Antitrust Alert: European Commission to check whether patent settlements concluded between pharmaceutical companies infringe EU antitrust rules

On 12 January 2010, the European Commission sent an information request to a number of pharmaceutical companies, seeking copies of their patent settlement agreements, to check their compliance with EU antitrust rules (Official Press Release IP/10/12), as a follow up to its pharmaceutical sector inquiry (Case COMP/39.514). The Commission is in particular looking at patent settlements where an originator company pays off a generic competitor in return for delayed market entry of a generic drug (so-called "reverse payments patent settlements").  This suggests that the Commission may be initiating a program to periodically monitor settlement agreements and could launch infringement proceedings against settlements it finds anticompetitive.


In making this request, the Commission may have been influenced by a provision of U.S. law that requires such information to be submitted to the antitrust authorities.  Since 2003, the parties settling patent claims arising from attempts by generic drug makers to enter the American market prior to patent expiration must file the terms of their settlements with the Federal Trade Commission and the U.S. Department of Justice.  For that reason, the U.S. competition agencies are readily able to identify and, if they choose to do so, investigate settlements with terms that the agencies find troubling.


Reverse payments patent settlements


The Commission's information requests cover reverse payments patent settlement agreements concluded between originator and generic pharmaceutical companies between July 2008 to December 2009 and relating to the EU/EEA.  Outgoing EU Competition Commissioner Kroes commented: "We need to monitor this type of agreement in order to better understand why, by whom and under which conditions they are concluded. The monitoring will also provide us with the possibility to act should this become necessary."


This new round of information requests follows the Commission's findings in its pharmaceuticals sector inquiry, as summarized in a final report published in July 2009. This final report has been received with mixed views by industry stakeholders, practitioners and commentators. The Commission has taken the view that reverse payments patent settlements between originators and generics raise a suspicion of a competition law infringement. The Commission's suspicion is arguably based on an assumption that the patent in suit is either weak or invalid. However, it is difficult to reconcile this view with the existing case law of the EU Courts on settlements of litigation concerning intellectual property.


EU case law


In Bayer v Süllhofer, the Court of Justice stressed that agreements to settle current or potential litigation, which can be judicial or out-of-court settlements, are in principle capable of falling within the prohibition of EU antitrust rules. However, it also indicated that a no-challenge clause in a settlement agreement terminating an intellectual property rights infringement does not generally fall within the scope of EU antitrust rules as it is inherent in such settlement agreements that the parties agree not to challenge the intellectual property rights covered by the agreement.  Moreover, it follows from the General Court's ruling in ITT Promedia that litigation settlements fall outside EU antitrust rules unless it can be demonstrated that the settlement was reached in circumstances that constitute "sham litigation".  In this respect, the Commission's guidelines on the assessment of patent settlement agreements (Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements, para. 204-209) state that settlements will not be deemed unlawful if the parties "have... good and valid reasons to believe that a blocking position [i.e., a position in which a product cannot be exploited without infringing upon the intellectual property rights protecting another product] exists" with the support of appropriate legal advice.


It follows that the legal test for assessing compliance of a reverse payment patent settlement with EU antitrust rules should arguably be whether the settlement restricts competition beyond the exclusionary zone of the patent, unless the patent is a "sham patent".


US comparison


There are specific features of the US patent system under the Hatch-Waxman Act that are not applicable in the EU.  However, there have been a number of recent US cases on patent settlements that are interesting to compare.


While the Federal Trade Commission ("FTC") has taken the policy position that reverse payments patent settlements are presumptively illegal - and this view has been more recently endorsed by the Department of Justice too - the US courts have overwhelmingly accepted the defendants' view that a reverse payment patent settlement within the exclusionary effect of a "non-sham" patent does not harm competition. To date, decisions in favor of the settling defendants have been rendered by the Eleventh Circuit in two separate cases (Valley Drug and Schering-Plough), by the Second Circuit (Tamoxifen), and by the Federal Circuit (Ciproflaxacin). In addition, a judge famous in the U.S. for his antitrust opinions, Richard Posner, dismissed a similar complaint while sitting by designation as a District Judge (Asahi Glass). In all these cases, the US courts adopted the fundamental position that the assessment of reverse payments patent settlements requires the application of a rule of reason, having regard to the following three key points: 


  • First, a settlement that restricts competition only within the exclusionary potential of the patent is presumed not anticompetitive;
  • Second, there should be no detailed assessment in an antitrust context of the relative strength of the patent at issue -- patents that have been granted are deemed valid unless a party can demonstrate (1) that the patent has been fraudulently obtained,or (2) that the claim of infringement was "objectively baseless";
  • Third, the presence of a reverse payment is not inherently anticompetitive -- in principle, any settlement is lawful if it merely serves to protect that to which the patent holder is legally entitled, i.e., a monopoly over the patented invention.


Despite these court rulings, the FTC continues its pursuit of patent settlements in the US pharmaceutical sector both in the courts and with the publication of a report earlier this year, which condemns reverse payments patent settlements. This FTC report comes as the House and Senate are beginning to marry their two healthcare reform bills. The House bill includes a provision that would essentially ban reverse payments patent settlements; the Senate bill does not contain such a provision.




The EU and the US antitrust agencies have taken the view that reverse payments patent settlements raise a suspicion (if not a presumption) of a competition law infringement. However, the existing jurisprudence on both sides of the Atlantic has thus far rejected this view. Against this background, it remains to be seen what legal test the Commission will use to assess reverse payments patent settlement agreements between originator and generic companies in its new monitoring exercise.


Next steps


If the addressees of the Commission's information requests fail to comply with such requests within the set time limits, the Commission can issue a binding decision to obtain copies of the requested agreements. If the Commission were to find that a specific reverse payment patent settlement risks infringing EU antitrust rules, it could launch infringement proceedings against the parties concerned. If successful, infringement proceedings could result in the settlement agreement being declared unenforceable and financial penalties being imposed for an amount of up to 10% of their individual group turnover.


Depending on the outcome of this fact finding exercise, the Commission may decide to repeat this type of monitoring of pharmaceutical patent settlement agreements on an annual basis. It is an open question, however, whether prolonged monitoring of agreements which are presumptively lawful would risk placing an undue administrative burden on the pharmaceutical companies concerned.


Read the Commission's press release and final report in its pharmaceutical sector inquiry here.


Lawyer Contacts


For more information, please contact your principal Jones Day representative or either of the lawyers listed below.


Frances Murphy




Francesco Liberatore




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