplier can be an indicator of both market power and of a patent’s weakness; (ii) the strength of the patent itself need not be determined during antitrust analysis; (iii) a settlement payment may also reflect legitimate settlement considerations, such as avoiding litigation costs or paying for services provided.
The paper then proceeds to develop an European approach that follows this line of thinking. In short, the author considers that the Actavis test may be broadly transplanted to Europe with a major caveat – unlike in the US, it is unlikely that the market in Europe can be foreclosed by a single pay-for-delay settlement. This is taken to mean that one cannot presume that an anticompetitive foreclosing effect results from the agreement between the brand company and a single generic company that agrees not to enter a market or to delay its entry. It is also not appropriate to infer an anticompetitive effect solely on the basis of the size of the payment within this agreement. Instead, greater attention needs to be paid to the market structure and the relevant competitive environment.
A structured approach is then developed for the EU treatment of pay-for-delay agreements. At heart, it seems to require courts and agencies to determine whether the payment to a potential patent infringer is larger than the potential costs of patent litigation. When this is the case, a prima facie presumption that the settlement restricts competition should arise as long as there is also evidence that the agreement led or contributed to a significant foreclosure of the market. The investigated parties would then be required to refute this presumption as apt consideration for the settlement.
Comment: While I have my reservations about the proposed approach – I think it is less clear and harder to apply in practice than what the author suggests, and I also find it hard to understand what ‘foreclosing the market’ can mean in this context, given patent exclusivity – this is a valiant attempt to address this issue. It also, unlike the previous papers, argues that the different regulatory approaches to pay-for-delay in the EU and the US have implications for the relevant competition test – which I think is plausible. Naturally, this does not prevent the author from trying to import the US test into Europe, which seems to be a trend in all these papers.