FACULTY OF LAW
Lund University
Martin Blankstedt
Pay-for-delay settlements at the crossroads in the EU: will we walk the object path or the road to effects analysis?
JAEM03 Master Thesis
European Business Law
30 higher education credits
Supervisor: Julian Nowag
Term: Spring 2016
Contents
Preface 3
Abbreviations 4
European Secondary Legislation 5
Regulations 5
Notices etc. 5
Table of Cases 9
Commission decisions 9
General Court 9
Court of Justice 9
United States 10
1. Introduction 11
1.1 Method,material and delimitation 12
2 European Commission’s sector inquiry 14
2.1 Background 14
2.2 Classification of the agreements 16
2.3 Lundbeck investigation and decision 18
3. Intellectual property rights and competition law 20
3.1 The relationship between intellectual property rights and competition law in the EU – an overlook 20
3.2 Guidelines on the application of Article 101 to tech transfer agreements – and its relation to patent settlements 22
3.2.1 TTBER and The Guidelines – an overlok 22
3.2 The U.S. and the Hatch Waxman Act 24
3.2.1 The Hatch Waxman Act 25
3.2.2 The FTC v Actavis, inc case 26
4. Article 101(1) TFEU 28
4.1 Article 101(1) – The meaning of agreement, decision and concerted practice 29
4.2 Article 101(1) – the meaning of ‘appreciable effect on trade between Member States’. 30
4.3 Art 101(1) – ‘object’ or ‘effect’ restriction in competition 31
4.3.1 Restriction by ‘object’ as a concept 31
4.3.2 When is a restriction a by object restriction? 32
4.3.3 Restriction by ‘effect’ as a concept 34
4.3.4 Allianz Hungária– blurring the line between by object and effect? 35
4.3.4 Cartes Bancaires – Correcting the judgment in Allianz Hungária? 36
4.4 Article 101(1) in the pharmaceutical sector – Servier and Johnson & Johnson 38
4.5 Article 101(3) 40
5. Do these agreements fall under the ‘object box’ or the ‘effects box’? 42
5.1 The market structure 42
5.2 Competition law, IPRs and the internal market 45
5.3 Recent development in case-law regarding art 101(1) and its relationship to intellectual property rights mechanisms 46
5.4 Findings of whether the pay-for-delay settlements most likely falls under the object box or the effects box 49
5.4 Can pay-for-delay settlements benefit from exemption either under Article 101(3) or the block exemption? 51
6. Conclusion 52
Summary
This thesis will examine how European competition law should deal with so called ’pay-for-delay’ settlements, which are agreements where the value transfer occurs from the patent holder to the alleged infringer, which is the opposite of a typical patent settlement. These agreements have during the last decade, especially in the pharmaceutical sector been under scrutiny by the European Commission due to its potential anti-competitive effects. These effects can be seen in that prices on brand drugs can be kept artificially high and generic drugs are kept off the market. However, as will be demonstrated in this thesis, the economic and legal reality of the pharmaceutical industry is not as clear-cut as it seems. Issues that will be analysed is: relationship between intellectual property rights and competition law, the European Court of Justice’s case-law under Article 101(1) TFEU, the three recent Commission decisions regarding pay-for-delay agreements and the economic and legal background for concluding pay-for-delay agreements. At the end of the thesis, due to the market structure, the settlement mechanism and difficulties in achieving market foreclosure in the EU, the author proposes that generally these settlements should be analysed under the restriction of competition by effects test rather than by object. The result of such finding means that the Commission has the burden of proof to show that these agreements harm competition.
Keywords: competition law, patent settlements, intellectual property rights, pay-for-delay, Lundbeck
Sammanfattning
Detta fördjupningsarbete kommer att undersöka hur Europeisk konkurrensrätt ska verkställas i relation till så kallade ’pay-for-delay’-avtal, vilka är avtal där värdeöverföringen sker från patentinnehavaren till den som begår patentintrång: tvärtemot hur en typisk förlikningsprocess ser ut. Dessa avtal har under det senaste decenniet, framförallt i läkemedelsindustrin, varit under granskning av den Europeiska Kommissionen på grund av dess potentiella konkurrensbegränsande effekter. Dessa effekter kan ses då priser på märkesläkemedel kan hållas artificiellt högt samt att generiska läkemedel kan hållas utanför marknaden. Däremot, vilket kommer att visas i detta fördjupningsarbete, är inte den rättsliga och ekonomiska verkligheten i läkemedelsindustrin så entydig som den verkar vid första anblick. Problem som kommer att analyseras är: relationen mellan immaterialrättsliga tillgångar och konkurrensrätt, Europeiska unionens domstolspraxis under artikel 101(1) FEUF, Europeiska Kommissionens tre nyligen fattade beslut som rör ’pay-for-delay’-avtal samt den ekonomiska och rättsliga bakgrunden för att ingå ’pay-for-delay’-avtal. I slutet av fördjupningsarbetet kommer författaren, på grund av marknadsstrukturen, förlikningsinstitutet samt svårigheter med att uppnå avskärmning av marknaden, föreslå att dessa avtal som huvudregel bör analyseras om effekterna av avtalen snedvrider konkurrensen, snarare än att de ses som att ha syfte att snedvrida konkurrensen. Resultatet av den slutsatsen är att det är Kommissionen som har bevisbördan att visa huruvida konkurrensen har snedvridits.
Nyckelord: konkurrensrätt, patentförlikningar, immaterialrättsliga tillgångar, ’pay-for-delay’, Lundbeck
Preface
Sometimes I think of how much in our lives is ‘decided’ by chance. Small, perhaps random, fancies will have huge impact on our lives without that we are aware of it. That I was enrolled into law was one of those fancies. I was not sure about the choice I made at the moment, but I just went for it. Little did I know at the time that the choice I made was perfect for me. Now those five years of studying law has ended, and time has just flown away. During those five years, I have made friends for life, been ever intellectually challenged and matured a lot as a human being, spiritually. As my title suggests, that EU competition law stands at the crossroads of finding its approach to ‘pay-for-delay’ settlements, I stand at my own personal crossroads as well. While I really look forward in seeing what the future has in store for me, I cannot help looking back on my student years with nostalgic glasses as the best years, so far, of my life. Therefore I would like to thank all of my friends and not to forget, also acquaintances, for making this time as great as it has been. I would also like to say “danke schön” to my supervisor Julian Nowag for his valuable input in improving my thesis. The plan was that this final thesis would be my magnum opus. However, despite being somewhat proud of it, I am not sure whether it is. Do you really know that you created your magnum opus right after writing it? Did Beethoven know that he created his masterpiece straight after his ninth symphony was completed? I think eventually, it will be shown by the test of time whether it is or not. Until then, I would like to finish this note by making a promise, and mind you, pacta sunt servanda. If the General Court, or after appeal to the CJEU for whatever reason find that these ‘pay-for-delay’ settlements as a general rule should be deemed as restriction by object: I will buy a hat and eat it.
Martin Blankstedt
25 May 2016
Abbreviations
CJEU The Court of Justice of the European Union
EU European Union
FDA Food and Drug Administration
GC General Court
FTA Federal Trade Commission
IPR Intellectual Property Rights
R&D Research and Development
TTBER European Commission Regulation (3/28/2014):No316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements
Table of Legislation
European Secondary Legislation
Regulations
The European Parliament and of the Council (30/04/04): REGULATION (EC) No 726/2004 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCILof 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal productsfor human and veterinary use and establishing a European Medicines Agency.
European Commission (3/28/2014): No 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements Text with EEA relevance.
Notices etc.
European Commission (4/27/2004): Commission notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty.
European Commission (4/27/2004): Communication from the Commission — Notice — Guidelines on the application of Article 81(3) of the Treaty (OJ C101/97).
European Commission (11/28/2008): Communication from the Commission. Executive Summary of the Pharmaceutical Sector Inquiry Report. Brussels.
European Commission (2014): Communication from the Commission — Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (C-89/3).
European Commission (6/25/2014): Guidance on restrictions of competition "by object" for the purpose of defining whichagreements may benefit from the De Minimis Notice (SWD(2014) 198 final).
European Commission, Competition DG (2014): 5th Report on the Monitoring of Patent Settlements. (period: January-December 2013). Brussels.
Bibliography
Journal Article
Barazza, Stefano (2014): Pay-for-delay Agreements in the Pharmaceutical Sector: Towards a Coherent EU Approach. In European Journal of Risk Regulation (EJRR) 79 (1). Available online at 79-86, checked on 1/29/2016.
Journal Article
Cappellari, Silvio (2011): Reverse Payment Settlements in the EU - Finding the Right Dosage.
In Competition Law International 7 (1), pp. 27–33.
Book
DiMasi, A. Joseph; Grabowski, G. Henry (2012): "R&D Cost and Returns to New Drug Development: a Review of the Evidence in Patricia M. Danzon and Sean Nicholson. New York: Oxford University Press (The Oxford Handbook of the Economics of the Biopharmaceutical Industry).
Book
Faull, Jonathan; Nikpay, Ali (2014): The EC Law of Competition. Third edition: Oxford University Press.
Thesis
Gallasch, Sven (2014): The Anticompetitive Misuse of Intellectual Property Rights in the European Pharmaceutical Sector.
University of East Anglia, Norwich. School of Law.
Journal Article
Journal Article
Harper, Peter (2014): Groupement des Cartes Bancaires Judgment - Rolling Back on the Expansion of by Object Restrictions.
In Competition Law Journal (321).
Journal Article
Ioannidou, Maria; Nowag, Julian (2015): Can two wrongs make a right? Reconsidering minimum resale price maintenance in the light of Allianz Hungária. In European Competition Journal.
Journal Article
Kades, Michael (2009): Whistling Past the Graveyard: The Problem with Per Se Legality Treatment of Pay-for-Delay Settlements.
In Competition Policy International 5 (2), pp. 143–159.
Journal Article
Nagy, Istvan (2013):
The Distinction between Anti-competitive Object and Effect after Allianz: The End of Coherence in Competition Analysis?
In World Competition 36 (4).
Journal Article
Nazzini, Renato; Nikpay, Ali (2014): Object Restrictions and Two-Sided Markets in EU Competition Law after Cartes Bancaires.
In Competition Policy International 10 (2), pp. 157–172.
Journal Article
Margerie, de Stanislas (2013): 'Pay-for-Delay' Settlements: In Search of the Right Standard.
In World Competition 36 (85-97).
Journal Article
Paul, M. Steven; Mytelka, S. Daniel; Dunwiddie, T. Christopher; Persinger, C. Charles; Munos, H. Bernard; Lindborg, R. Stacy; Schacht, L. Aaron (2010): "How to Improve R&D Productivity: the Pharmaceutical Industry's Grand Challenge". In Nature Reviews Drug Discovery (9), pp. 203–214.
Journal Article
van Cleynenbreugel, Pieter (2014): Article 101 TFEU and the EU Courts: Adapting legal form to the realities of modernization?
In Common Market Law Review 51 (5), pp. 1381–1435.
Journal Article
Harrison, Patrick (2014): The Court of Justice´s Judgment in Allianz Hungaria is Wrong and Needs Correcting. In Competition Policy International 10 (2).
Table of Cases
Commission decisions
Decision of 6/19/2013, case number 39226 (Lundbeck)
Decision of 09/07/2014, case number 39612 (Servier)
Decision of 10/12/2013, case number 39685 (Johnson & Johnson)
General Court
T-41/96 , Bayer AG v Commission, ECLI:EU:T:2000:2427
T-49/02, Brasserie nationale v Commission, ECLI:EU:T:2005:298
-360/09, E. ON Ruhrgas v Commission, ECLI:EU:T:2012:332
T-65/98, Van den Bergh Foods v. Commission, ECLI:EU:T:2003:281
T-461/07, Visa Europe and Visa International Service v Commission, ECLI:EU:T:2011:181
Court of Justice
C-32/11, Allianz Hungária v Gazdasági Versenyhivatal, ECLI:EU:C:2013:160
C-67/13P, Cartes Bancaires v Commission, ECLI:EU:C:2014:2204
C-15/74, Centrafarm BV and Adriaan de Peijper v Sterling Drug Inc, ECLI:EU:C:19741:114
C-56/84 and 58/64, Consten and Grundig, ECLI:EU:C:1966:41
C-234/98, Delimitis v Henninger Bräu, ECLI:EU:C:1991:91
C-501/06, GlaxoSmithKline v. Commission, ECLI:EU:C:2000:610
C-22/78, Hugin v Commission, ECLI:EU:C:1979:138
C-306/96, Javico v Yves Saint Laurent Parfums SA, ECLI:EU:C:1998:173
C-1/12, Ordem dos Técnicos Oficiais de Contas, ECLI:EU:C:2013:127
Case C-28/77, Tepea BV v Commission, ELCI:EU:C:1978:133
C-56/65, Société Technique Minière v. Maschinenbau Ulm GmbH, ECLI:EU:C:1966:38
Case C-193/83, Windsurfing International Inc. v Commission of the European Communities, ECLI:EU:C:1986:75
United States
California Dental Ass'n v. FTC 526 U.S. 756 (1999) 770.
Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977)
Federal Trade Commission v. Watson Pharmaceuticals Inc. 677 F.3d 1298 (11th Cir. 2012).
re K-Dur Antitrust Litigation 686 F. 3d 197 (3d Cir. 2012).
1. Introduction
This master thesis will deal with reverse payment settlements, or so-called pay-for-delay agreements. In the pharmaceutical sector, these agreements have in the last eight years caught attention and been under ever scrutiny by both the Commission and national competition authorities throughout EU. The reason why these agreements are called this term is that they are opposite of a typical settlement of a patent litigation: they end with that the patent holder pays a value transfer to the alleged infringer instead of the opposite. There can be a number of reasons for doing this, especially due to the structure in the pharmaceutical market, which will be explained later below in chapter 2.
The purpose of this master thesis is to determine and analyse whether these agreements could constitute restriction of competition by object or effect. In this master thesis, arguments will be put forward that these agreements should be analysed under the effects restriction analysis rather than object restriction in art 101(1), which is the position of the Commission in the Lundbeck decision. This position will be demonstrated by methodically breaking down the issue at hand systematically. Firstly, the Commissions sector inquiry will be briefly explained by going through the background of the inquiry; how the Commission classified various reverse payment settlements and what practical implications this has, followed by the Lundbeck investigation and decision. After this background, the reader will be provided an overall descriptive part, which in chapter three deals with the relationship between competition law and intellectual property rights in the EU, also including a small glance on how the situation in U.S looks like. In the continuation of that chapter, the Guidelines on the application of Article 101 to tech transfer agreements and its relation to patent settlements will be explained briefly. In the fourth chapter, this forms one of the cornerstones of this thesis, concerns Article 101(1). While the requisites ‘agreement’ and ‘appreciability’ will be covered very brief, the substantial part of this chapter concerns the ‘object’ and ‘effect’ description. Both terms will be explained as concepts, what a restriction by object or effect typically looks like and what procedural implications they have which differs them apart. The most prominent cases under both object and effects will be reviewed, with focus on the later development from the CJEU, especially Allianz Hungária and Cartes Bancaires.