(by Sven Gallasch) On 9 July 2014 the European Commission announced its decision to impose a fine of €427.7 million on French drug maker Servier and five generic companies in relation to so-called ‘pay for delay’ settlements concerning Servier’s bestselling blood pressure drug perindopril. The case differs from the Commission’s earlier decisions against Lundbeck and Johnson & Johnson in a number of rather notable aspects, which will be addressed in this blog post.
Lundbeck and five generic companies were fined for pay for delay settlements which involved Lundbeck paying the generic companies in return for their promise not to enter the market. The conduct was found to be an Art. 101 infringement by object, meaning that like price fixing, it is illegal regardless of whether it has an anticompetitive effect. This suggests that Lundbeck paid off all potential competitors in the relevant market at the same time, effectively leading to an anticompetitive foreclosure of the market. Although I strongly advocate an effects-based approach to ‘pay for delay’ settlements I concede that an object approach might be justifiable in this specific case. One should always keep in mind that contrary to the US regulatory framework (the Hatch Waxman Act) – where the brand company can foreclose the market by paying off a single generic competitor – generic companies in Europe are not prevented by regulation from entering because of an existing ‘pay for delay’ settlement between the brand company and a different generic competitor. Generic companies can therefore undermine the brand company’s intention to foreclose the market. However, if the brand company pays off all potential generic competitors at the same time, foreclosure is effectively achieved.
Now, in the case of Servier, the brand company had – according to the Commission’s press release – paid off the generic competitors and potential entrants on separate occasions during the period of 2005-2007. From an economic perspective, this conduct should be more costly for the brand company than paying off all generics at once, as the generic ‘price tag’ for the respective settlement should rise as the brand company gets closer to effective market foreclosure. More importantly however, market foreclosure is only achieved with the last pay for delay settlement, which is an important difference to Lundbeck. It will therefore be very interesting to see whether the Commission has applied the same “object approach” as in Lundbeck despite this significant difference or whether it has rather opted for the more sensible effects-based approach in line with ECJ’s judgment in Delimitis, taking into consideration the competitive structure of the market and the fact that foreclosure is only achieved with the last pay for delay settlement.
A further notable difference to Lundbeck is that the decision is not solely based on Art. 101 TFEU but also on Art. 102 TFEU, thus finding unilateral conduct by which Servier has supposedly abused its dominant position. This adds a new dimension to the Commission’s enforcement agenda in relation to pay for delay settlements, as it not only focuses on the settlements themselves but also on broader unilateral conduct by the brand company.
It remains to be seen, why the Commission has chosen this dual enforcement approach. On the one hand the Commission might believe that pay for delay settlements can also facilitate a broader unilateral conduct by the brand company. On the other hand, the unilateral conduct in question could be based on the fact Servier’s own perindopril patent had actually expired. The company rather acquired and then enforced “process” patents, which did not cover the drug itself, but the way it was produced. By enforcing these acquired patents and inducing generic companies to enter into pay for delay settlements, Servier was then able to delay generic entry. If the latter is indeed the case, the enforcement of Art. 102 TFEU might have been triggered by the unique facts of the case.
Nonetheless, it would provide the General Court with the opportunity to revisit the issue of market definition in the pharmaceutical sector, as Servier has already announced that it would appeal the Commission’s decision. This opportunity to provide further guidance on market definition should be welcomed, not only because it is a difficult issue in the sector, but even more so because the EU Courts’ market definition in AstraZeneca (which is the only fully litigated EU pharmaceutical antitrust case to date) is highly controversial.