In these Opinions, AG Kokott analysed the so-called “pay-for-delay agreements” between Servier and several generic medicine manufacturers under EU competition law, in line with the guidance previously provided by the Court of Justice of the European Union (CJEU) in Cases C-307/18, Generics (UK) and others and C-591/16 P, Lundbeck v Commission (and related appeals). Our article examining the relevant analytical framework, as set out by the CJEU in these judgments, can be found here.
Background
In 1981, the compound patent for perindopril, a medicinal product developed by the Servier group for use in cardiovascular medicine (intended primarily for the treatment of hypertension and heart failure), was filed with the European Patent Office for protection. However, the perindopril compound patent gradually expired, over the course of the 2000s, in various EU Member States, leading Servier to seek supplementary patent protection for perindopril and its manufacturing processes in 2001. Such new patents were granted in 2004. Yet, several manufacturers of generic medicines challenged the validity of these patents before the European Patent Office and national courts. To resolve these disputes, Servier entered into separate settlement agreements with the generic companies – namely, Niche/Unichem (Niche’s parent company), Matrix (now Mylan Laboratories), Teva, Lupin and Krka – by which each of these companies undertook, amongst others, to refrain from entering the market with generic versions of perindopril (allegedly in breach of Servier’s patents) and from challenging those patents, in return for a value transfer by Servier. As such, these agreements were aimed at delaying the market entry of manufacturers of generic perindopril to the benefit of Servier – hence, their designation as “pay-for-delay agreements” (i.e., agreements in settlement of patent disputes between an originator holding a pharmaceutical patent and a manufacturer of generic medicines, involving a value transfer (monetary or otherwise)).
The European Commission’s decision (2014)
On 9 July 2014, the European Commission (EC) adopted a prohibition decision, finding that the agreements at issue (i) constituted restrictions of competition by object and by effect, in breach of Article 101 of the Treaty on the Functioning of the European Union (TFEU), and (ii) formed part of an exclusionary strategy implemented by Servier, in breach of Article 102 TFEU. The EC imposed fines totalling EUR427.7 million on Servier and the manufacturers of generic medicines.
The General Court’s judgment (2018)
By
judgment of 12 December 2018, the General Court (GC) annulled in part the EC’s decision following an action brought by Servier in Case T-691/14 (and related cases). In essence:
- The GC confirmed that the pay-for-delay agreements with Niche/Unichem, Matrix, Teva and Lupin, constituted, by virtue of their object, prohibited restrictions of competition and thus upheld the EC’s decision in this respect. This part of the judgment was appealed by Servier to the CJEU in Case C-201/19 P.
- By contrast, the GC considered that Servier had not committed an infringement of Article 101 TFEU through the agreements with Krka – thus overturning the EC’s classification of the agreements as restrictions by object or by effect. In addition, the GC held that the EC had wrongly defined the relevant market as being limited solely to originator and generic versions of perindopril, for the purposes of applying Article 102 TFEU. In particular, the GC held that the EC wrongly considered that perindopril differed, in terms of therapeutic use, from other ACE inhibitors, underestimated the propensity of patients treated with perindopril to change medicines and attributed excessive importance to the price factor in analyzing the competitive constraints. Consequently, the GC considered that the EC had failed to show that the finished products market was limited to the perindopril molecule alone, when the latter could be exposed to non-price competitive pressures from other medicines of the same therapeutic class. It, thus, also annulled the EC’s decision in so far as the EC concluded that Servier held a dominant position on the perindopril market in France, the Netherlands, Poland and the UK and on the upstream market for perindopril active pharmaceutical ingredient technology, and had abused that position in breach of Article 102 TFEU. This part of the judgment was appealed by the EC to the CJEU in Case C-176/19 P.
AG Kokott’s Opinions in the Appeals (2022)
On 14 July 2022, AG Kokott delivered her Opinions in both cases, mainly inviting the CJEU to rule that all agreements between Servier and the generic companies – including with Krka – constituted restrictions of competition by object. In essence:
- With regard to the agreements with Niche/Unichem, Matrix, Teva and Lupin, AG Kokott proposed that the CJEU should uphold the GC’s finding that these agreements constituted, by virtue of their object, prohibited restrictions of competition. Indeed, according to AG Kokott, the GC was correct in assessing, consistent with the CJEU’s earlier case-law in Generics (UK) and Lundbeck, whether the “net gain” derived by the manufacturers of generic medicines from Servier’s respective value transfers, could be justified by the existence of any consideration on the part of the latter – or, in other words, whether the value transfers could be explained by anything else than the parties’ interest or desire not to compete. In the present case, Servier had not demonstrated that the patents at issue had an economic value, which was significant enough to justify the payments made to the generic manufacturers. In AG Kokott’s view, the GC was, therefore, correct in finding that these payments were not justified by any consideration other than the agreement not to compete with Servier, as the patent holder, and thus in upholding the EC’s classification of the agreements.
- With regard to the agreements with Krka, AG Kokott proposed that the CJEU should rule that the GC erred in law, in holding that these agreements did not constitute a restriction of competition by object or by effect. In particular, AG Kokott opined that the GC wrongly took the view that the agreements – consisting of, amongst others, a settlement agreement and a licensing agreement – were based on the recognition of the validity of several patents by Krka. Instead, according to AG Kokott, the EC was right in qualifying the agreements as restrictions by object, amongst others, because the license, in fact, constituted a significant value transfer from Servier to Krka, in exchange for the latter’s commitment not to compete in some EU markets (not covered by the licensing agreement). Furthermore, AG Kokott considered that the GC erred in law in establishing that the agreements did not have anticompetitive effects given that, in her view, the EC had established to the requisite legal standard that the agreements prevented Krka’s entry onto the market and, thus, removed an important source of potential competition for Servier.
- Lastly, AG Kokott considered that the GC provided insufficient and contradictory reasoning when it annulled part of the EC’s decision regarding the definition of the relevant market, for the purposes of applying Article 102 TFEU. Furthermore, AG Kokott stated that the GC was wrong to base its assessment of the relevant market only on the objective characteristics of the products in question, in this case therapeutic substitutability. In AG Kokott’s view, it is also necessary to determine whether such substitutability gives rise to an effective competitive constraint, taking into account the conditions of competition and the structure of demand and supply on the market concerned.
Concluding remarks
In the Opinions, AG Kokott essentially reiterated some of the principles established in
Generics (UK) and
Lundbeck concerning the application of Article 101 TFEU to pay-for-delay agreements in the pharmaceutical sector. AG Kokott confirmed that the analysis of each patent settlement agreement is very fact-specific and must take into account the content of its provisions, its objectives and the economic and legal context of which it forms a part. AG Kokott also re-stated that these agreements amount to restrictions of competition by object, if (i) the net gain derived by the generic manufacturer from the value transfer to it by the originator cannot be justified by the existence of any consideration other than the interest of the parties not to compete on the merits; and (ii) this net gain is large enough to effectively induce the generic manufacturer concerned to refrain from entering or attempting to enter the relevant market.
As the Opinions are not binding on the ECJ, it remains to be seen whether the latter will consider all Servier’s pay-for-delay schemes to be anticompetitive and whether it will refer the matter back to the GC with regard to the abuse of dominance findings, as proposed by AG Kokott.
Drafted with the help of Maria Markou.
