GSK, Generics UK, Alpharma ask EU's top court for clarity over pay-for-delay agreements

02 Apr 2020 12:37 pm by Michael Acton

GSK, Generics UK, Alpharma and others have appeared at the EU’s top court to ask judges to clarify a number of legal questions around "pay-for-delay" cases in the pharmaceutical sector, after they were collectively fined 45 million pounds ($56 million) in 2016 by the UK’s antitrust watchdog.

The UK’s Competition Appeal Tribunal is seeking guidance from judges at the EU Court of Justice on the antitrust implications that arise from patent settlements between pharmaceutical companies which have the effect of preventing rival versions of the same drug from entering the market.

Lawyers for the companies told judges that the UK watchdog had taken too broad a view of the purpose and effects of such agreements by classifying them as a "by object" breach of antitrust rules.

In 2016, the UK Competition and Markets Authority fined GSK and the generic firms a combined total of 45 million pounds for anticompetitive conduct through agreements over the supply of paroxetine, sold by GSK under the brand name Seroxat.

The watchdog concluded that GSK had colluded with Alpharma and Generics UK between 2001 and 2004. It said GSK had been engaged in litigation proceedings against the companies over their attempts to bring to market paroxetine, which GSK sold under the brand name Seroxat.

But before that litigation went to trial, GSK made agreements with the companies worth 50 million pounds to delay them from marketing generic paroxetine, the CMA said. The companies then appealed the decision at the UK courts, which has led to this reference case.

By object?

Lawyers for the companies argued that the CMA's proscriptive approach to such agreements lacked nuance, and risked outlawing a whole category of patent settlement agreements by deeming them "by object" infringements. These are considered anti-competitive by their very nature, which saves regulators the more onerous task of having to prove they did in reality have anticompetitive effects.

For GSK, James Flynn said the CMA had established a "sweeping rule," the effect of which was to "outlaw a very large category of patent settlement agreements."

"We need individual assessments of the facts of the case, not condemnation by category," he argued. A closer look at the detail of the settlements between GSK and the generics companies showed that GSK could not have been sure that it could have successfully defended its patents against the companies, he said.

The uncertainty that arose from the status of the patent, and whether or not the generics companies could have broken into the market if they had not opted for the settlements, meant the effects on competition if the agreements had not been reached should not be assumed, he argued.

"The complete exclusion of the generics companies from the market is no less likely," Flynn said. "It is a form of dynamic competition based on patents... the settlements mean we will never know what a trial judge would have thought."

"No one could say at the time which side would have won — the outcome was genuinely uncertain," said Ronit Kreisberger, for Merck, the former parent company of Generics UK. "The CMA could have but failed to carry out a proper analysis of the effects."

For Generics UK, Stephen Kon echoed these sentiments, warning that "the case put forward by the CMA represents a massive expansion of liability" for pharmaceutical companies who enter such arrangements.

As an example of the complexity of the case, Kon noted that the CMA considered Generics UK a potential competitor to GSK even though at the time it was barred from manufacturing its own version of Seroxat by a temporary injunction by a UK patent court.

Regulators rebut

Lawyers for the UK CMA pushed back hard against the companies' claims, homing in on the arguments about whether or not the generics firms represented 'potential' competitors at the time the agreements were reached.

"This was an obvious practice of an undertaking paying off potential rivals and sharing monopoly profits," said Jon Turner, speaking for the CMA. "GSK made very large direct payments to the generics firms and chose to designate these payments in a manner which was "misleading," he argued.

Whether the patents were weak or strong, he said, did not matter, and "we certainly do not shrink from that conclusion." And the temporary injunction against Generics UK prohibiting it from entering the market did not lead to a "signal change in its outlook," with the company even taking pre-orders from clients for the product.

"Pay-for-delay cases are indeed like market sharing agreements. They result in unjustified delays and cost the public budget millions," said Teresa Vecchi for the European Commission.

She said GSK's patent on the compound involved had expired at the time of the agreements, and it was relying on secondary patents on the processes involved in making the drug. This meant the entry of the generics companies onto the market could be expected soon and provided the incentive for GSK to pay them off, she argued.

Lawyers for the EU commission also pointed to studies carried out in recent years which showed that only a small minority of pharmaceutical patent settlements are now concluded in such a manner.

Other alternatives, such as royalties agreements or market entry date agreements, were workable alternatives that didn't raise antitrust concerns about restricting the supply of a specific medication, lawyers for the regulators said.

Positive effects?

For Generics UK, Kon said there was, in fact, evidence that the disputed patent settlements had pro-competitive effects, which the CMA's proscriptive "by object" approach had overlooked.

"If there is any case that does not get anywhere close to being a 'by object' infringement, we would respectfully submit that this is it," he told the judges. He said the UK's CAT had acknowledged, for example, that prices for Seroxat had fallen by around 3 percent following the settlements, which included GSK agreeing to supply the generics companies with small quantities of the drug to sell themselves.

He pointed to a court opinion from earlier this month in the Budapest Bank case which warned regulators to be thorough in checking the legal and factual circumstances, even when a type of behavior may seem anti-competitive by nature.

For the CMA, Turner responded that any purported evidence of benefits to consumers had been refuted in the watchdog's analysis underpinning its decision. The price change, he said, "was essentially due to the change in the mix, as some sales attributed to GSK were then attributed to others. This was not caused by competitive pressure."

Lundbeck's shadow

The shadow of Lundbeck, another leading pharmaceutical company which also has a pay-for-delay case in front of the EU's top judges, fell heavily across the hearing.

Lundbeck and several generics firms were fined by the EU’s antitrust watchdog for similar behavior concerning the drug citalopram in 2013. After losing an appeal at the lower-tier General Court, they then appealed to the EU’s top court.

At a hearing earlier this year, lawyers for the company similarly argued that the regulator had wrongly concluded that "reverse payment" patent settlements amounted to market-sharing agreements. Lundbeck has said it expects a judgment by the end of this year.

Lawyers for the companies were keen to distinguish the differences between the two cases, while lawyers for the regulator reiterated that there was no real distinction between the types of behavior observed.

"There was a real concrete prospect for generics to enter the market in Lundbeck, which is not present in this case," Sarah Ford said, for Actavis, which later acquired Alpharma. Lundbeck had been in a "weak patent position" and had therefore chosen not to fight the litigation, while GSK had been actively fighting a legal battle with the generics firms.

This, she said, was a crucial distinction from the Lundbeck case when understanding the motives involved.

But lawyers for the regulators noted repeatedly that generics companies have to begin preparations to launch a rival version of a drug well in advance, investing in research and development long before GSK's patent expired.

This, they said, was clear evidence that the companies saw themselves as potential competitors — and were engaged in the same type of anticompetitive behavior as Lundbeck.

Judges' questions

Judge rapporteur Daniel Šváby asked the companies to confirm that the top court's role in this reference case was to provide "important clarification on restrictions of competition by object," and then pressed them on the purpose of considering the procompetitive effects of such agreements if that was indeed the focus.

For GSK, Flynn said it was indeed necessary for judges to consider this context.

"You have spoken of consumers losing out," Šváby then asked the regulators. "Is it always the case that in relation to these agreements, the consumer always loses out?"

For the EU commission, Flor Castilla Contreras said that "the benefits, if any, of the agreements are negligible."

Judge Šváby then asked about the terms involved in the resale of the stock supplied to the generics under the agreement. Were they required to sell them at a minimum price?

Speaking for GSK, Flynn said that there was nothing in the agreements which limited pricing freedom. But Turner for the CMA replied that, while there was no contractual restriction on the generics regarding the prices they charged, the UK's Competition Appeals Tribunal had found that there was "no incentive to sell below the predicted price," in part because the companies would quickly run out of stock.

Judge Küllike Jürimäe then pressed the regulators on the question of how important the secondary manufacturing process patents were in the case, compared to the patent on the compound.

"There are many ways to make a cake. In order to prove a restriction, is it important to take into account the manufacturing process?" she asked.

Castilla Contreras replied for the commission that, while the patent on the process could be an initial barrier, "eventually generics will succeed in finding a non-infringing process." This, she noted, had also happened in the Lundbeck case.

The court reference for this case is C-307/18, Generics (UK) and Others.

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