Pay-for-delay: A competition law analysis of settlement agreements in the pharmaceutical sector

Abstract: During the last two decades many pharmaceutical originator companies have struggled with refilling its pipelines with novel pharmaceutical products. At the same time many of these companies have lost patent protection for its most profitable drugs and more are expected to do so in the very near future. When pharmaceutical patents expire it is generally expected that generic manufacturers enter the market with significantly cheaper versions of the pre-patented drugs. Accordingly, generic entry poses strong competitive price pressure on originator companies and the latter may therefore be inclined to hinder these competitors from entering the market. The preparations for generic launch often starts a few years before patent expiry and it is therefore common that patent disputes arise. Patent disputes are not only highly complex, time consuming and costly, the disputes are often also characterized by a high degree of uncertainty to whether or not the patents are infringed and/or valid. Thus, incentives for settling the disputes out of court are often high for both originator and generic undertakings. Legitimate patent settlement agreements are generally not considered to pose any competitive concern. However, the Commission has observed that these settlement agreements has been used to conceal anti-competitive terms by which the originator companies sets out to buy off its generic competitors for delaying its plans to enter the market. These anti-competitive arrangements are more generally known as pay-for-delay settlements. The Commission has issued two decisions against pay-for-delay settlements of which the GC has confirmed the Commission’s assessments. After fulfilling a three-step criteria developed by the Commission, these agreements were considered to have as its object the restriction of competition within the meaning of article 101 (1) TFEU. When an agreement is categorized as a restriction by object it is considered to be by its very nature restrictive of competition, and is therefore presumptively illegal. This approach has been vastly criticized in the legal doctrine for not being sufficiently clear and legally certain. Therefore, the purpose of this essay has been to critically analyze the Commission’s approach in assessing patent settlement agreements. The overall findings of the analysis do however indicate that the Commission’s categorization of pay-for-delay settlements as restrictions of competition by object follows the established rules of EU competition law and should therefore be justified.