The European Commission launches monitoring of patent settlements concluded between originator and generic pharmaceutical companies
On 12 January 2010, the European Commission sent requests for information to several pharmaceutical companies asking for copies of patent settlement agreements concluded between originator and generic pharmaceutical companies. The Commission will analyse these agreements and determine whether they give rise to competition law concerns. The Commission has stated that it will focus on patent settlements in which an originator company pays off a generic competitor in return for delayed market entry of a generic drug.
This monitoring procedure has been launched in light of the pharmaceutical sector inquiry and final report published on 8 July 2009 ("Pharmaceutical Inquiry Report") (see Plesner Life Science News Letter from September 2009). The Pharmaceutical Inquiry Report highlighted the risk that certain types of patent settlements may have negative effects on European consumers by depriving them of a broader choice of medicines at lower prices (Pharmaceutical Inquiry Report, Section C.2.4.1. Patent Settlement Agreements between Originator and Generic Companies).
The Pharmaceutical Inquiry Report divided settlement agreements between originator and generic companies into 3 categories.
Source: Pharmaceutical Inquiry Report, paragraph 742.
Settlement agreements which limited generic entry and involved a value transfer from the originator company to the generic company (category B.II.) were identified as potentially giving rise to competition law concerns, as they "can be used to delay the market entry of [the generic company] beyond the point in time when it would have expected to be able to enter the market" (paragraph 769). The Commission concluded that as a pos-sible remedy it would "consider further focused monitoring" of such agreements, without describing how such a monitoring system would work (paragraph 1574).
According to the Commission, a monitoring procedure was launched on 12 January 2010 when the Commission sent requests to submit copies of patent settlement agreements concluded between originator and generic pharmaceutical companies in the period from 1 July 2008 to 31 December 2009 and relating to the EU/EEA to several pharmaceutical companies. The Commission stated in its press release that it is focusing on "patent settlements where an originator company pays off a generic competitor in return for delayed market entry of a generic drug".
Following an analysis of the received settlement agreements, the Commission will publish a short report providing a statistical overview of the agreements. Depending on the outcome of the procedure, such information requests may be repeated annually for as long as the Commission considers that there is a potential problem.
The Commission's choice of words - "pay off a generic competitor" - may be a bad omen for the outcome of the Commission's analysis. Settlement agreements which limited generic entry and involved a value transfer from the originator company to the generic company (category B.II.) should not automatically give rise to competition law concerns. The ordinary understanding of a "settlement agreement" implies a compromise based on various commercial criteria such as the cost of litigation and the prospect of a favourable outcome hereof.
Uncertainty as to the extent and duration of patents with in the pharmaceutical sector is a commercial reality which flows from the complexity of pharmaceutical products and the patent system. Solving this uncertainty by way of a settlement involving a compromise is both commercially sensible and judicially effective.