EC to Scrutinize Patent Settlements

The European Commission has said it will be taking a close look at patent settlements where an originator has paid off a generic competitor in return for delayed market entry of a generic drug. Only yesterday, the EC released a statement saying that it has asked certain pharmaceutical companies to submit copies of their patent settlement agreements completed between originator and generic companies between July 2008 and Dec. 31, 2009.

Although the companies are not named in the EC statement, a press release from intellectual property firm Marks & Clerk said: "several key market players have come forward and said they have been approached. According to Reuters this includes, among originator companies, AstraZeneca and GlaxoSmithKline. Generics manufacturers also approached include Niche Generics (part of Unichem) and Teva."

"Patent settlements are an area of concern, not least if there are situations where an originator pays off a generic competition in return for delayed market entry," Neelie Kroes, EC Commissioner for Competition, explained in the EC statement. "We need to monitor this type of agreement to better understand why, by whom and under which conditions they are concluded. The monitoring will also provide us with the ability to act should this become necessary."

After receiving the relevant information from the pharma companies it has approached, the EC has said it will analyze the agreements and if necessary, a more targeted request for information may follow. The EC statement says: "Depending on the outcome of the exercise, this round of information requests may be repeated annually for as long as the Commission considers that there is a problem."

In the Marks & Clerk statement, however, Gareth Williams, a partner at the firm, cautioned: "The mere existence of a settlement is not in itself evidence of collusion. Patent settlements can represent a perfectly reasonable and commercial response to the threat of patent infringement litigation or challenges to patent validity. Without them, pharmaceutical firms may have no option but to become involved in costly litigation to protect their essential patents, which would in turn result in costs being passed on to consumers. While the EU is right to investigate the possibility of anti-competitive patent agreements, a clearer stance needs to be taken regarding the effectiveness and legitimate use of these vehicles. The market will be cautious until more information is made available, to provide the assurance needed that these often justifiable arrangements are not being treated as inherently suspicious."

The EC has been scrutinizing the pharma sector for some time. It began at the start of 2008 with a sector inquiry, which included surprise inspections from EC officials. The patent settlements monitoring exercise underway now is a response to the findings inquiry published in July 2009, which concluded that certain types of patent settlements may have a negative effect on European consumers. In the EC statement, Kroes said: "Since completing the sector inquiry, the Commission has launched a number of new antitrust investigations and we will continue to do so should this be necessary."

The most recent antitrust case was opened last week against Lundbeck. In a statement dated 7 January, the EC said it would investigate "unilateral behavior and agreements by Lundbeck that may hinder the entry of generic citalopram into markets in the European Economic Area."

Stephanie Sutton