European Commission Fines Cephalon and Teva On Account of "Pay-for-Delay" Patent Settlement Agreement
On 26 November 2020, the European Commission (the Commission) brought to an end a long running competition case by finding against Cephalon and Teva on account of a “pay-for-delay” patent settlement agreement involving modafinil, the active substance of a sleeping disorder medicine (see, attached Commission press release).
The Commission found Cephalon and Teva guilty of having breached Article 101, Treaty on the Functioning of the European Union, by making or accepting a large payment and other commercial benefits while Teva had committed no longer to sell a generic version of modafinil in the European Economic Area (“EEA”) (see also, Van Bael & Bellis Life Sciences News Alerts of 10 June 2020 and 17 July 2017).
In a statement on the case, the European Commissioner in charge of competition matters Margrethe Vestager pointed out that the commercial benefits were actually a package of standard commercial deals which, internal company documents show, formed the price which Cephalon paid to have Teva agree to stay out of the market. In Ms. Vestager’s words, “the form of the payment does not matter. What matters is that value is being transferred from a patent holder to a potential generic entrant with the aim to delay entry”.
The Commission thus took the view that the arrangement did not terminate a legitimate patent dispute, but rather created an artificial, paid-for delay of the market entry of a cheaper generic version of modafinil. The Commission investigation found that for several years, this “pay-for-delay” agreement had eliminated Teva as a competitor and allowed Cephalon to continue charging high prices, even though the main modafinil patent owned by Cephalon had expired. The parties, now members of the same group, were fined individually and received an aggregate fine of EUR 60.5 million.