On 14 July 2015, the European Commission (the “Commission”) published the preliminary non-confidential version of its decision in the Servier case, one year after the decision was issued.  This is the second key Commission decision, after Lundbeck, on reverse payment patent settlement agreements.

In Servier, the Commission went further than in Lundbeck and in its Fentanyl decision concerning a co-operation agreement between Sandoz and Janssen Cilag.  It not only looked at whether the settlement agreements between Servier and certain generic companies restricted competition by object, it also analysed their effects.  As a result of its analysis, the Commission found that Servier’s conduct amounted to an abuse of dominance under Article 102 of the Treaty on the Functioning of the European Union (the “TFEU”).

In July 2014, the Commission fined Servier and generic companies Niche/Unichem, Matrix (now Mylan), Teva, Krka and Lupin a total of €428 million for having concluded agreements that delayed market entry of generic versions of Servier’s blockbuster blood pressure medicine, perindopril, and protected it from price competition from generics in the EU.  All these agreements entailed Servier making significant payments (or providing other types of inducements) to the generic companies.  In addition to entering into these settlement agreements, Servier adopted various other practices that the Commission found were part of Servier’s overall strategy to delay or prevent entry of generic versions of perindopril. 

Servier’s strategies to delay market entry by generic companies

Servier’s main strategies included:

• The acquisition of production technologies. Servier entered into agreements to acquire alternative technologies for the production of perindopril every time a producer of active pharmaceutical ingredients (“APIs”) claimed that it had found such an alternative (non-infringing) production method.  Servier also acquired the accompanying Intellectual Property Rights (“IPRs”).  The Commission analysed these agreements in detail to determine whether Servier had abused its dominant position;

• The creation of a patent cluster. After the expiration of its perindopril compound patent, Servier applied for process and crystalline form patents, a strategy internally referred to as a “maze of patents”.  This strategy was similar to Lundbeck’s filing for patent protection for each aspect of the manufacturing and production methods of citalopram;

• Patent disputes and the sending out of warning letters. Servier tried to discourage generic companies that were planning to enter the perindopril market by engaging in patent disputes.  In addition to threatening them with court actions or preliminary injunctions, Servier sent warning letters invoking its patent cluster.

Further, Servier entered into a total of ten distribution agreements with “friendly generics”, granting the generic companies the right to distribute a so-called “authorised generic”.  This effectively gave Servier control over generic entry.  In return, the generic company ordinarily committed to not selling other generic versions of the product.

Similarly to Lundbeck, Servier also developed a second generation product (based on arginine salt), intending to switch patients to this product and withdraw the first generation product from the market before the entry of generic versions.

The Commission’s “by object” analysis under Article 101 TFEU

The Commission applied the same analytical framework as it applied in Lundbeck to assess whether the patent settlement agreements had the potential to restrict competition “by their very nature”.  The analysis took into account the following elements:

• Servier and the generic companies were at least potential competitors;

• The generic companies committed to limit their efforts to enter one or more EU markets with generic perindopril for the duration of the agreement; and

• The agreements related to a value transfer from Servier to the generic companies as a significant inducement which substantially reduced the generic companies’ incentives to independently pursue their efforts to enter one or more EU markets with generic perindopril.

The Commission also found that: (i) the agreements did not restrict Servier’s ability to start infringement proceedings if the generic company entered the market after the expiry of the agreement; (ii) the sum paid by Servier was based on the generic company’s expected turnover/profit, had it successfully entered the market; and (iii) the obligations imposed on some of the generic companies went beyond what Servier could have legally obtained had it successfully enforced its patents.

As it did in Lundbeck, the Commission concluded that the agreements between Servier and the generic companies restricted competition ”by object”.

The Commission’s “by effect” analysis under Article 101 TFEU

However, the Commission went further than in Lundbeck and assessed whether the patent settlement agreements had anti-competitive effects.  The Commission concluded that each agreement appreciably restricted potential competition among Servier and generic companies and barred “real concrete possibilities” for competition between the Parties or “for a new competitor to penetrate the relevant market and compete with the undertakings already established”.  Further, the settlement agreements appreciably increased the likelihood that Servier’s significant market power would remain uncontested for a longer period of time and that consumers would be deprived of the significant reduction of prices that would result from timely and effective generic entry.

The Commission rejected the efficiency defences raised by the Parties on the basis that the restrictions were not necessary to achieve any of those efficiencies.

The Commission’s analysis under Article 102 TFEU

For the first time, the Commission assessed a dominant company’s behaviour as a party to patent settlement agreement.  It also looked at whether Servier had abused its dominant position by acquiring API technology.

The Commission defined the relevant product market as the single market for original and generic perindopril supplied through retail channels (pharmacy) in each of the four national markets (France, the Netherlands, Poland and the UK).  In the context of its investigation of Servier’s acquisition of perindopril API technology, the Commission concluded that there was a relevant technology market, that was at least EU-wide, for perindopril API technology.

Given that, where a market is still protected by patents, generic companies can only launch a product if they (i) “invent around the remaining patents and develop a non-infringing product”; or (ii) challenge the patent by either “directly seeking a finding of invalidity or non-infringement of the patents or by entering at risk”.  Accordingly, the Commission found that the acquisition of the API technology was a necessary complement to the patent settlement agreements with generic companies.

The Commission concluded that Servier was dominant on both markets, taking into account (i) Servier’s position on the relevant markets; (ii) barriers to entry; (iii) Servier’s economic position; and (iv) countervailing buyer power.

• Servier’s acquisition of API technology

API technologies represent one way for generic companies to enter the market during the life of valid patents.  While there were very few sources of alternative technology, Servier acquired the most advanced one in 2004 (and never used it).  The Commission concluded that this acquisition prevented generic companies from developing non-infringing perindopril formulations.

• Servier’s implementation of patent settlement agreements

First, the Commission looked at Servier’s unilateral inducement of generic companies to accept restrictions on competition in a series of settlement agreements.  These inducements changed the generic companies’ incentives to enter the market, since they committed not to enter and not to challenge Servier’s key patents.  The Commission concluded that the chain of patent settlements had a cumulative self-reinforcing effect.

Second, the Commission found that the cumulative agreements delayed competition on the API and perindopril formulation markets, thus strengthening or maintaining Servier’s market power and foreclosing Servier’s competitors on the EU-wide market for perindopril API technology and in the four national markets for perindopril formulations.

Finally, the Commission concluded that Servier’s conduct constituted a single and continuous infringement of Article 102 TFEU.

Looking Forward

Both Lundbeck and Servier have been appealed, and the judgments of the General Court are expected to provide further guidance on a range of issues, including market definition and the potential scope of “by object” infringements (after the 2014 Cartes Bancaires judgment).