European Commission reports on patent settlement agreements

The European Commission’s Directorate General for Competition has recently released its First Report on the Monitoring of Patent Settlement Agreements (the “Report”).  The release of the Report comes less than a week after a decision of the EU General Court confirming a decision of the Commission to fine AstraZeneca for breaches of EU competition law.

The Report follows the Commission’s Pharmaceutical Sector Inquiry Final Report (the “Final Report”) into competition and patent issues in the European pharmaceutical industry, which concluded that the effect of some patent settlement agreements was to wrongly delay the market entry of generic medicines.  Following the Final Report, the Commission made a public commitment to continue to monitor patent settlement agreements between originator and generic companies to ensure that agreements do not delay the entry of generic medicines.  Mallesons has previously blogged on this issue following the Commission’s request for pharmaceutical companies to provide it with copies of patent settlement agreements earlier this year.

By collecting and analysing the agreements the Commission had hoped to unearth evidence of generic companies being “paid off” by an originator company in return for delaying market entry.  In total, 41 originators and 45 generics were asked to submit copies of all patent settlement agreements covering the EU market for the period from 1 July 2008 to 31 December 2009.  The Commission received 93 different agreements and classified them into three categories.

The first two categories of agreements – settlements where there was no limitation of generic entry (53 agreements), and settlements where there was a limitation on generic entry but no value transfer from the originator company (31 agreements) – were noted by the Report to not raise any issues of anti-competitive conduct.

However, the Report focused on a third category, comprising only nine agreements, where there was a limitation on generic entry and a value transfer from the originator to the generic.  Of these nine agreements:

  • six involved the grant of supply, distribution and licensing agreements by the originator to the generic;
  • two involved a direct payment by the originator to the generic;
  • one involved a payment and a licensing agreement from the originator to the generic; and
  • one involved a “side-deal” between the companies.

In its conclusions, the Report stated that it “is simply a monitoring exercise and no decision has been taken or implied on further investigation of any of the [third category of] settlement agreements”.  While the Report did not describe the specific details of the agreements, it appears that disputes between originator and generics were settled on conventional terms in accordance with standard legal and commercial considerations.

Rather than pursue this issue the Commission seized on the fact that there had been a decrease in “potentially problematic” agreements, from 22% of all agreements in the period from January 2000 to June 2008 to just 10% of all agreements for the period of the Report.  The Report then suggested that this indicated an increased awareness by pharmaceutical companies of the kinds of agreements which might attract regulatory scrutiny.

The Report indicates that the practices of pharmaceutical companies, and in particular how disputes between originators and their generic competitors are settled, will continue to be closely monitored by the Directorate General for Competition “for at least another year to see whether any further action is needed.”

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