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Activating Actavis in Europe – the proposal of a ‘structured effects-based’ analysis for pay-for-delay settlements

Published online by Cambridge University Press:  02 January 2018

Sven Gallasch*
Affiliation:
University of East Anglia
*
Correspondence to: Sven Gallasch, Lecturer in Law, UEA Law School and Centre for Competition Policy, University of East Anglia, Norwich NR4 7TJ, UK. Email: [email protected]

Abstract

Striking the right balance between the protection of competition law and intellectual property rights is of utmost importance, especially in the pharmaceutical sector; affordable generic drugs are as important as new innovative drugs. Pay-for-delay settlements take place at exactly this intersection. They end patent infringement litigation but, at the same time, delay entry of generic drugs by means of a substantial payment from the brand company to the generic. Whereas the US Supreme Court opted for a rule of reason approach that requires an analysis of the potential anticompetitive effects, the European Commission regarded such settlements as restriction by object, finding an infringement without the need for an effects-based analysis. This approach is criticised and a novel ‘structured effects-based’ approach is proposed allowing the authority to effectively scrutinise such settlements while striking the right balance in order to protect the innovative process and the exercise of intellectual property rights.

Type
Research Article
Copyright
Copyright © Society of Legal Scholars 2016

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Footnotes

*

I would like to especially thank Andreas Stephan for this comments on an earlier draft of this paper and his support and advice throughout the process.

References

1. Federal Trade Commission ‘Pay-for-delay: how drug company pay-offs cost consumers billions’, FTC staff study (2010).

2. L Peeperkorn ‘IP licences and competition rules: striking the right balance’ (2003) 26 World Competition 527 at 531.

3. FTC v Actavis 133 S. Ct. 2223 (2013).

4. EC ‘Antitrust: Commission fines Lundbeck and other pharma companies for delaying market entry of generic medicines’, press release (2013).

5. EC ‘Antitrust: Commission fines Johnson & Johnson and Novartis €16 million for delaying market entry of generic pain-killer fentanyl’, press release (2013).

6. EC ‘Antitrust: Commission fines Servier and five generic companies for curbing entry of cheaper versions of cardiovascular medicine’, press release (2014).

7. Case T-460/13 Ranbaxy Laboratories and Ranbaxy (UK) v Commission [28 August 2013] OJ C 325/71; Case T-472/13 H. Lundbeck and Lundbeck v Commission [28 August 2013] OJ C 325/76; Case T-470/13 Merk v Commission [30 August 2013] OJ C 325/74; Case T-471/13 Xellia Pharmaceuticals and Zoetis Products v Commission [30 August 2013] OJ C 325/75.

8. P Treacy and S Lawrance ‘Intellectual property rights and out of court settlements’ in SD Anderman and A Ezrachi (eds) Intellectual Property and Competition Law: New Frontiers (Oxford: Oxford University Press, 2011).

9. FTC v Actavis, above n 3.

10. A Italianer ‘Competitor agreements under EU competition law’, 40th Annual Conference on International Antitrust Law and Policy, Fordham Competition Law Institute (New York, 2013); available at http://ec.europa.eu/competition/speeches/index_speeches_by_the_dg.html (accessed 1 December 2015): ‘Incidentally, to those of you who are familiar with the Supreme Court's Actavis opinion, the factors taken into consideration by the Commission will sound familiar. Indeed, the Supreme Court looked at the same factors, in particular the size of the payment including as compared to the expected profits of the generic producer, and the lack of any other convincing justification.’

11. Drug Price Competition and Patent Term Restoration Act 1984 (Public Law 98-417): Hatch–Waxman Act. The purpose of this Act is to incentivise generic companies to enter the market for a given drug prior to the brand company's patent expiry by challenging the validity of the brand company's patent. In theory, this should ensure that only brand drugs based on valid patents benefit from the maximum patent protection.

12. CS Hemphill and MA Lemley ‘Earning exclusivity: generic drug incentives and the Hatch–Waxman Act’ (2011) 77 Antitrust L J 947 at 952.

13. The FDA's approval of the generic drug will be effective from the date on which: (1) the patent expires, (2) the court reaches a decision on the non-infringement or patent invalidity in the patent litigation, or (3) the 30 months from the date of notification have expired. Federal Trade Commission Generic Drug Entry Prior to Patent Expiration: A FTC Study (Washington, DC: FTC, 2002) p 41.

14. This exclusivity period was introduced by the Hatch–Waxman Act with the intention of providing the first generic applicant with an incentive to incur the risk of patent infringement litigation and the costs that are associated with it. See ES Weiswasser and SD Danzis ‘The Hatch–Waxman Act: history, structure, and legacy’ (2003) 71 Antitrust L J 585 at 603.

15. HJ Hovenkamp, MD Janis and MA Lemley ‘Anticompetitive settlement of intellectual property disputes’ (2003) 87 Minn L Rev 1754.

16. Hemphill and Lemley, above n 12, at 963. In order to mitigate this regulatory bottleneck, forfeiture rules have been introduced in 2003 that provide subsequent generic entrants with the possibility to overcome this hurdle, yet the process has been described as still very lengthy – in fact, taking several years – which causes considerable delays. See MA Carrier ‘Unsettling drug patent settlements: a framework for presumptive illegality’ (2009) 108 Mich L Rev 37 at 48.

17. This effect could be described as effectively turning the rebuttable presumption of validity into a non-rebuttable presumption, allowing the brand company to obtain a guaranteed legal patent monopoly. However, receiving a patent is not equivalent to an entitlement to exclude every competitor. The patent holder can only try to exclude its competitors and the probability of success is based on the strength of the patent itself. See C Shapiro ‘Antitrust limits and patent settlements’ (2003) 34 Rand J Econ 391 at 395.

18. ‘In the interest of public health, authorisation decisions under the centralised procedure should be taken on the basis of the objective scientific criteria of quality, safety and efficacy of the medicinal product concerned, to the exclusion of economic and other considerations’ – Regulation (EC) No. 726/2004 of the European Parliament and of the Council laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency (2004) Recital 13; also ibid, Art 81; Directive 2001/83/EC of the European Parliament and of the Council on the Community code relating to medicinal products for human use, Art 126. To the same extent, see EC Pharmaceutical Sector Inquiry: Final Report (2009) p 130, finding that no other criteria apart from those regarding public health – such as the safety, the quality and the efficacy of the relevant drug – should be taken into consideration when deciding upon the application for a market authorisation.

19. Directive 2001/83/EC, above n 18, Art 10(1).

20. EC, above n 4.

21. EC ‘Antitrust: Commission sends Statement of Objections on perindopril to Servier and others’, press release (2012).

22. EC, above n 4.

23. These two are alternative requirements and they should be read disjunctively. See Case 56/65 Société Technique Minière v Maschinenbau Ulm GmbH [1966] ECR 337 at 249.

24. Guidelines on the application of Article 81(3) of the Treaty (OJ [2004] C 101/97) para 21.

25. There is also no requirement to consider whether the potential negative effect on competition will deprive the final consumer of competitive advantages in terms of supply and price. See C-501/06, C-513/06, C-515/06 and C-519/06 GlaxoSmithKline Services and Others v Commission and Others [2009] ECR-I 9291 para 58.

26. Ibid, citing Joined Cases C-96/82 to C-102/82, C-104/82, C-105/82, C-108/82 and C-110/82 IAZ International Belgium and Others v Commission [1983] ECR-I 3369 para 25 and C-209/07 Competition Authority v Beef Industry Development Society Ltd [2008] ECR I-8637 paras 16, 21: ‘regard must be had inter alia to the content of its provisions, the objectives it seeks to attain and the economic and legal context of which it forms a part’.

27. Case C-8/08 T-Mobile Netherlands and Others [2009] ECR I-4529 para 31.

28. C-551/03 General Motors BV v Commission [2006] ECR I-3173 para 64.

29. R Whish Competition Law (Oxford: Oxford University Press, 8th edn, 2015) p 120.

30. M van der Woude ‘Patent settlements and reverse payments under EU law’ (2009) 5 Competition Pol'y Int'l 182.

31. EC, above n 18, para 707.

32. Treacy and Lawrance, above n 8, p 293.

33. EC, above n 18, paras 750, 751.

34. Ibid, para 743.

35. Ibid, para 1530.

36. Commission Regulation 772/2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements; Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements; Guidelines on the application of Article 81(3) of the Treaty (above n 24); Guidelines on the Application of Article 81 of the EC Treaty to Technology Transfer Agreements; Commission notice – Guidelines on Vertical Restraints; Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices; Commission Regulation 2659/2000 on the application of Article 81(3) of the Treaty to categories of research and development agreements; Commission Regulation 2658/2000 on the application of Article 81(3) of the Treaty to categories of specialisation agreements.

37. DM Gerard ‘The effects-based approach under Article 101 TFEU and its paradoxes: modernisation at war with itself?’ in J Bourgeois and D Waelbroeck (eds) Ten Years of Effects-Based Approach in EU Competition Law: State of Play and Perspectives (Brussels: Bruylant, 2013) p 38.

38. A Jones ‘Left behind by modernisation? Restrictions by object under Article 101(1)’ (2010) 6 Eur Competition J 649 at 663.

39. Gerard, above n 37, p 40.

40. Case T-460/13 Ranbaxy Laboratories and Ranbaxy (UK) v Commission [28 August 2013] OJ C 325/71; Case T-472/13 H. Lundbeck and Lundbeck v Commission [28 August 2013] OJ C 325/76; T-470/13 Merk v Commission [30 August 2013] OJ C 325/74; Case T-471/13 Xellia Pharmaceuticals and Zoetis Products v Commission [30 August 2013] OJ C 325/75. The EC also found a restriction by object in another pay for delay case against Johnson & Johnson and Novartis; however, this decision has not been appealed. EC, above n 5.

41. Case C-32/11 Allianz Hungária Biztosító and Others, judgment of 14 March 2013 para 38, citing Case C-8/08 T-Mobile Netherlands and Others [2009] ECR I-4529 para 31 (emphasis added).

42. Commission Decision of 19 July 2013 (Case AT.39226 – Lundbeck) OJ C (2013) 3803 final para 651, citing Case T-491/07 Groupement des Cartes Bancaires v Commission, judgment of 29 November 2012 para 146: ‘With respect, firstly, to the argument of the applicant that the measures in question do not contain any obvious restriction of competition, it needs to be recalled that Article 81, paragraph 1, does not refer to the notion of obvious restriction.’

43. Case C-67/13 P Groupement des Cartes Bancaires v Commission, judgment of 11 September 2014.

44. J Killick and J Jourdan ‘Cartes Bancaires: a revolution or a reminder of old principles we should never have forgotten?’ [2014] Competition Pol'y Int'l 6; available at https://www.competitionpolicyinternational.com/cartes-bancaires-a-revolution-or-a-reminder-of-old-principles-we-should-never-have-forgotten (accessed 1 December 2015). The Court not just cited [at para 49, 50] the established case law of STM and BIDS in support for the ‘sufficient degree of harm’ and the ‘very nature of the agreement being harmful’, but at the same time omitted any direct citation to the more recent judgment in C-8/08 T-mobile and C-439/09 Pierre Fabre, which arguably set a lower standard in relation to the finding of a restriction by object.

45. Case C-67/13 P Groupement des Cartes Bancaires, above n 43, para 50.

46. Case C-67/13 P Opinion of Advocate General Wahl in Groupement des Cartes Bancaires v European Commission [27 March 2014] para 56.

47. Two notable exceptions to this general rule can be envisaged. (1) The case when the agreement clearly exceeds the scope of the patent; eg when the agreement prevents the generic company from entering the market after the protection of the relevant patent has elapsed. This type of conduct has also been accepted as being anticompetitive by the US jurisprudence prior to the US Supreme Court's decision in Actavis: FTC v Actavis, above n 3, at 2223. (2) The case when evidence suggests that the patentee was aware of the patent's invalidity. In such a scenario, one would not have to rely on any past experience in relation to the anticompetitive effects, as the anticompetitive purpose and the very nature of the agreement would become apparent, which would justify the finding of an restriction by object. B Batchelor ‘EC tones down its final report into the pharma sector, but ramps up enforcement activity’ (2010) 31 Eur Competition L Rev 16; Treacy and Lawrance, above n 8, p 293.

48. RD Willig and JP Bigelow ‘Antitrust policy toward agreements that settle patent litigation’ (2004) 49 Antitrust Bull 655, arguing that pay for delay settlements might be welfare enhancing; see also B Dickey, J Orszag and L Tyson ‘An economic assessment of patent settlements in the pharmaceutical industry’ (2010) 19 Ann Health L 367; B Dickey and DL Rubinfeld ‘Would the per se illegal treatment of reverse payment settlements inhibit generic drug investment?’ (2012) 8 J Competition L & Econ 615; V Meunier and AJ Padilla ‘Should reverse payment patent settlements be prohibited per se?’ (2015) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604071 (accessed 15 October 2015), arguing that such settlements can spur new drug development and patent challenges.

49. HJ Hovenkamp ‘Anticompetitive patent settlements and the Supreme Court's Actavis decision’ (2014) 15 Minn J L, Sci & Tech 3 at 27.

50. ‘When determining [the] context [in which a restriction by object is considered], it is also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question’: Case C-67/13 P Groupement des Cartes Bancaires, above n 43, para 53, citing Case C-32/11 Allianz Hungária, above n 41, para 36.

51. Guidelines on the application of Article 81(3), above n 24, para 24.

52. Ibid, para 25.

53. Cases T-374/75, 384, 388/94 European Night Services v Commission [1998] ECR II-3141 para 136; T-328/03, O2 (Germany) GmBH & Co OHG v Commission [2006] ECR II-1231 para 66.

54. Guidelines on the application of Article 81(3), above n 24, para 18; Case C-234/89, Delimitis v Henninger Bräu [1991] ECR I-935 para 23; T-328/03, O2 (Germany) GmBH & Co OHG v Commission [2006] ECR II-1231 para 68.

55. Treacy and Lawrance, above n 8, p 295.

56. Ibid.

57. Ibid, p 298.

58. In re Ciprofloxacin Hydrocloride Antitrust Litigation 544 F.3d 1323 (Fed. Cir. 2008), cert. denied, 129 S. Ct. 2828 (2009).

59. This refers to a situation in which several circuit courts come to different decisions on the same issue.

60. Federal Trade Commission v Watson Pharmaceuticals Inc. 677 F.3d 1298 (11th Cir. 2012); In re Ciprofloxacin, above n 58; In re Tamoxifen Citrate Antitrust Litigation 466 F.3d 187 (2nd Cir. 2005).

61. Federal Trade Commission v Watson, above n 60, at 1312.

62. Valley Drug Co. v Geneva Pharmaceuticals, Inc. 344 F.3d 1294 (11th Cir. 2003) at 1311 & n 2, affirmed in Schering-Plough Corp. v FTC 402 F.3d 1056 (11th Cir. 2005) at 1065–1066.

63. Schering-Plough Corp. v FTC, above n 62, at 1072–1073; In re Ciprofloxacin, above n 68, at 1333.

64. In re Ciprofloxacin, above n 58, at 1336; Valley Drug Co. v Geneva Pharmaceuticals, Inc. 344 F.3d 1294 (11th Cir. 2003) at 1308 & n 21; In re Tamoxifen, above n 60, at 213; Schering-Plough Corp. v FTC, above n 62, at 1068.

65. In re K-Dur Antitrust Litigation 686 F.3d 197 (3d Cir. 2012).

66. Ibid, at 214.

67. Ibid.

68. The Court directly quoted congressional statements made in relation to the Bill, which underlines the intention of Congress to provide consumers with cheaper generics by encouraging generic companies to challenge patents that they regard as weak or invalid and further emphasised that ‘the public interest […] is dominant in the patent system and […] the right to challenge [a patent] is not only a private right to the individual, but it is founded on public policy’. Ibid, at 216.

69. In re K-Dur Antitrust Litigation, above n 65, at 218.

70. Federal Trade Commission v Watson Pharmaceuticals Inc., above n 60, at 1312.

71. FTC v Actavis, above n 3, at 2230.

72. Ibid, at 2231.

73. Ibid, at 2230–2231.

74. Ibid, at 2242, quoting California Dental Ass'n v FTC 526 US 756 (1999) at 770.

75. FTC v Actavis, above n 3, at 2242.

76. Hovenkamp, above n 49, at 6.

77. FTC v Actavis, above n 3, at 2234–2237.

78. Ibid, at 2238.

79. Ibid, at 2236.

80. Ibid.

81. A Edlin et al ‘Activating Actavis’ (2013) 38 Antitrust Health Care Chronicle 16.

82. Ibid.

83. Hovenkamp, above n 49, at 24.

84. FTC v Actavis, above n 3, at 2236.

85. Ibid, at 2233.

86. Ibid, at 2236.

87. Ibid.

88. Ibid.

89. Edlin et al, above n 81, at 17, 18; similar arguments have been put forward by E Elhauge and A Krueger ‘Solving the patent settlement puzzle’ (2012) 91 Texas L Rev 283.

90. BC Harris et al ‘Activating Actavis: a more complete story’ (2014) 28 Antitrust Health Care Chronicle 83 assert (1) that the ‘Actavis Inference’ is in conflict with rejection of the ‘quick look’ approach by the Supreme Court in Actavis and (2) that the inference condemns pro-competitive agreements. BH Kobayashi et al ‘Actavis and multiple ANDA entrants: beyond the temporary duopoly’ (2015) 29 Antitrust Health Care Chronicle 89 assert, similar to the previous article, that the ‘Actavis Inference’ (1) will not allow welfare-increasing settlements, (2) that it will encourage litigants to use inefficient means of settlement such as non-cash payments and (3) that it will increase the cost of Type I errors.

91. A Edlin et al ‘The Actavis Inference: theory and practice’ (2015) 67 Rutgers U L Rev 585; available at http://chicagoip.com/hemphill.pdf (accessed 16 October 2015).

92. A Edlin et al ‘Actavis and error costs: a reply to critics’ (2014) Antitrust Source 1 at 7.

93. Ibid, at 8.

94. The FTC has filed two amicus curiae briefs, in Lead case no.: 3:11-cv-05479. Federal Trade Commission brief as amicus curiae in re: EFFEXOR XR ANTITRUST LITIGATION [14 August 2013] and Case no.: 2:08-cv-2431, 2433 Federal Trade Commission brief as amicus curiae in re: WELLBUTRIN XL ANTITRUST LITIGATION [26 September 2013].

95. Eg in the case of Effexor XR, a ‘no-authorized-generic commitment’ by Wyeth Pharmaceuticals induced TEVA, a generic manufacturer, to abandon its patent challenge and refrain from selling its generic version of Effexor XR for a two-year period. In re: EFFEXOR XR ANTITRUST LITIGATION, above n 94, at 1.

96. FTC Authorized Generic Drugs: Short-Term Effects and Long-Term Impact, at 81.

97. In re: EFFEXOR XR ANTITRUST LITIGATION, above n 94, at 12.

98. Ibid, at 2.

99. Ibid, at 8; In re: WELLBUTRIN XL, above n 94, at 6.

100. In re: EFFEXOR XR ANTITRUST LITIGATION, above n 94, at 15; In re: WELLBUTRIN XL, above n 94, at 12.

101. The extension to non-cash payment also rebuts one of the above-mentioned criticisms that the ‘Actavis Inference’ would lead to inefficient types of settlements. Kobayashi et al, above n 90, at 95. The extension of Actavis to all forms of consideration discourages parties to use more ‘inefficient types’ of pay for delay settlements. Edlin et al, above n 91, at 23.

102. In re Lamictal direct purchasers antitrust litigation (District of New Jersey) No. 12-cv-995 (WHW) [24 January 2014]; In re Loestrin antitrust litigation (District of Rhode Island) No. 1:13-md-2472-S-PAS [9 April 2014].

103. In re Cipro Cases I & II, Cal. S. Ct. JCCP 4154/4220 [2015] (In re Cipro Cases I & II, Cal. S. Ct. JCCP 4154/4220).

104. King Drug Co. v SmithKline Beecham, 791 F.3d 388 (3d Cir. 2015) quoting FTC v Actavis, the Court held ‘that [non-cash] agreements are likely to present the same types of problems as reverse payments of cash; ‘the prevention of that risk of competition – eliminating the risk of patent invalidation or a finding of noninfringement by paying the challenger to stay out of the market […] constitutes the relevant anticompetitive harm,’ [at 404]; see also American Sales Co. v City of Providence (1st Cir. 22 February 2016), where the court disagreed with the ‘with the district court's limited reading of Actavis’ [at 7].

105. EC Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011) para 39.

106. See FTC v Actavis, above n 3, at 2235, 2236 (for majority opinion) and at 2246 (for dissenting opinion).

107. Edlin et al, above n 91, at 24; this finding is substantiated by a counterfactual analysis showing that an ex post antitrust analysis of patent licences would lead to a potential finding of antitrust violations in every license of a patent that would later be found to be invalid [at 25].

108. Ibid, at 16.

109. Hemphill and Lemley, above n 12.

110. Case C-234/89, Delimitis v Henninger Bräu [1991] ECR I-935.

111. Ibid, paras 10, 11.

112. Ibid, para 27.

113. See A Reindl ‘Resale price maintenance and Article 101: developing a more sensible analytical approach’ (2011) 33 Fordham Int'l L J 1300 at 1309–1313.

114. Case 7/59 John Deere, Ltd v Commission [1998] ECR I-3111 paras 78, 90.

115. The extension to non-cash payments in Europe becomes necessary as the EC has already recognised a shift to other types of value transfers such as ‘distribution agreements or a “side-deal” in which the originator company grants a commercial benefit to the generic company, for example by allowing it to enter the market before patent expiry in another geographical area or by allowing market entry with another product marketed by the originator company.’ EC 3rd Report on the Monitoring of Patent Settlements (period: January–December 2011) (2012) Recital 9; available at http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent_settlements_report3_en.pdf (accessed 1 December 2015).

116. Hovenkamp, above n 49, at 27, 28.

117. Lundbeck, above n 42, at 824: ‘the transferred value corresponded roughly to the profits Merck (GUK) expected if it had successfully entered the market; Lundbeck could not have obtained those limitations on entry through enforcement of its process patents, the obligations on Merck (GUK) in the agreement going beyond the rights granted to holders of process patents’; the EC briefly dismissed a number of potential justifications for such payments [ie at 801].

118. The EC merely assessed whether the parties to the respective pay for delay settlements were actual or potential competitors, including their actual threat of market entry. See Lundbeck, above n 42, at 738, 827 (for Merck (GUK)), 877, 965 (for Arrow), 1016 (for Alpharma) and 1090 (for Ranbaxy).