The agreements between generic producers and patent holder Lundbeck were Restriction by object, the ECJ ruled. Lundbeck unsuccessfully invoked a protected process for the production of the active ingredient as a barrier to market entry.
The ECJ confirmed in several parallel rulings that previous agreements between generic producers and Lundbeck (Denmark), the patent holder of the pharmaceutical patent, are to be seen as “intended” restriction by object in competition. Accordingly, it is a cartel to delay the marketing of an antidepressant with the active ingredient citalopram as a generic product.
The patent holder of the pharmaceutical patent Lundbeck (H. Lundbeck A/S (Denmark) and Lundbeck Ltd (UK)), and the generic manufacturers Arrow, Xellia Pharmaceuticals / Alpharma LLC, Merck and Sun Pharmaceutical Industries Ltd / Ranbaxy are involved in the agreements in question and also in the legal proceedings now decided before the ECJ.
Facts of the case: Antidepressant in focus
In the present cases, the Danish pharmaceutical company Lundbeck had already developed and patented an antidepressant with the active ingredient citalopram in the late 1970s. After the expiry of its basic patent on this molecule, Lundbeck held a certain number of secondary patents, which granted Lundbeck more limited protection.
In 2002, Lundbeck therefore entered into agreements with companies active in the manufacture or sale of generic drugs. In return for the generic companies’ commitment not to enter the citalopram market, Lundbeck gave them large payments and even bought their generic stocks.
Not surprisingly, this drew the attention of competition regulators. A year-long investigation into the agreements in question followed, until finally the EU Commission decided in a decision of 19 June 2013 that Lundbeck and the generic companies in question were at least potential competitors and that the agreements in dispute constituted restrictions of competition by object. In addition, the EU Commission imposed total fines of €93.7 million on Lundbeck and €52.2 million on the generic companies.
As a result, both Lundbeck and the generic companies brought actions before the Court of the European Union (CFI), all of which were dismissed in 2016. The pharmaceutical manufacturers appealed to the ECJ and requested the annulment of the judgments and the annulment of the EU Commission’s decision.
We briefly summarise the parallel rulings here:
Process patents and guidelines on technology transfer agreements
Lundbeck argued, inter alia, that the CFI had erred in law in considering whether the generic companies could have entered the market. It failed to recognise, Lundbeck argued, that there were legal barriers, namely their new process patents, which prevented generic companies from legally entering the market, which is confirmed by the 2014 Guidelines on Technology Transfer Agreements (para. 29 of the 2014 Guidelines on the Application of Article 101 [TFEU] to Technology Transfer Agreements). Accordingly, undertakings that are in a blocking situation due to an exclusive technology right are in principle not considered competitors.
However, the ECJ disagreed with this. For one thing, the agreements from the present case could not be equated with the technology transfer agreements of 2014. Moreover, the 2014 Guidelines on Technology Transfer Agreements addressed exceptions, namely for cases in which “it is not clear whether a particular technology right is valid and infringed”.
Most importantly, the highest European court ruled that a patent for a process for the production of a public domain active ingredient – as in the present case – does not in itself constitute an insurmountable barrier to entry. This is also in line with the ECJ case law from the Generics judgment of January 2020.
The competition authority does not have to examine, the court added, how strong the patent is or how likely it is that the patent will be found to be valid or infringed in a legal dispute between the patent holder and a generic company.
Examination of the intention to enter the market
Of course, it must always be examined whether the generic producers have a proven determination and ability to enter the market on their own. However, it need not be established that the company will actually enter the market in question, or even that it will subsequently be able to compete on the market, the ECJ explained.
When are agreements “by object” restrictions of competition?
For a classification of certain agreements as “restriction by object in competition”, only the relevant essential characteristics with reference to a possible harm to competition are decisive, in particular by an examination of the agreement, its objectives and its economic and legal context, the ECJ summarised. Such agreements were also to be classified as Restriction by object if their examination showed that the transfers of value from the manufacturer of the originator product to the assets of the generic producers could be explained solely by the parties’ common commercial interest in avoiding competition on the merits.
And since in the present case the agreements made it possible to delay the market entry of generic producers, combined with payments from Lundbeck, they were to be regarded as anti-competitive practices, the ECJ ruled.
Payments as a barrier to market entry – at what level?
The amount of Lundbeck’s payments, according to the court, caused the generic companies to stop trying to enter the market.
However, the ECJ also emphasised in this context that the net positive balance need not necessarily be higher than the profits the generic company would have made if it had prevailed in the patent litigation. It must always be determined on a case-by-case basis whether the net positive balance of the transferred values is high enough to actually induce the generic producers to refrain from entering the market and not to compete on merit with the originator producer.
Should the “counterfactual case constellation” be examined?
In vain, the plaintiffs argued in the parallel judgments that the ECJ should have examined the “counterfactual case constellation”, but that it erred in law in failing to do so. This argument aims at a necessary clear distinction between the terms “restriction by object” and “restriction by effect”, which follows from the wording of Article 101 (1) TFEU. But the ECJ rejected this argument. The determination of whether or not an agreement such as the ones at issue qualify as restrictions of competition by object serves only to determine their objective gravity, but not to quantify their effects.
Duty of care of generic companies
It is true that the ECJ erred in law by imposing a duty of care on Xellia Pharmaceuticals and Alpharma in the Lundbeck patent proceedings, the ECJ found. Nevertheless, the ECJ did not annul the relevant decision of the CFI; rather, the ECJ considered the tenor of the CFI’s decision to be correct on other legal grounds. In that case, the ECJ can replace the reasoning with another one.
In the present case, the ECJ found that Xellia Pharmaceuticals and Alpharma had a specific duty of prudence in light of the Commission’s 2008 investigation into the generic pharmaceutical industry. De facto, therefore, they should have properly preserved in their accounts or archives information or documents enabling their activities to be traced.
Settlement not relevant in legal disputes
Finally, the ECJ ruled that the parties are to be considered potential competitors even if a dispute-settling settlement was reached in the legal dispute on the validity of the patent. Incidentally, this is also in line with the case law from Generics in 2020.
In the end, all actions were dismissed in their entirety by the ECJ. The appeals against the amount of the fines were also rejected. This is because the plaintiffs did not claim a disproportionate amount at all, but basically demanded a reassessment of the amount of the fine; however, this is inadmissible.
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ECJ und Restriction by object: press release of ECJ concerning EU:C:2021:243, EU:C:2021:244, EU:C:2021:245, EU:C:2021:246, EU:C:2021:241, EU:C:2021:242