Almost two decades ago the European Commission (EC) launched a significant and far-reaching pharmaceuticals antitrust investigation into anti-competitive conduct by Lundbeck and four generics manufacturers, including Merck (GUK), Alpharma, Arrow Generics and Ranbaxy (the GMs).
This investigation found (reported 19/06/13) that the conduct, in the form of six patent dispute settlement agreements regarding Lundbeck’s blockbuster antidepressant citalopram (CIPRAMIL) between Lundbeck and the GMs, amounted to serious violations of Article 101(1) of the TFEU. The EC imposed substantial fines on Lundbeck (>€93 million) and the GMs (>€52 million between them). On appeal, this decision was confirmed by the General Court (GC) (8/9/16).
Back in the present-day, the European Court of Justice (ECJ) decision, published 25/3/21, confirms the EC’s original findings as well as the GC’s appeal decision. The ECJ also confirmed its approach to ‘Pay-for-Delay’ agreements as established in the earlier Generics (UK) (Paroxetine) case[1], concluding that:
“the agreements at issue [i.e. the Pay for Delay settlement agreements between Lundbeck, Merck, Alpharma, Arrow and Ranbaxy] constitute restrictions of competition ‘by object’.”
Lundbeck’s citalopram
In the late 1970’s Lundbeck developed its selective serotonin reuptake inhibitor (SSRI) antidepressant drug and secured patent protection across several EU member states. While under this protection, Lundbeck successfully marketed citalopram under the brand name CIPRAMIL and it became one of their most profitable drugs. The EC identified that Lundbeck's sales of citalopram throughout the EEA amounted to €400 - 600 million and made up 80-90% of its total EEA sales revenue for all products and services in that time.[2]
The GMs as potential competitors
In the late 90’s and early 2000’s, Lundbeck’s primary patent protection for citalopram was due to expire, though limited process patents remained. In anticipation of the opening-up of the marketplace for generic citalopram, the GMs prepared to launch their own generic versions and also entered into various infringement disputes with Lundbeck.
The EC, GC and ECJ all agreed these preparatory steps, and the absence of wholly insurmountable barriers to market entry, meant that there were real and concrete possibilities of the GMs competing with Lundbeck.
The settlement agreements constituting restrictions of competition ‘by object’
The disputes were ostensibly resolved via settlement agreements concluded with each of the GMs in 2002–2003. However, rather than actually resolving the disputes, Lundbeck simply bought indefinite postponements of the launch of competing generic citalopram products by paying each GM significant sums in exchange for putting off their launch.
The agreements did not need to impose traditionally anti-competitive non-compete clauses. Instead, the value transfers were substantial enough for the GMs to halt their product launches. The sums were in fact found to correspond approximately to the profit that the GMs expected to make if they had successfully entered the market and become actual competitors.
The EC, GC and ECJ emphasised that the notion of restriction by object must be interpreted narrowly and that the concept certainly does not apply automatically to all patent settlement agreements with a ‘Pay-for-Delay’ element. However, in this case, they found the agreements had no purpose other than the protection of the parties’ commercial interests by preventing competition on the merits of the products. It was impossible to conclude that the agreements were anything other than a restriction of competition ‘by object’.
Lundbeck’s motivation and strategies for delaying the launches of generic citalopram
It is well established that the introduction of competing generic products results in a reduction of the average price of the original innovator’s product:
“prices of innovator medicinal products drop by 40% on average in the period after the generic products enter the market. In addition, when generic medicinal products enter the market, their price is on average 50% lower than the initial price of the corresponding originator product.”[3]
In this case, it was ultimately found that in the 13 months following the entry of generic citalopram onto the market, prices dropped even lower, by an average of 90% in the UK, compared to Lundbeck’s previous price.[4]
In the course of its investigation, the EC established that Lundbeck had developed a sophisticated strategy to defer the impact of generic competition, including ‘deal making’ as one of its main tactics to delay the market entry of citalopram equivalents. Lundbeck described this approach as; ‘the art of playing a loosing (sic) hand slowly’.
Learning points
The EC, GC and ECJ made it abundantly clear that settlement agreements remain an entirely legitimate strategy for concluding disputes while avoiding costly and unpredictable litigation and are not automatically anti-competitive. Even those which feature value transfers and delayed generic market entry may be entirely appropriate and must be assessed on a case by case basis.
However, there are a few key lessons to be learned to ensure that your settlement agreements don’t encroach on ‘restriction of competition ‘by object’’ territory:
- Be certain that your agreement is settling a valid dispute – i.e. one that would otherwise go before a court.
- Make sure that your agreement actually settles your dispute. Lundbeck’s agreements didn’t provide an actual resolution and on their expiry it was unclear whether infringement action would simply resume.
- If your settlement agreement includes a value transfer, consider the size of the sum carefully. In simple terms, the more substantial the payment, the higher the risk that the agreement may amount to a restriction of competition by object.
- Finally, if your agreement does include a value transfer, consider the design of that payment – does it have an explanation other than that it is in the parties’ commercial interests to avoid competition? If not, then it is likely that the agreement will be a restriction ‘by object’.
References
- Case C-307/18 Generics (UK) and others v CMA (Paroxetine) 30 January 2020 https://curia.europa.eu/juris/document/document.jsf?docid=222887&doclang=EN
- https://ec.europa.eu/competition/antitrust/cases/dec_docs/39226/39226_8310_11.pdf – Page 17, para 26.
- https://ec.europa.eu/health/sites/default/files/human-use/docs/pharmaceuticals_incentives_study_en.pdf Study on the economic impact of SPCs, pharmaceutical incentives and rewards in Europe – May 2018 – Page 13, para 6
- Report from the Commission - Competition Enforcement in the Pharmaceutical Sector (2009 - 2017)
ECJ Press Release (25 March 2021) https://curia.europa.eu/jcms/upload/docs/application/pdf/2021-03/cp210049en.pdf
ECJ Judgment (25 March 2021) https://curia.europa.eu/juris/document/document.jsf?text=&docid=239291&pageIndex=0&doclang=EN&mode=req&dir=&occ=first&part=1&cid=596331
General Court judgment (first instance – 8 September 2016) https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=CELEX%3A62013TJ0472
European Commission Decision (19 June 2013) https://ec.europa.eu/competition/antitrust/cases/dec_docs/39226/39226_8310_11.pdf
