Pay-for-delay: The ECJ rules on the Lundbeck case

On 25 March 2021, the European Court of Justice ("ECJ") rejected the appeals by Lundbeck and others against the Judgments of the General Court ("GC") of 8 September 2016 refusing to annul the European Commission's 2013 decision to fine Lundbeck and four generics manufacturers, Merck (GUK), Alpharma, Arrow and Ranbaxy for pay-for-delay patent settlements. The patents concerned related to the manufacturing process of the antidepressant drug Citalopram but not to the drug itself - the active ingredient having recently entered the public domain when the agreements were concluded.

ECJ confirms earlier Generics case-law regarding pay-for-delay patent settlements

The facts of this case are very similar to the facts at issue in a recent ECJ preliminary ruling regarding pay-for-delay settlements which we discuss on our website here. Unsurprisingly, the reasoning of the ECJ in this case - which does not concern the European Commission's and the GC's factual assessment but only the legal reasoning - is therefore similar to its reasoning in its previous Judgment:

1. Manufacturers of generics are potential competitors of manufacturers of originators to the extent that the manufacturer of generic medicines concerned had taken sufficient preparatory steps to enter the market and that the entry barriers are not insurmountable. Here, the ECJ considers that the fact that an originator holds several process patents is not an insurmountable barrier to entry. The European Commission (and subsequently the GC) were in this respect not required to carry out a review of the strength of the patents at issue. However, the subjective perception of the involved parties regarding the strength of the patents prior to, contemporaneous with or even subsequent to the settlement could be taken into consideration in this respect.

2. Pay-for-delay settlement agreements can constitute by object restrictions if the related payments cannot have any explanation other than the commercial interest of the parties to not compete in which case they qualify as market sharing cartels. Such assessment would not be affected by the finding that (i) the settlement settles a genuine conflict, (ii) the value of the settlement payment does not exceed the profits that the generics manufacturers would have made if they successfully challenged Lundbeck's secondary patents and subsequently commercialised the medicines and (iii) there is no express agreement from generics manufacturers not to challenge Lundbeck's secondary patents.

Interestingly, the ECJ explicitly confirmed that the requirement to show there is sufficiently reliable and robust experience in order to decide that a certain agreement or practice is restrictive by object, does not mean that it is necessary that the European Commission has previously prohibited similar agreements. It was in this respect sufficient for the European Commission to demonstrate that the settlements constituted in reality a market sharing agreement (which clearly constitutes a by object restriction). The ECJ confirmed for this reason also that the principle of predictability of offences and penalties ('nullum crimen, nulla poena sine lege') was not infringed.

ECJ clarifies undertakings' document retention obligation

Two generics manufacturers had argued to the GC that the Commission has infringed their rights of defence by not informing them in a reasonable time that they were subject to a competition investigation, thus depriving them of the possibility to gather the evidence necessary to build their defence. This argument was dismissed by the GC on the ground that they were informed of the initiation of an infringement procedure by a press-release by the Danish Competition Authority and of a sector enquiry initiated by the European Commission.

Although the ECJ ruled that the GC's reasoning was incorrect (more specifically, the referred case-law concerned different situations), it held that the GC's conclusions were correct and that the European Commission's initiation of a sector enquiry¹ indeed triggered a diligence obligation on undertakings in the sector concerned to collect and keep relevant documents. 

Conclusion

The ECJ's Judgment serves as a useful reminder for undertakings, in particular but not exclusively those active in the pharmaceutical companies², to be careful when concluding patent settlement agreements. In addition, it provides useful guidance for undertakings - in particular those that are active in a sector under review by a competition authority³ - regarding their document retention policy.

Should you need assistance, have any further questions regarding this client alert or competition law generally, please do not hesitate to contact any of the individuals listed or your usual contact at Simmons & Simmons.

¹The sector enquiry conducted by the Commission in 2008 did, notably, identify pay-for-delay agreements as potentially restrictive of competition and the Commission had announced in 2009 that it wishes to further monitor the pharma sector in order to remedy that specific issue.

²For a recent overview of investigations in the pharmaceutical sector, please refer to our website here. Also worth mentioning are the recent commitments from Aspen regarding an excessive pricing investigation (see here) and the initiation of an investigation into Teva's alleged abuse of a dominant position for allegedly misusing patent procedures and communication campaign in order to discourage the use of a competing generic product.

³The Commission is currently conducting a sector inquiry in the Consumer Internet of Things.