To fight or not to fight: pharmaceutical patent settlements

On 19 April 2013, the OFT announced that it had issued a Statement of Objections following its investigation into patent litigation settlement agreements (PLSAs) in the pharmaceutical sector.  The underlying factual complaint related to GlaxoSmithKline’s alleged conduct in defence of one of its blockbuster drugs, Seroxat, which is a prominent anti-depressant (paroxetine). The central allegation is that GSK concluded PLSAs with three generics companies – Alpharma Limited (Alpharma), Generics (UK) Limited (GUK) and Norton Healthcare Limited (IVAX) – which had sought to compete with their own paroxetine medicines. It is alleged that at particular points between 2001 and 2004, GSK sought to challenge its competitors’ entry into the market by threatening or instigating patent litigation. It then concluded the agreements which offered financial sums in exchange for the generics’ commitment not to supply paroxetine independently for a relevant period within the patent protection of Seroxat – although they were able to do so before this protection had ended.

PLSAs (including so-called “pay-to-delay” arrangements such as those in this case) are an alternative to patent litigation: the patent holder offers an incentive (normally financial) to its generic competitor to delay but not abandon entry to the market during the period of patent protection. Initially becoming widespread at the turn of the Millennium, the European Commission’s most recent report in July 2012 suggests that there has been a steady rise in the use of these agreements since that time (particularly in the UK and Italy). They have been the subject of particularly active litigation in the United States, in the context of the Obama Administration’s healthcare policies. In particular, in order to encourage generic entry to the market, Congress passed the Hatch-Waxman Act, which established a mechanism for generic producers to provoke patent infringement litigation without having to actually enter the market and face the attendant risks, including shielding them from serious penalties for unsuccessfully challenging a patent. In fact, according to some commentators many patent infringement actions by patentholders in the US are ultimately unsuccessful or lead to the patent being invalidated.

The OFT has identified two potential competition law concerns. The first is the allegation that the PLSAs were anti-competitive and therefore in breach of the Chapter I and also potentially article 101 TFEU insofar as the hindrance affected intra-EU trade. The second allegation is that as a dominant company in this market (the analysis for this finding has not yet been provided), GSK acted abusively in seeking to hinder access to its competitors (the Chapter II prohibition). It is not clear whether the abuse consisted of GSK’s attempt to secure the PLSA or the fact that such an agreement was obtained (with the agreement of the generic competitor). The details of the OFT’s findings at this stage are limited, as the Statement of Objections will not be published and the OFT is awaiting the representations of the parties involved as well as any third party comments. A final decision is not anticipated before October 2014.

Although this is the first such agreement examined by the OFT, the issue is highly topical outside these shores. After being one of the focuses of the Commission’s Pharmaceutical Sector Inquiry from 2009-2011, the Commission dropped certain previous investigations into pay-to-delay cases in March 2012due to lack of evidence (AstraZeneca) or withdrawal of the complaint by a rival company (GSK). Nevertheless, settlements in relation to Lundbeck’s Citalopram and Les Laboratoires Servier’s Perindopril were the subject of two Commission Statements of Objection in July 2012. The United States Supreme Court is also currently considering a “pay-to-delay” case in Federal Trade Commission vs. Actavis, Inc., 12-416. US practice has shown divergent approaches to these agreements by appeals courts – with some accepting that as long as the hindrance to market entry coincides with a period of patent protection the agreement is not anti-competitive, while others have accepted the FTC’s recent view that these agreements are “presumptively unlawful”.

From the perspective of EU competition lawyers, the question of the legality of PLSAs can be seen as yet another potential front on which patent-holding pharmaceutical companies need to defend the results of their R&D investments (particularly in light of the apparent lowering of the threshold for “abuse” in the Court of Justice of the European Union’s recent AstraZeneca decision, as to which see my previous blog entry).

Curiously enough, this is an area where the interests of many generic companies and patent-holders will converge, as there are often advantages for both sides to such arrangements. In many cases, the PLSA allows generics to enter the market well before the expiry of patent protection and foresees only limited financial compensation for the delayed entry. This enhances the patent protection for the holder, while also providing generic competitors with guaranteed income in a market for which they may only be anticipating limited market shares and fierce competitors from other generics.

There are relatively few judicial decisions which have undercut the protection of IP rights in this context. However, it appears that parties to PLSAs will need to limit their scope and exclusivity to extant patent protection to avoid attracting greater attention from enforcement authorities. Each party will need to carefully assess whether patent litigation would be the best outcome (notably due to its cost, length and the underlying merits). Moreover, a useful indicator for lawful ‘value transfers’ to generic competitors appears to be projected litigation costs and the anticipated benefits to generics from entry to the market before the end of patent period. Indeed, there may be tangible benefits for patients and health insurers from an earlier than foreseen entry and the consequent greater choice for prescribers.  With this in mind, settlement agreements, including “pay-to-delay” agreements, have not yet exhausted their utility.

It is hoped that efforts to institute a unitary patent system (which were given the green light by the Luxembourg Court last week in relation to an initiative for “enhanced cooperation” as noted by my blog post), may resolve some of the uncertainties which underlie the patent disputes implicated by these settlements.

1 Comment

Filed under Abuse, Agreements, IP, Pharmaceuticals

One response to “To fight or not to fight: pharmaceutical patent settlements

  1. Pingback: To fight or not to fight: pharmaceutical patent settlements – Competition Bulletin from Blackstone Chambers | Current Awareness

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