Patent Settlement Agreements - Antitrust Challenges in the Pharmaceutical Sector within the EU in Comparison with the U.S.

Abstract: In the pharmaceutical sector, originator companies that invest large sum of money in R&D of new medicines usually file patent applications for several areas of protection. They try to take advantage of a monopoly that a patent grants to protect their medicines against generic entry on the market and consequently the loss of profits. Generic companies in order to be able to launch their generic products and enter the market often have to challenge the validity of originators’ patents. Originators need then to bring patent litigation to enforce their challenged patents. To avoid time- and cost-consuming litigations, with an uncertain outcome, the originators and generic companies often choose to enter into a settlement. The terms and conditions of the settlement agreements vary, but many of them involve a payment, where an originator company pays off a generic competitor in return for delayed market entry of a generic medicine. These settlements are known as reverse-payment patent settlements or pay-for-delay settlements and their legality has been a subject of widespread and ongoing debate in both the U.S. and the EU. Competition authorities in both jurisdictions are concerned that the delayed market entry of generic medicines could distort competition and consequently harm consumers and national health care budgets. In June 2013, both the U.S. Supreme Court and the European Commission dealt with the legality of pay-for-delay settlements between originator and generic companies in two landmark decisions and they reached different conclusions. In Actavis decision, the Supreme Court ruled in favor of a rule of reason analysis and confirmed that reverse-payment patent settlements cannot be considered per se illegal. The European Commission presented in the recently officially published Lundbeck decision, an approach that is considerably less favorable to originator companies. It decided that the settlement in question was presumptively illegal, i.e. anticompetitive by object. Against this background, this paper seeks to provide an insight into issues regarding patent settlement agreements in the EU in comparison with the U.S. The current developments show some guidance on how these legal issues might be treated in the future. However, it still remains uncertain how lower courts will apply the Actavis decision in the U.S. Also the European Commission’s decision remains to be subject to appeal to the EU courts, which will clarify how to apply the Lundbeck decision. Until the legal position is rectified, the possible effect could be that companies may play safe and restrain from entering into pay-for-delay settlements in the EU.