When a pharmaceutical patent expires, the patent owner will normally face the competition of ‘generic‘ versions of the patented drug, which often means a dramatic fall in the originator product’s prices as well as an impending revenue cliff.

GlaxoSmithKline (hereinafter “GSK”) faced such a situation with regard to its patented anti-depressant product, Seroxat®, one of its best selling medications during the 2001-2004 time period. In 2001, a number of generics producers were taking steps to enter the market with their own versions of the product. GSK responded to the threat by commencing proceedings against two generics producers, Alpharma Limited (Alpharma) and Generics (UK) Limited (GUK), for breaching its patents.

Rather than taking the matter to trial, the parties proceeded to settle the case. The settlement terms included GSK paying certain sums to the generics producers and appointing them as its distributors of Seroxat®. In return, the generics producers agreed not to launch their own products into the UK market.

On the 12th of February 2016, the Competition and Markets Authority (former Office of Fair Trading) ran out an investigation against GSK and the generic companies finding that they had entered into anti-competitive reverse-payment settlements agreements for breaches of Chapter I of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 81 of the Treaty Establishing the European Community, TEC) (see the CMA press release at https://www.gov.uk/government/news/cma-fines-pharma-companies-45-millionfull, text of the decision yet to be published). The CMA found that the agreements effectively prevented the generic competitors from entering the paroxetine market and deprived the National Health Service of price falls averaging 70 per cent. Therefore it characterised the arrangements as a cartel and as an abuse of dominance by GSK.

The decision culminates in total fines of just under £50 million including a fine of £37.6 million against GSK. The size of the fine is itself significant: it is the second largest to have been imposed on an individual company by the UK competition authorities.

This is the first UK decision to consider the application of competition law to patent settlement agreements. However, the pharmaceuticals sector is not new to the attention of the competition authorities.

In the U.S., the FTC’s efforts to combat harmful reverse-payment settlement agreements resulted in the Supreme Court’s landmark decision in FTC v. Actavis, Inc., 133 S. Ct. 2223 (June 17, 2013), which held that these settlements are subject to antitrust scrutiny.

At the EU level, patent settlement were thoroughly reviewed in the Pharmaceutical Sector Inquiry, a report of the European Commission published on 8 July 2009 and followed by yearly Monitoring Reports (full texts here http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/).

In 2013, the EU Commission fined Danish pharmaceutical company Lundbeck €93.8 million and its generic competitors €52.2 million following an investigation which found that Lundbeck had concluded deals with them to unlawfully prevent the market entry of competing generic versions of its branded citalopram, a blockbuster antidepressant, following the expiry of its patents (full text here http://ec.europa.eu/competition/antitrust/cases/dec_docs/39226/39226_8310_11.pdf).

Essentially, the Commission considered that Lundbeck had paid substantial sums to the generic competitors in return for a delay in launching generic products onto the market. Now Lundbeck is appealing against the Commission decision and a judgment is expected later this year.

In 2014, the European Commission fined the French pharmaceutical company Servier and five generics companies a total of 427.7 million (EUR). In that case, Servier implemented a strategy to exclude competitors and delay the entry of cheaper generic versions of its bestselling blood pressure medicine, perindopril. Since its patent protection came to an end generics companies started developing their own products, Servier challenged them and subsequently settled the cases, paying the generics companies to stay out of the market. Also Servier’s appeal against the Commission’s findings is currently before the European General Court.

Waiting for the outcomes of these rulings, the case at stake seems to fall squarely within the territory that the EU consistently considers as giving rise to an “object” or automatic infringement of EU and EU national competition law (cf. Guidelines on the application of article 101 TFEU (ex Article 81 TEC) to technology transfer agreements, 2014/C 89/03 of 28.3.2014). Indeed, the misuse of the patent settlements to restrict competition emerges clearly looking at the direction of the transfer of value. In genuine patent litigation settlement, any payment will tipically flow from the alleged infringer to the patentee. Here, on the contrary, it is the patentee which provides compensation to the infringer. This deal is a straight horizontal agreement in restraint of competition, which would be equally unlawful if it had been stipulated by two producers of generics. As Prof. Ghidini outlines in Profili evolutivi del diritto industriale, 2015, 426, the deal is unlawful not because it concerns a patent, but due to the payment for delaying the product’s entry in the market (cfr. Abbott A.F., Michel S.T., The right balance of competition policy and intellectual property: A perspective on settlement of pharmaceutical patent litigation, IDEA, 2006, 46).

It remains to be seen what further repercussions GSK may face from this case. It is possible that the Department of Health and any other customers of the product could consider to launch a claim for recovering loss they may have suffered because of the amount Seroxat® was overpriced as a result of GSK’s conduct.

Jacopo Ciani

 

UK Competition and Market Authority, 12 February 2016, CMA v. GlaxoSmithKline plc  and others, CE/9531-11