On 9 July 2014, the European Commission announced that the French pharmaceutical company Servier, and five other drugmakers (Niche, Matrix, Teva, Krka and Lupin) have been fined a total of €427.7 million by the European Commission. The fines were imposed after a series of deals were concluded aimed at blocking the introduction of cheaper generic drugs (so called ‘pay for delay’ agreements). The Commission found these agreements to be anti-competitive and fined the companies under Article 101 TFEU.

Concurrently, the Commission held that Servier’s strategy to procure and then not use competing technologies to further safeguard their dominance over the Perindopril drug was an abuse of dominance under Article 102 TFEU.

The patent settlements

Servier held significant market power in the drugs market for the Perindopril molecule, a drug that they described as their ‘dairy cow’. The patent for this expired, for the most part in 2003, and although there were several secondary patents protecting various processes, these only provided limited protection. The generic companies sought access to the market by challenging Servier’s patents before the courts. (Until the EU Commission releases the full case, the details of the patent challenge is unclear but it appears the generic producers were challenging the validity of the secondary patents as they blocked meaningful entry into the market).

Between the period of 2005 to 2007, Servier settled the cases with the generic producing companies who challenged Servier’s patents and who had come close to entering the market. These settlement or pay for delay agreements were held by the Commission to be unlawful deals. The Commission considers that these were not settlement agreements with the normal intention of saving the courts time and costs, but instead agreements to abstain from competing in return for a share of Servier’s profits. This was found to have happened at least five times, amounting to settlements of several tens of millions of euros. Servier therefore gained the certainty that the generic producers would stay out of the national markets and refrain from legal challenges for the duration of the agreements.

The Commission found Servier had misused out-of-court settlements as a means of avoiding competition. They found that this amounted to a violation of EU competition rules in that each settlement agreement was found to be anti-competitive under Article 101 TFEU.

The technology acquisition

Separately to the settlement agreements, Servier acquired scarce competing technologies, allegedly with the intent of stopping rivals access to this technology. The technology acquired by Servier was never put to use. The Commission considered that as Servier held significant market power in the market for Perindopril, these strategic, blocking acquisitions constituted an abuse of a dominant position under Article 102 TFEU.

Comment

The sanctions are the third by the Commission against pay-for-delay deals following fines in the past year against Denmark’s Lundbeck, Merck KGaA, Ranbaxy, Johnson & Johnson and Novartis.

Pay-to-delay deals have also come under regulatory scrutiny across the globe, as a US Supreme Court ruling in June 2013 backed up the US Federal Trade Commissions right to challenge such deals.

Whilst in this case it was found that settlement agreements were made with anti-competitive intent, the case does leave a question mark for all pharmaceutical companies and holders of valuable patents. Is there a danger that in settling any patent dispute and legitimately protecting their products, companies will be held to be restricting competition and be found guilty of entering anti-competitive agreements? Under this logic, the demonisation of settlement agreements would also affect those challenging the patents as they too can be fined if they choose to settle the case and if the court considers the settlement anti-competitive. The unintentional consequence of the Commission’s judgment may be to force more patent disputes to their bitter end in court.

Following this judgment, affected parties are now free to use this finding of liability to claim compensation from Servier and perhaps even the other fined companies if they believe they have been affected by the inflated price of Perindopril.