Patent Settlements – What’s Next Following Lundbeck and Generics (UK)?

• 28/04/2021
• Articles

The recent judgments by the EU Court of Justice in Lundbeck (citalopram), as well as the Court’s prior judgment in Generics (paroxetine), provide important clarity on the legality of pharmaceutical patent settlements under EU competition law.  However, important questions remain unresolved.

QUICK BACKGROUND

The judgments in Lundbeck and Generics (UK) establish that patent settlements are unlawful if a generic supplier commits to delay or forgo market entry in exchange for an unjustified value transfer from an innovator.  This principle applies even if there is the possibility that the generic supplier may infringe the innovator’s valid patent rights.  In such a situation, the generic may be considered as a potential competitor if it has taken preparatory steps to enter the market (e.g. obtaining regulatory approval, sourcing stock of products and preparing a patent challenge), and any inducement to encourage such a potential competitor to cease its patent challenge and stay off of the market will likely violate EU competition law. 

OPEN QUESTIONS

Is a settlement involving a license and royalty allowable?

For innovators and generic suppliers seeking an alternative settlement structure to resolve disputes or uncertainty concerning patent validity or infringement, one option is for the innovator to grant the generic a license to enter the market prior to patent expiry, subject to the generic paying a royalty at a negotiated level.  Such structures are, however, not without risk.  In the still ongoing Servier case, the Commission decided that one such settlement was unlawful, but this decision was annulled on appeal to the General Court, and the issue remains to be addressed by the Court of Justice. 

When might a value-transfer to the generic supplier be allowable?

Any value transfer to the generic supplier must not have the object of reducing or eliminating potential competition between the parties.  The Generics (UK) judgment indicates that the following value transfers may be allowable: (i) reimbursement of costs of disruption caused by litigation, (ii) payment for actual goods or services, or (iii) reimbursement for discharge of prior undertakings given by the innovator (e.g. a cross-undertaking in damages).  However, the Court takes care to note that any value transferred must “correspond in fact” to the justification, and thus must not be a disguised means of transferring additional (unjustified) value to the generic supplier. 

What is the impact of Brexit?

Following Brexit, EU case law will no longer be binding on the UK competition authorities and courts, and it remains possible that they may adopt a divergent approach to that taken in the EU.  The first illustration of this could occur in the Generics (UK) case, where the EU Court of Justice established the applicable legal principles to be followed (in a judgment two days before Brexit), but the case now reverts to the UK Competition Appeal Tribunal to apply the guidance to the specific settlements at issue in that case.  As the first post-Brexit UK judgment on this issue of patent settlements, this new judgment by the CAT will be highly influential for the assessment of future settlements in the UK. 

Other Open Questions

Many other open questions remain, as each patent settlement has unique features and context.  Examples of further issues still to be resolved include: (i) settlements involving disputes on the validity of the compound patent (rather than the process patents at issue in Generics (UK) and Lundbeck) and (ii) the legality of pan-European settlements of complex patent disputes that might benefit competition in some countries while reducing competition in others.

FUTURE ENFORCEMENT IN EU

With the Generics (UK) and Lundbeck judgments, and the upcoming Servier judgment, the European Commission will have largely achieved its objective of establishing the legal principles governing reverse-payment patent settlements under EU competition law.  Future enforcement actions concerning patent settlements will therefore likely shift to the national competition authorities of the EU Member States.  The European Commission’s focus will likely shift to other topics, such as the new investigation launched against Teva concerning “misuse of patent procedures”.