General Court rules for the first time on ‘pay for delay’ agreements

19/09/16

The General Court recently handed down several judgments confirming a decision of the European Commission that had condemned agreements delaying the introduction of generic competition in the market for drugs used to treat depression and panic disorders.

This is the first time that the General Court has considered so-called ‘pay for delay’ agreements, under which a manufacturer of branded drugs typically settles a dispute with a generic drug producer by paying it to delay the launch of its product. Views differ about the merits of such deals. Some claim that they stifle competition from cheaper generic drugs, to the detriment of patients and those financing the healthcare system. Others extol the virtues of such deals, arguing that they are a legitimate means of protecting patent rights and settling complex disputes.

The case concerned a series of agreements made by Danish pharmaceutical company, Lundbeck. In 2002 Lundbeck’s basic patent rights for citalopram expired, whereupon four producers began preparing to launch generic versions. This led to a dispute between Lundbeck and the generics as to whether the generic methods of production infringed one or more of Lundbeck’s remaining patents. The disputes were only resolved when Lundbeck agreed to pay each generic in return for it agreeing to stay out of the market for over a year.

In 2013 the Commission decided that the agreements contained payments, the object of which was to induce the generics to agree not to enter and compete with Lundbeck. For this reason the Commission found that the agreements were unlawful and imposed fines totalling €146 million.

Lundbeck and the four generics companies appealed the Commission decision to the General Court.

The General Court dismissed the five appeals in their entirety. The Court agreed with the Commission that each of the generics was a potential competitor to Lundbeck at the time of the agreements. The Court also confirmed the Commission’s assessment that each of the agreements pursued the object of restricting competition. The Court held that the parties had chosen to replace the risks of competition and the uncertainty of the patent disputes with the certainty that there would be no generic competition for the duration of the agreements. In the Court’s view the agreements revealed a sufficient degree of harm to competition to be unlawful without considering their effects.

The Court rejected arguments that the restrictions contained in the agreements were objectively necessary to protect Lundbeck’s intellectual property rights, that the Commission had breached the parties’ rights of defence and that the fines were unjustified.

For the Judgment click here.

For the Commission’s press release welcoming the judgments click here.