Advocate General Kokott Issues Opinion in Lundbeck Patent Settlement Case

The facts in a nutshell

Lundbeck entered into six agreements with four generic manufacturers in 2002. The agreements related to various geographic areas with some covering the entire European Economic Area. The compound patent for Lundbeck’s antidepressant citalopram had expired, but Lundbeck still had several process patents, including for the production of citalopram using salt purification methods by crystallization and film distillation. In 2002-03, Lundbeck had also planned to launch Cipralex (escitalopram), a new antidepressant meant to treat the same patients as those previously treated with citalopram.

The agreements were aimed at settling any disputes between the parties. Some of the agreements also allowed the generic manufacturers to distribute Lundbeck’s own generic citalopram. All of the agreements entailed value transfers by Lundbeck to the generic manufacturers in return for the latter’s commitment not to enter the market for the duration of the agreement. The European Commission (Commission) found that Lundbeck and the generic manufacturers were potential competitors and that the settlement agreements restricted competition “by object” in violation of Article 101 of the Treaty on the Functioning of the European Union (TFEU) (Case AT.39226 – Lundbeck). It fined Lundbeck €93.8 million in total. The GC agreed with the Commission (Case T-472/13 Lundbeck v Commission).

AG Kokott’s assessment of potential competition

1. Process patents do not constitute insurmountable barriers to market entry

AG Kokott found that the patents at issue did not constitute insurmountable barriers to entry for the generic manufacturers. She referred to the CJEU’s finding in Generics (UK) that a process patent does not prevent a generic manufacturer, who has a firm intention and an inherent ability to enter the market, and who has taken steps showing that it is ready to challenge the validity of the patent and enter the market “at risk,” from being considered a potential competitor (para. 48).

The presumption of validity of patents is “merely the automatic consequence” of a patent that has been granted and “sheds no light on the outcome of any dispute relating to the validity of that patent” (para. 49). She agreed with the GC that the presumption of validity of a patent cannot be equated with a presumption of illegality of generic products validly placed on the market (e.g., paras. 50 and 60). She further considered that disputes between originator and generic manufacturers “often form part of the preparations for the market entry of generics” (para. 54 and para. 51). An ‘at risk’ entry by a generic manufacturer, she found, constitutes a real and concrete possibility for it to enter the market (paras. 55 and 99). That is “all the more true” for process patents (para. 56).

In line with her opinion in Generics (UK), AG Kokott stated that it is not for the Commission to make predictions on the outcome of patent disputes when assessing the competitive relationships between companies because doing so would “confuse actual and potential competition and […] ignore the fact that Article 101 TFEU also […] protects the latter” (para. 58). AG Kokott nevertheless acknowledged that process patents form part of the economic and legal context of a settlement agreement (paras. 59 and 62).

2. The GC did not commit methodological errors in its assessment of the evidence

AG Kokott agreed with the GC’s assessment of the evidence presented by the Commission and its finding that the Commission had carried out a careful examination relying on objective evidence (and not merely evidence of Lundbeck’s subjective assessment of the strength of its patents) to demonstrate that there was potential competition (para. 76).

In this context, AG Kokott referred to the CJEU’s test in Generics (UK). Whether potential competition exists will thus depend on whether, at the time the settlement agreements are concluded, the generic manufacturer has taken sufficient preparatory (administrative, judicial and commercial) steps to enable it to enter the market concerned within such a period of time as would impose competitive pressure on the originator company and hence establish its firm intention and inherent ability to enter that market (para. 78).

AG Kokott moreover mentioned the additional factors the CJEU assessed in Generics (UK) to confirm that potential competition exists, including the originator company’s readiness to make value transfers to generic manufacturers (the CJEU had stated that “[t]he greater the transfer of value, the stronger the indication [of potential competition],” para. 56) and the originator company’s perception at the time the agreements were concluded (e.g., paras. 80 and 91 of the opinion)).

3. The lack of a marketing authorization does not preclude a finding of potential competition

AG Kokott sided with the GC, finding that “although the success of the procedure to obtain a [marketing authorization (MA)] is indispensable in order for effective competition to exist, the path to obtaining such an MA, […] constitutes potential competition” (para. 103) and that “[a] refusal to recognise the existence of a potential competitive relationship […] simply because that manufacturer does not yet have an MA […] would run completely counter to the effectiveness of Article 101 TFEU” (para. 106).

Patent settlement agreements restricted competition “by object”

AG Kokott reiterated the CJEU’s finding in Generics (UK) that a patent settlement agreement “is akin to a restriction of competition by object if the value transfer from the patent holder to the generic manufacturer has no explanation other than the common commercial interest of the parties not to engage in competition on the merits” (para. 128). She added that “[i]f the sole consideration for that transfer is the generic manufacturer’s undertaking not to enter the market and challenge the patent, this indicates, in the absence of any other plausible explanation, that it is not its perception of the patent’s strength but the prospect of the value transfer that prompted it to refrain from entering the market and challenging the patent” (para. 129).

However, just as the CJEU had done, AG Kokott left an open door for parties to justify the value transfers made (e.g., because they compensate the generic manufacturers for costs associated with the dispute) (para. 132) and to show that the agreements had pro-competitive effects. The latter must be duly taken into account as part of the context of the agreement (para. 143). In the case at issue, Lundbeck and the generics manufacturers had failed to provide “even minimal concrete evidence” of an alternative explanation (para. 134). She noted that the “asymmetry of risks,” like possible shortcomings in national patent law, cannot justify agreements “whereby an economic operator pays its competitors to stay out of the market” (para. 135).

Neither the absence of explicit no-challenge clauses in the agreements nor the novelty of the case could call into question the finding that those agreements constituted restrictions of competition “by object” (paras. 146 and 155). That conclusion, the AG found, is independent of whether the agreements went beyond the scope of the patents in dispute.

Where do we stand?

AG Kokott’s opinion largely confirms her analysis of potential competition in Generics (UK) and her finding that patent settlement agreements that include value transfers from the patent holder to generic companies in exchange for the latter’s commitment not to enter the market may restrict competition “by object.” She however also reiterated that if a patent settlement agreement may have pro-competitive effects, these must be taken into account. She added that value transfers may be justified if the generic manufacturer’s commitment not to enter the market and not to challenge the patent is not “the sole consideration” for the transfers.

Some of the AG’s findings leave open questions. For example, how to reconcile the requirement for a generic company to have a “firm intention” and an “inherent ability” to enter the market to qualify as a potential competitor with the fact that in particular getting an MA is a complex and rather lengthy process — and that submitting an application by no means guarantees that an MA will be granted. In fact, applications are withdrawn regularly due to the lack of sufficient data supporting the quality, safety and efficacy of the molecule subject to the application. For applications that are not withdrawn voluntarily, the European Medicines Agency may issue a negative opinion. It remains to be seen if the CJEU will follow the AG’s (nonbinding) Opinion and if it will provide further guidance.

It is worth noting that in addition to the case at issue, other cases are still pending before the CJEU, with different facts and a different context (see Servier cases C-201/19 P and C-176/19 P — an oral hearing has yet to be scheduled). These may shed further light on the application of competition law to patent settlement agreements, taking into consideration the complex regulatory framework. Besides the cases before the CJEU, the Commission is investigating two other companies for having entered into a patent settlement agreement that was allegedly in breach of Article 101(1) TFEU. It therefore looks like the discussion about the legality of patent settlement agreements will remain alive at least in the near future.