CJEU rules that "pay-for-delay" agreements may be anti-competitive
24th August 2020
“Pay-for-delay” agreements have been considered by the CJEU for the first time in the case Generics UK vs Competition and Markets Authority (CMA), with the CJEU ruling that such agreements may contravene competition law. This decision will have an impact on similar cases both currently under appeal before the CJEU and being investigated by national authorities.
What is a “pay-for-delay” agreement?
For a pharmaceutical company with a significant product protected by one or more patents, the expiry of those patent rights opens the way for generics manufacturers to enter the market. This normally depresses the market value of the product. In an effort to stave off this event, a pharmaceutical company may enter into an agreement with a generics company whereby they effectively pay the generics company not to launch their product onto the market for a period of time.
GlaxoSmithKline had two patents relating to the anti-depressant drug paroxetine (marketed in the UK as “Seroxat”). The main patent expired in 1999. The second patent, subject to a validity dispute at the relevant time, was subsequently found to be partially invalid. In the early 2000’s, a number of generics companies obtained marketing authorisation for paroxetine in the UK, apparently intending on launching a generic version onto the UK market. GlaxoSmithKline entered into a series of agreements with these companies in which they agreed to limit sales or not enter the UK market at all, and were paid a sum of money.
The CMA heard this case in 2016, and ruled that the payments were aimed at delaying the entry of generic products into in the UK market, and that this was detrimental to the NHS who would not benefit from the normal price reduction associated with generic medicaments entering the market. This contravened Articles 101 and 102 TFEU, by infringing both the laws prohibiting anti-competitive agreements, and those preventing a company from abusing a dominant position in the market. Consequently, the CMA fined the companies involved in the relevant agreements a total of nearly £50 million.
This decision was appealed to the UK Competition Appeal Tribunal (CAT), who referred a number of points to the CJEU.
GlaxoSmithKline had argued that the fact that the validity of the second patent was in dispute at the time that the agreements were made meant that it was not certain that the generics companies would have launched a generic version of paroxetine in the UK at that time. Hence, it was not clear that they were competitors, and as such were not subject to the prohibition of Article 101 TFEU (which prohibits anti‑competitive agreements). However, the CJEU held that patent rights do not constitute, in themselves, insurmountable barriers to entry into the market, since their validity can be contested. The generics companies could therefore be considered as potential competitors. The CJEU concluded that pay-for-delay agreements may have the intention of restricting competition where the reverse payment cannot have any explanation other than the commercial interest of both originator and generic.
This is not a final decision, and the case will return to the CAT for judgment. In the meantime, statements from the CJEU that a generic who has taken clear steps to enter the market is likely to be considered a competitor, and that a reverse payment without other justification than the commercial interest of both parties is likely to be considered anti-competitive, are highly relevant to companies operating in this area, and are likely to influence the outcome of similar cases.
Author: Katherine Wright