IP AND COMPETITION
Tere are different types of patent settlement agreements, but two possibilities are:
• The originator company pays the generic company a sum of money (or effects some other form of ‘value transfer’ to the generic company) to withdraw its patent challenge and to remain off the market for a defined period of time
• The originator company gives the generic company permission (a licence) to enter the market, even though its patent is still in force.
For some time, the first kind of these deals has caused controversy in the United States (at the time of writing, a proposed ban on ‘pay for delay’ settlement deals—which had been backed by the US Federal Trade Commission (FTC)—had just been dropped from President Obama’s package of healthcare reforms). It was therefore not surprising that patent settlement agreements were the subject of particular focus by the European Commission, in particular those agreements that involved a payment from the originator company to the generic company (oſten called a ‘reverse payment’), in return for the generic company agreeing to refrain from entering the market. Whilst the FTC’s hostility to reverse payment deals has been well documented, the European Commission remains unforthcoming about the compatibility of some of the common means of settling these disputes with the competition rules.
One thing is clear, the commission intends to carefully monitor patent settlements in the pharma sector. In a press release issued in January, the commission followed up its interest in patent settlement agreements during the sector inquiry with further requests to both originator and generic companies to submit copies of all settlements entered into between July 1, 2008 and December 31, 2009. Te commission said that it was looking in particular at patent settlement agreements where an originator “pays off” (in the words of Kroes, in the official press release) a generic competitor in return for delayed market entry of a generic drug.
Where is the guidance?
To ignore the force of these words would seem unwise and yet the European Commission has not proposed any substantive guidance or lent any assistance to companies to help them understand how it views these deals. Whilst there is some US antitrust case law on these issues (expressly referred to in the commission’s final report), it has been argued that US case law only pertains to behaviour within a very specific US regulatory regime (Hatch-Waxman legislation), which provides a statutory reward for the first generic entrant. Tere is no such regime in the EU. Although many of the reasons underlying
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the rationale for settlement by the originator companies in the EU and the US are the same, in the EU, generic companies must compete amongst themselves for first mover advantage. Tere is no additional reward provided by the EU legislature for the first generic product to reach the market. Te incentives to compete and the economic effects of patent settlements are therefore oſten quite different in the EU and the US.
Te guidelines accompanying the European Technology Licensing Block Exemption Regulation offer some guidance, but it really only relates to cross-licensing deals and is arguably too general to be of much assistance. Nevertheless, it is worth noting the warnings in the guidance. For example, where it is clear to the parties to a negotiated agreement that no ‘blocking’ patent position exists (i.e. both the originator and the generic company believe that the originator’s patent is invalid), the consequence is that the “...the settlement is merely a means to restrict competition that existed in the absence of the agreement”.
Most commentators would agree that companies in any sector that arrange their contractual affairs based on a patent that they both know to be invalid (a ‘sham patent’) deserve to feel the full force of the antitrust regulator. Similarly, those companies that mutually agree on contractual restrictions, with the effect of extending the ‘exclusionary zone’ conferred by a patented monopoly beyond the statutory term, may expect to have their agreement scrutinised very carefully. Te real debate—in terms of European competition law analysis—lies not with these kinds of arrangement but with agreements that do not allow generic entry immediately and in an unlimited form, and that are accompanied by a ‘value transfer’ (such as a payment) from the originator to the generic.
A difficult balance
In assessing the value to society of these kinds of patent settlement agreement, it is difficult to balance the different public interests. It could be argued that originator companies should remain free to take commercial decisions about the strength of their patent rights and to enter into any kind of litigation settlement deal. Settlements should not be discouraged by antitrust regulation. On the other hand, the public purse should be protected against a ‘carve-up’ of the market between the originator and the generic companies.
Te commission has not yet committed itself, but seems instead to have elected to proceed cautiously, by investigating particular aspects of behaviour on a case-by-case basis. One such investigation was announced alongside the publication of the final report. Te set of factual
circumstances that gave rise to that investigation are known from the UK public record and serve to highlight some of the issues and the kinds of agreement that are of concern.
UK perindopril litigation
Te drug product Coversyl® first received marketing authorisation in Europe in the late 1980s. Te active pharmaceutical ingredient (API) is well-known as the tertiary butylamine salt of perindopril. Te UK patent extension (supplementary protection certificate (SPC)) for Coversyl® expired on June 21, 2003. In anticipation of the expiry of the SPC, Servier filed a number of secondary (or ‘follow-on’) patent applications, claiming various crystalline forms of perindopril and processes for their manufacture. Te granted patents were subsequently the target of litigation challenges brought by generic competitors of Servier in the English Patents Court between 2005 and 2007. Coversyl® had UK sales of approximately £70 million in 2005, which shows the size of the market and the incentive for the generic competition.
It is also important to note that one of the secondary patents relied upon by Servier in the English litigation proceedings had been opposed at the European Patent Office (EPO). Te Opposition Division of the EPO decided aſter oral proceedings on July 27, 2006 to uphold the grant of the patent. Tere was the possibility of an appeal, but this can take up to three years to be determined. Accordingly, once the grant of the European Patent had been upheld, the companies that wished to launch ‘at risk’ a generic form of perindopril in national EU markets were well advised to bring separate challenges to the validity of Servier’s European patent in the relevant national courts. Tis is what happened in the UK, with patent challenges brought in 2006 by several UK subsidiaries of generic companies in response to patent infringement lawsuits from Servier.
The settlements
Subsequently, Servier concluded patent settlement agreements with both Slovenia’s KRKA and India’s Lupin. Some of the terms of the KRKA deal were referred to in a public judgment of the English Court published in October 2008. Te essence of the settlement was that KRKA withdrew its challenge to the patent in both the EPO and the UK, and agreed not to sell in the UK in return for permission to market its generic perindopril in certain Central and Eastern European countries.
Te deal with Lupin was the subject of a press release, setting out the main terms, which meant Lupin would withdraw its opposition to the
World Intellectual Property Review March/April 2010
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