The European Commission has published its fourth Report on the Monitoring of Patent Settlements (the report), concerning pharmaceutical patent settlements concluded in the calendar year 2012. At a time of intense criticism of the Commission’s stance on patent settlements in an antitrust context, the report describes the trends in patent settlement activity in the European pharmaceutical sector.

BACKGROUND

The Commission launched a Pharmaceutical Sector Inquiry in 2008 (the inquiry) to investigate suspected impediments to market entry for prescription medications in the European Union. The  inquiry drew attention to the potential anti-competitive effects of agreements between originator and generic drug companies, where there is a limitation on a generic company’s ability to market its product and there is a value transfer from the originator company (pay-for-delay agreements). The inquiry claimed that pay-fordelay agreements accounted for 22 per cent of all pharmaceutical sector patent settlements between 2000 and June 2008.

Following the inquiry, the Commission decided to continue scrutinising patent settlements in the sector, particularly where the object of the settlement is the sharing of proceeds, flowing from an originator to a generic company, to the disadvantage of the European public.

The Commission published monitoring reports in July 2010, 2011 and 2012, tracking the number of pay-for-delay agreements concluded. These monitoring reports indicated that the number of pay-for-delay agreements entered into since the inquiry has decreased. This is perhaps not surprising, given the Commission’s investigatory activity in this area and the Lundbeck (citalopram) and Les Laboratoires Servier (perindopril) cases.

DECISION

The report states that the number of pay-for-delay settlements concluded per annum after the inquiry has more or less evened out at the lower level of approximately 10 per cent of all pharmaceutical sector patent settlements.

Overall, however, the report states that the incidence of patent settlements in general is on the rise, with 183 patent settlement agreements concluded in the European Economic Area in 2012, compared with an average of 24 settlements per year from January 2000 to 30 June 2008.

While the report does concede that the increase in patent settlements concluded in the last few years may be ascribed to a variety of factors (such as a general increase in litigation and disputes, new legislation taking effect that promotes settlement or drugs coming off patent protection), it is being used by the Commission as evidence that its scrutiny of pay-for-delay settlements has not dampened settlement activity in general.

The report also highlights a change in the nature of value transfer provided by originator companies in settlements concluded in 2012. It found that 83 per cent of the settlements allowed early generic entry, in some cases combined with a licence and/or a supply agreement. A direct monetary payment was found in only 17 per cent of the settlements reported during 2012. This is a dramatic decrease when compared with the 51 per cent direct payments statistic included in the inquiry.

COMMENT

The Commission’s monitoring reports only describe the results of the Commission’s monitoring practice and do not imply any decision in respect of any potential further investigation of any settlement agreements reported.

The report comes during a period of intense criticism of the Commission’s stance on patent settlements in an antitrust context. Both the pharmaceutical and legal industry have voiced objections to the approach adopted by the Commission and have questioned the merit in discouraging settlement of litigation, suggesting that it will actually decrease competition in the long term.

Although the pay-for-delay cases have been focussed on the pharmaceutical industry, it is worth noting that the principles arising from them have general application across all sectors.