An agreement in settlement of a dispute relating to a pharmaceutical patent bet­ween the holder of such patent and a manufacturer of generic medicinal products may breach competition law, Advocate General (AG) Kokott has recently opined.

EU antitrust rules clearly prohibit horizontal and vertical agreements between two or more independent market operators which have the object or effect of restricting competition and which effect inter-state trade. It is also illegal for firms which hold a dominant position in any particular market to abuse of such position.

The facts of this case were briefly as follows. The pharmaceutical group GlaxoSmithKline (GSK) held a patent for the active ingredient of an antidepressant medicinal product and secondary patents protecting specific manufacturing processes of such active ingredient.

When the main patent expired, several manufacturers of generic medicinal products planned to enter the UK market with its generic. Disputes arose between GSK and the generic manufacturers, in which the validity of GSK’s secondary patents was contested. GSK and the generic manufacturers subsequently entered into agreements in settlement of these disputes, whereby the generic manufacturers consented not to enter the market with their own generic products for an agreed period, in exchange for payments by GSK.

The UK’s competition authority took the view that such agreements infringed competition law and imposed fines on the parties concerned. The authority’s decision was challenged before the UK’s Competition Appeal Tribunal which in turn sought guidance from the CJEU, by way of a request for a preliminary ruling, as to whether an agreement in settlement of a patent dispute in the pharmaceutical sector may constitute a breach of the competition rules.

The AG confirmed that an agreement in settlement of a patent dispute could be found to be in breach of competition law. Disputes relating to the validity of patents and to whether generic products infringe such patents are irrelevant when it comes to ascertaining that the patent holder and the manufacturers of the generic products are potential competitors, the AG asserted. Indeed, the fact that the parties had a dispute between them which was resolved via the conclusion of the relevant agreements, is proof of itself that such parties are potential competitors.

The AG’s opinion is not binding on the Court of Justice

The AG observed that what needs to be assessed is solely whether it is realistically possible for the generic manufacturers to enter the market, despite the existence of the patents at issue. In coming to its conclusions, a competition authority must in this case take account of all relevant contextual factors, such as, how far advanced the generic manufacturers are in preparing to enter the market, she noted.

The AG then went on to observe that the way in which a patent holder exercises exclusive patent rights can fall foul of competition rules. Such rights are not intended to afford protection against actions challenging the validity of the relevant patent, the AG affirmed.

Hence, an agreement such as the one under scrutiny, in terms of which the manufacturer of the generic product undertakes, in exchange for payment by the patent holder, not to enter the market and not to challenge the patent, eliminates normal competition and constitutes a restriction of competition by object. An assessment of any benefits accruing to consumers by virtue of the agreements must also, however, be made in order to establish whether such benefits outweigh the anticompetitive object of the agreements, the AG emphasised.

An assessment of the effects of an agreement need only be made where it is found that the agreement does not constitute a restriction of competition by object. Such assessment must, in this case, not focus on the likelihood of the patent being found to be invalid but rather determine whether the agreement has had the effect of eliminating competition between the operators concerned and whether such effect is appreciable, the AG went on to explain.

A patent holder enjoying a dominant position on the relevant market may also be found to have acted abusively in breach of antitrust rules, by entering into such agreements which are restrictive of competition, the AG observed. In order to establish dominance or otherwise, account must be taken of the generic versions of the pharmaceutical product protected by the patents to define the relevant market. Possible benefits afforded to consumers by the agreements concerned must, also in this case be considered. It is only if such benefits outweigh the agreement’s adverse effects on competition on the relevant market, that one can conclude that there was no abusive conduct.

The AG’s opinion is not binding on the Court of Justice and therefore one must await the decision of the Court for the final decision on the matter. Nonetheless, this opinion is an eye-opener for patent right holders who seek to restrict competition in the market by using mechanisms, such as the conclusion of agreements, in order to erect barriers to entry for potential competitors. It also provides clear pointers for competition authorities seeking to ascertain whether agreements entered into by patent right holders and their potential competitors constitute a breach of antitrust law.

Mariosa Vella Cardona is a freelance legal consultant specialising in European law as well as competition law, consumer law, data protection law and intellectual property law. She is also a visiting examiner at the University of Malta.

mariosa@vellacardona.com

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