ECJ advised to uphold EC fine against Lundbeck

AG Kokott published her opinion in Lundbeck’s appeal to the CJEU against the Commission’s infringement decision of 19 June 2013 fining it €98.3m in respect of a breach of 101TFEU. The infringement concerned certain so-called “pay-for-delay” patent settlement agreements entered into between Lundbeck and several generic manufacturers of the anti-depressant medication Citalopram. 

This follows from General Court decision of 8 September 2016 dismissing Lundbeck’s appeal. On 20 January 2020, AG Kokott also gave the opinion in a preliminary reference from the UK Competition Appeal Tribunal in the Paroxetine appeal[1], followed swiftly (and pre-Brexit) by the CJEU’s judgment on 30 January 2020. In her opinion she gave guidance on how to assess whether potential competition was restricted in breach of Article 101 TFEU with specific reference to the pharmaceutical market where there was a disputed patent.  Kokott recognises that patent disputes (and equally settlements of such disputes) are not uncommon in the pharmaceutical industry but that such settlements become problematic and breach competition law where their “true aim” is not to resolve the dispute, but to “forestall or delay the market entry of potential competitors”.

The two principal grounds of appeal related to the same issues as the Paroxetine preliminary reference and concerned:

  1. the test for potential competition
  2. whether the agreements constituted a restriction of competition by object. 

Test for potential competition

In determining whether an undertaking which is currently outside a given market is a potential competitor, it is necessary to assess whether there are insurmountable barriers to entry to that market and whether the undertakings seeking to enter that market have “real and concrete” possibilities of competing with the undertaking already in that market. This test can be satisfied by a generic manufacturer where they have a “firm intention and inherent ability” to enter the market and where the generic manufacturer, notwithstanding the existence of a process patent, shows a readiness to challenge the validity of the patent and take the risk of patent infringement proceedings. 

The fact a patent should be presumed to be valid doesn’t mean that generic products placed on the market should be presumed to be illegal because the patent holder says they infringe the patent. Disputes about patents are prima facie indications that competitive relationships exist. There is no need for the Commission to prove that the generic product does not infringe the patent to find that there is a relationship of potential competition. 

A restriction of competition by object

As to the second ground, AG Kokott referred to the finding of the General Court that every undertaking should determine its conduct independently. A patent settlement agreement which reduces the incentive for a generic manufacturer to enter the market without resolving the underlying dispute is likely to fall foul of Article 101 TFEU because it exchanges uncertainty for a significant payment and is likely to eliminate all competition, even potential competition. A generic manufacturer can decide not to enter the market and can enter into a patent settlement agreement but it must do so independently.There is a restriction of competition by object if undertakings enter into a patent settlement agreement where there is no explanation for doing so other than to prevent competition on the merits. Kokott notes that the undertakings in question failed to adduced “even minimal concrete evidence that might provide an alternative explanation” for the settlement payment.     

Lesley Hannah, Partner and competition litigation expert spoke to Emily Craig at Global Competition Review:

“This is an unsurprising opinion, not least given AG Kokott’s opinion and the CJEU’s decision in the Paroxetine case in January of this year. Nevertheless, it provides useful clarity on the test for potential competition, particularly where patents are involved. Kokott makes clear that the Commission is not required to assess either the validity of the patent or whether it has been infringed where it is assessing whether potential competition exists. The Commission’s assessment should focus on the prospects of the generic manufacturer entering the market in question and whether those prospects are “real and concrete”. The existence of a patent is not an insurmountable barrier to a competitor entering that market. 

Kokott also noted that an agreement which restricts the entry of another undertaking onto a given market is indicative that a relationship of potential competition exists. In so far as the test for a restriction of competition by object is concerned, her opinion gives helpful insight into the approach the Commission should adopt in assessing whether an agreement constitutes a restriction of competition by object. She states that the Commission should examine the commercial motivation for the undertakings entering into the agreement in question. It comes as no surprise that where there is no other reason for entering a patent settlement agreement other than to prevent a competitor entering the market, that such an agreement should constitute a restriction of competition by object.” 

AG Kokott's opinion

Footnotes

[1] GSK, Generics (UK) Ltd, Xellia Pharmaceuticals, Alpharma, Actavis and Merck’s appeal of the CMA’s infringement decision adopted on 12 February 2016.