[Ip-health] Mondaq- European Commission To Check Whether Patent Settlements Concluded Between Pharmaceutical Companies Infringe EU Antitrust Rules

[Terri - Louise Beswick]

This is a multi-part message in MIME format.
--
[ Picked text/plain from multipart/alternative ]
European Union: European Commission To Check Whether Patent Settlements Con=
cluded Between Pharmaceutical Companies Infringe EU Antitrust Rules

05 February 2010

Article by Frances Murphy and Francesco Liberatore

Jones Day

On 12 January 2010, the European Commission sent an information request to =
a number of pharmaceutical companies, seeking copies of their patent settle=
ment agreements, to check their compliance with EU antitrust rules (Officia=
l Press Release IP/10/12), as a follow up to its pharmaceutical sector inqu=
iry (Case COMP/39.514). The Commission is in particular looking at patent s=
ettlements where an originator company pays off a generic competitor in ret=
urn for delayed market entry of a generic drug (so-called "reverse payments=
 patent settlements"). This suggests that the Commission may be initiating =
a program to periodically monitor settlement agreements and could launch in=
fringement proceedings against settlements it finds anticompetitive.

In making this request, the Commission may have been influenced by a provis=
ion of U.S. law that requires such information to be submitted to the antit=
rust authorities. Since 2003, the parties settling patent claims arising fr=
om attempts by generic drug makers to enter the American market prior to pa=
tent expiration must file the terms of their settlements with the Federal T=
rade Commission and the U.S. Department of Justice. For that reason, the U.=
S. competition agencies are readily able to identify and, if they choose to=
 do so, investigate settlements with terms that the agencies find troubling=
.

Reverse payments patent settlements

The Commission's information requests cover reverse payments patent settlem=
ent agreements concluded between originator and generic pharmaceutical comp=
anies between July 2008 to December 2009 and relating to the EU/EEA. Outgoi=
ng EU Competition Commissioner Kroes commented: "We need to monitor this ty=
pe of agreement in order to better understand why, by whom and under which =
conditions they are concluded. The monitoring will also provide us with the=
 possibility to act should this become necessary."

This new round of information requests follows the Commission's findings in=
 its pharmaceuticals sector inquiry, as summarized in a final report publis=
hed in July 2009. This final report has been received with mixed views by i=
ndustry stakeholders, practitioners and commentators. The Commission has ta=
ken the view that reverse payments patent settlements between originators a=
nd generics raise a suspicion of a competition law infringement. The Commis=
sion's suspicion is arguably based on an assumption that the patent in suit=
 is either weak or invalid. However, it is difficult to reconcile this view=
 with the existing case law of the EU Courts on settlements of litigation c=
oncerning intellectual property.

EU case law

In Bayer v S=FCllhofer, the Court of Justice stressed that agreements to se=
ttle current or potential litigation, which can be judicial or out-of-court=
 settlements, are in principle capable of falling within the prohibition of=
 EU antitrust rules. However, it also indicated that a no-challenge clause =
in a settlement agreement terminating an intellectual property rights infri=
ngement does not generally fall within the scope of EU antitrust rules as i=
t is inherent in such settlement agreements that the parties agree not to c=
hallenge the intellectual property rights covered by the agreement. Moreove=
r, it follows from the General Court's ruling in ITT Promedia that litigati=
on settlements fall outside EU antitrust rules unless it can be demonstrate=
d that the settlement was reached in circumstances that constitute "sham li=
tigation". In this respect, the Commission's guidelines on the assessment o=
f patent settlement agreements (Guidelines on the application of Article 81=
 of the EC Treaty to technology transfer agreements, para. 204-209) state t=
hat settlements will not be deemed unlawful if the parties "have... good an=
d valid reasons to believe that a blocking position [i.e., a position in wh=
ich a product cannot be exploited without infringing upon the intellectual =
property rights protecting another product] exists" with the support of app=
ropriate legal advice.

It follows that the legal test for assessing compliance of a reverse paymen=
t patent settlement with EU antitrust rules should arguably be whether the =
settlement restricts competition beyond the exclusionary zone of the patent=
, unless the patent is a "sham patent".

US comparison

There are specific features of the US patent system under the Hatch-Waxman =
Act that are not applicable in the EU. However, there have been a number of=
 recent US cases on patent settlements that are interesting to compare.

While the Federal Trade Commission ("FTC") has taken the policy position th=
at reverse payments patent settlements are presumptively illegal - and this=
 view has been more recently endorsed by the Department of Justice too - th=
e US courts have overwhelmingly accepted the defendants' view that a revers=
e payment patent settlement within the exclusionary effect of a "non-sham" =
patent does not harm competition. To date, decisions in favor of the settli=
ng defendants have been rendered by the Eleventh Circuit in two separate ca=
ses (Valley Drug and Schering-Plough), by the Second Circuit (Tamoxifen), a=
nd by the Federal Circuit (Ciproflaxacin). In addition, a judge famous in t=
he U.S. for his antitrust opinions, Richard Posner, dismissed a similar com=
plaint while sitting by designation as a District Judge (Asahi Glass). In a=
ll these cases, the US courts adopted the fundamental position that the ass=
essment of reverse payments patent settlements requires the application of =
a rule of reason, having regard to the following three key points:

*=09First, a settlement that restricts competition only within the exclusio=
nary potential of the patent is presumed not anticompetitive;
*=09Second, there should be no detailed assessment in an antitrust context =
of the relative strength of the patent at issue -- patents that have been g=
ranted are deemed valid unless a party can demonstrate (1) that the patent =
has been fraudulently obtained,or (2) that the claim of infringement was "o=
bjectively baseless";
*=09Third, the presence of a reverse payment is not inherently anticompetit=
ive -- in principle, any settlement is lawful if it merely serves to protec=
t that to which the patent holder is legally entitled, i.e., a monopoly ove=
r the patented invention.

Despite these court rulings, the FTC continues its pursuit of patent settle=
ments in the US pharmaceutical sector both in the courts and with the publi=
cation of a report earlier this year, which condemns reverse payments paten=
t settlements. This FTC report comes as the House and Senate are beginning =
to marry their two healthcare reform bills. The House bill includes a provi=
sion that would essentially ban reverse payments patent settlements; the Se=
nate bill does not contain such a provision.

Conclusion

The EU and the US antitrust agencies have taken the view that reverse payme=
nts patent settlements raise a suspicion (if not a presumption) of a compet=
ition law infringement. However, the existing jurisprudence on both sides o=
f the Atlantic has thus far rejected this view. Against this background, it=
 remains to be seen what legal test the Commission will use to assess rever=
se payments patent settlement agreements between originator and generic com=
panies in its new monitoring exercise.

Next steps

If the addressees of the Commission's information requests fail to comply w=
ith such requests within the set time limits, the Commission can issue a bi=
nding decision to obtain copies of the requested agreements. If the Commiss=
ion were to find that a specific reverse payment patent settlement risks in=
fringing EU antitrust rules, it could launch infringement proceedings again=
st the parties concerned. If successful, infringement proceedings could res=
ult in the settlement agreement being declared unenforceable and financial =
penalties being imposed for an amount of up to 10% of their individual grou=
p turnover.

Depending on the outcome of this fact finding exercise, the Commission may =
decide to repeat this type of monitoring of pharmaceutical patent settlemen=
t agreements on an annual basis. It is an open question, however, whether p=
rolonged monitoring of agreements which are presumptively lawful would risk=
 placing an undue administrative burden on the pharmaceutical companies con=
cerned.

Read the Commission's press release and final report in its pharmaceutical =
sector inquiry here <http://ec.europa.eu/competition/sectors/pharmaceutical=
s/inquiry/index.html>  (ec.europa.eu/competition/sectors/pharmaceuticals/in=
quiry/index.html).

http://www.mondaq.com/unitedstates/article.asp?articleid=3D93380&email_acce=
ss=3Don