Advocate General Kokott issued her opinion last week in the preliminary ruling referral from the UK Competition Appeal Tribunal (CAT). The CAT proceeding is itself an appeal against an infringement finding against a number of companies (except one, IVAX which is now part of TEVA which received a 'No Grounds for Action' letter).
AG Kokott finds that an agreement to settle a patent dispute may constitute a restriction of competition by object or by effect and that entering into such an agreement may be an abuse of a dominant position. This is in line with the General Court's recent judgments in Perindopril and Lundbeck, but her views diverge on market definition where she seems to side with the CAT on a narrow, molecule level, definition.
Background of the case
The Paroxetine case is part of the cohort of cases which competition authorities like to call 'pay-for-delay' and it follows the European cases such as Lundbeck, Perindopril, and Modafinil. Interestingly, in Paroxetine, the European Commission asked the CMA to investigate because the conduct was so historic that it ran into an EU limitation issue which did not exist under UK law.
The CMA's decision is currently under appeal before the CAT which in turn referred a number of questions to the Court of Justice of the European Union (CJEU). AG Kokott's opinion is a preparatory opinion to help the CJEU answer those questions.
The CMA's argument is, very broadly, that EU and UK competition law can be relevant to patent settlement cases in certain circumstances (both under the rules on abuse of dominance and restrictive agreements). These circumstances are (again, very broadly) where
- the settlement proposal restricts entry by an actual or potential generic competitor—the delay element, and
- where the originator company makes a value transfer to the potential generic entrant – the payment element.
This could be by way of a lump-sum payment or through some other way (e.g., through a beneficial distribution agreement). On abuse of dominance, the theory is that unilateral conduct aimed at "shutting out a competing technology and buying out a number of competitors" constitutes an abuse.
Broadly AG Kokott's view is that the generic entrant may be a potential competitor despite the existence of the patents at issue that might prevent a generic launch, and despite the fact that the generic product is still under development. This leads her to find that an agreement to settle a patent dispute may constitute a restriction of competition by object or by effect, and that entering into such an agreement may be an abuse of a dominant position. All of this broadly confirms the CMA's approach in Paroxetine and the European Commission's approach in its cases. However, the question of market definition is particularly interesting and worth exploring as there may be a departure from the General Court's findings in Perindopril.
What Is the Relevant Market?
Market definition is important in these cases as the abuse of dominance finding can only stand if the originator holds a dominant position. Paroxetine falls within the SSRI group of antidepressants which in past merger decisions have been argued to constitute one relevant market. At an SSRI level there would be no dominance.
The CMA took the view that the relevant market should be defined at the molecule level (i.e. comprising solely paroxetine) rather than at ATC4 level (comprising all SSRIs) or ATC3 (comprising antidepressants and mood stabilisers).
The CAT seems to favour the CMA's approach whereby the relevant product market for paroxetine was changed by the threat of generic entry. Before the threat of generic entry, the relevant market comprised all SSRIs, after the threat of generic entry, a product market specific only to the molecule formed. Essentially, the CAT seems to view the market definition as dynamic and dependant on the anticompetitive conduct in question. Interestingly, the CAT appeared to have made its mind up on this point since it framed its question to the CJEU very narrowly, a point which AG Kokott picks up in her opinion. The CAT did not ask whether the market should include all SSRIs, it only asked whether the market should include the generic version of paroxetine.
Before answering the specific question in the reference, AG Kokott manoeuvres around the CAT's position but largely accepts it saying that it was "quite conceivable that the emergence of a new supply of product alters the structure of the relevant market in such a way as to exclude other products which previously formed part of it" (paragraph 222).
On the specific question, AG Kokott takes a relatively wide view saying that the generic product could be taken into account if they could enter the market with "sufficient speed and strength to create a serious counterweight on the patent holder" (paragraph 240). The fact that there was uncertainty as to whether the generic company could enter the market before the originator's patent expired did not prevent the generic product being included in the relevant market.
This approach diverges from the General Court in Perindopril in which the court quashed the dominance finding on the basis that the Commission incorrectly defined the market along molecule lines without demonstrating the absence of competitive constraint by other ACE inhibitors.
As the CJEU is due to rule both on Paroxetine and Perindopril let us see whether the judgments bring more clarity and consistence. Watch this space.
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