The Competition Appeal Tribunal refers key questions in alleged ‘pay-for-delay’ case to Court of Justice

03/04/18

GlaxoSmithKline (GSK) held patents covering the anti-depressant medication paroxetine hydrochloride (brand name Seroxat). In 2001 and 2002, it entered into three voluntary agreements settling patent disputes with generic companies seeking to enter the UK paroxetine market before the expiry of GSK’s patents (namely, Norton Healthcare Ltd (IVAX), Generics (UK) Ltd (GUK), and Alpharma Ltd).

GSK considered that entry by those generic companies would infringe its patents. The generic companies argued that either their products were not infringing or the relevant patents were invalid. GSK obtained interim relief restraining GUK and Alpharma from entering with their products pending the outcome of the patent litigation, which was nevertheless uncertain.

Under the settlement agreements with GUK and Alpharma, they agreed to desist from entering the UK market with their own sources of paroxetine hydrochloride while GSK’s patents remained extant, and GSK agreed to supply them with specified volumes of paroxetine hydrochloride via IVAX as GSK’s exclusive distributor. The availability of authorised generic paroxetine agreements led to an overall fall in the price paid by the NHS owing to the regulatory arrangements in place at the time.

By its Paroxetine Decision of 12 February 2016, the Competition and Markets Authority (CMA) decided that the agreements were infringements of competition law, and imposed significant financial penalties.

GSK, GUK and Alpharma (and their successor companies) appealed against the Decision to the Competition Appeal Tribunal in respect of both liability and fine. The appeals raised important issues at the intersection of patent law and competition law. They were heard together during a five-week trial commencing on 27 February 2017 before a panel chaired by the President of the Competition Appeal Tribunal, Mr Justice Roth.

Following its judgment handed down on 8 March 2018, the Tribunal has now referred questions on the following central issues on liability to the Court of Justice of the European Union in Luxembourg for a preliminary ruling:

Potential competition: The Tribunal expressed the provisional view that the Decision was correct to find that the generic companies were potential competitors of GSK. However, it decided that it was necessary to refer a question to the CJEU on this point.

Object infringement: One of the most controversial issues on the appeals was whether the agreements could be characterised as ‘pay-for-delay’ agreements and, if so, whether they gave rise an infringement of competition law. A further layer of complexity was how to analyse the benefits of the agreements. The Tribunal considered that the question whether the agreements had the object of restricting competition was of wide importance and the law was not free from doubt, so that a reference to the CJEU needed to be made.

Infringement by effect: The Tribunal decided that it was necessary to refer a question to the CJEU asking whether a real possibility that the generic companies would have succeeded against GSK in the patent litigation was sufficient to establish an infringement by effect.

Market definition: The Tribunal disagreed with the approach taken by the CMA in its Decision, but expressed a provisional view that the Decision could be supported on the alternative basis advanced by the CMA’s expert at the hearing, that the expected competitive constraint of generic entry can be taken into account once such entry becomes a realistic possibility, in circumstances where the alleged abuse was targeted at those generic companies. It recognised that this approach to market definition was “novel” and therefore referred a question to the CJEU on this point.

Abuse: As the question whether GSK had committed an abuse depended in part on the same issues as arose in the questions concerning the agreements, the Tribunal decided that it was also necessary to refer questions to the CJEU on abuse.

The Tribunal also dismissed the appellants’ arguments in relation to the exclusion order for vertical agreements, block exemption, individual exemption, breach of the rights of defence and attribution of liability.

The judgment is available here.

The questions referred to the CJEU are available here.