It is a well established principle of competition law that a payment by one competitor to another competitor in return for the second competitor staying out of the market is anti-competitive. Whether that principle applies in the context of settlement of patent disputes is an issue which has recently been examined on both sides of the Atlantic.

Both the US Supreme Court, in the case of FTC v Actavis, Inc and the European Commission (the "Commission"), in its investigation into the dealings of the pharmaceutical company Lundbeck, have now ruled that settlements of patent litigation proceedings which involve the patent owner paying consideration to the alleged infringer and result in delay to the entry to the market of competing generic drugs may lead to serious infringement of competition laws.

European Commission Proceedings

The Commission has been monitoring patent settlement agreements in the pharmaceutical sector since 2009 in order to indentify those settlements which violate competition law. The Commission's report in 2012 indicates that 11 per cent of the settlement agreements it reviewed in 2011 are likely to be problematic from a competition law perspective.


This investigation involved Lundbeck's citalopram product, a very successful antidepressant drug.

After Lundbeck's basic patent for the citalopram molecule expired, it was faced with relying on a number of related process patents which provided more limited protection. Producers of cheaper, generic versions of citalopram therefore sought to enter the market. Generic competition generally drives prices down significantly, reducing the profits of the originator of the product and directly benefitting patients.

However, according to the Commission's finding, in 2002 Lundbeck entered into agreements with several producers of generic medicines (namely Alpharma, Merck, Arrow and Ranbaxy) to delay the market entry of cheaper generic versions of citalopram.

The Commission stated that Lundbeck did not prevent market entry by successfully enforcing its patent rights but rather paid competitors not to compete, giving them the equivalent of what they would have earned had they entered the market. Lundbeck:

  • paid significant lump sums;
  • purchased generics producers' stock for the sole purpose of destroying it; and
  • offered the generics producers guaranteed profits in distribution arrangements.

The payments and other inducements from Lundbeck amounted to tens of millions of Euros and the agreements gave Lundbeck certainty that the generics producers would stay out of the market for a certain amount of time.

The Commission ruled that such agreements were a severe infringement of competition law and fined Lundbeck €93.8 million and the generics companies fines totalling €52.2 million.

Further, Lundbeck and the generics companies face the risk of further claims as any person or firm affected by anti-competitive behaviour may seek damages before the courts of Member States, as is the case with the French pharmaceutical company Servier.


Servier is currently the subject of a similar Commission investigation in relation to practices which potentially delayed the generic entry of the cardio-vascular medicine, perindopril.

The Commission has already issued a Statement of Objections stating that it is of the view that certain patent settlements agreements entered into by Servier are in violation EU competition law and that Servier unduly protected its market exclusivity by inducing its generic competitors to conclude patent settlements.

In addition to the Commission's investigation, Servier is also being sued by the Secretary of State for Health on the basis that such agreements are a breach of competition law and the NHS suffered loss as a result of the unavailability of the generic product. The Secretary of State for Health's claim is for £220 million.

Will Reverse Payment Settlement Agreements always violate competition law?

The Commission has clearly taken a hard line on reverse payment settlement agreements stating that these agreements constitute "severe infringements of EU competition law" and going so far as to say:

"Paying competitors to stay out of the market at the expense of European citizens has nothing to do with the legitimate protection of intellectual property: it is an illegal practice and the Commission will fight against it."

The US Supreme Court in FTC v. Actavis, Inc, however, seems to have taken a softer stance holding that whether reverse payment settlements breach antitrust rules depends upon the particular facts of a case, and rejecting the FTC's view that such agreements are presumptively illegal. In some cases a reverse payment settlement may be reasonable – for example, where the payment reflects traditional settlement considerations, such as avoiding litigation costs.

The Commission's rhetoric is at the moment pointing towards a stricter approach under which such agreements are presumed to infringe EU competition law.

Challenges to the basis of the Lundbeck decision

Despite the Commission's clearly bullish standpoint on this issue, Lundbeck is appealing on several grounds, some of which are of general application to the assessment of reverse payment settlements. Lundbeck contends as follows:

l The generic companies and Lundbeck were not potential competitors: The generic companies entering the market at risk and challenging the validity of the patents cannot be an expression of competition – otherwise, this would ignore the basic principle of EU law that patents are presumed to be valid until invalidity has been proven. In other words, the generics companies were not able to lawfully enter the market during the term of settlement agreements anyway.

  • The transfer of value under the settlement agreement is irrelevant for anticompetitive assessment: It is wrong to infer that the transfer of value means that the limitations agreed in the settlement agreement do not reflect the parties' assessment of the patent. Reverse payments aim at avoiding:

    • the inherent uncertainty of patent litigation;
    • the significant time and resource commitment required to obtain a preliminary injunction; and
    • exposure to the irreversible harm an originator may suffer if infringing entry occurs before the preliminary injunction is obtained (for example, irreversible drop in re-imbursement price), considering the asymmetry of risk between the originator and the generic company.
  • The correct test for assessing whether a patent settlement agreement is anti-competitive should be whether the restrictions in the settlement agreement go further than the scope of the patent: Settlement agreements within the scope of the patent are not anti-competitive because:

    • they have the legitimate purpose of enforcing a valid patent;
    • they do not restrict otherwise existing competition; and
    • the same result could be achieved through court proceedings.

Such a settlement agreement would not therefore restrict market entry any more than the patent does.

A decision on the Lundbeck appeal is expected within the next two to three years. In the meantime it will be interesting to see whether the Commission retains its current approach in respect of Servier, as well as Cephalon, Inc. and Johnson & Johnson which are also currently being investigated. The Commission's findings in those investigations are expected later this year.

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