As we reported in July 2014, the European Commission fined pharmaceutical company Servier and several of its generic competitors for entering into so called ‘pay for delay agreements’. These agreements were settlements of patent challenges involving payments of tens of millions of Euros to the generic competitors in exchange for their agreement to abstain from competing with Servier’s peripindopril cardio-vascular product. The Commission argued that these agreements violated EU competition law Article 101 and fined each of the generic competitors, with fines ranging from €10 – €40 million.

Although Servier’s basic patent had expired in 2003, limited patent protection remained over secondary processes and there was a patent that had been acquired by Servier but not used. The generic competitors, finding little in the way of technology not blocked by patents, decided to challenge Servier’s patents, and ultimately entered into these so-called “pay for delay” or “reverse” settlement agreements.

Unichem Laboratories and Lupin, two of the generic competitors are the latest to have filed appeals in December 2014 against their finding of liability and fines. Now all five Servier generic competitors have appealed. The Servier case followed other EU pay for delay cases, including the Lundbeck case in which appeals have also been filed.

“Pay for delay” or “reverse settlement agreements” have been under increasing scrutiny by antitrust authorities, both in the United States and in the EU, including by the European Commission and by individual member states. In addition to the enforcement actions taken by the European Commission, in the UK for example, an investigation is currently ongoing by the Competition & Markets Authority (CMA) into certain patent dispute settlement agreements relating to a medicine used in treatment of depression and anxiety disorders.

In June 2013, the US Supreme Court decision in FTC v Activis rejected the FTC’s argument that pay for delay agreements should be treated as per se illegal, instead deciding they should be judged on the basis of “a rule of reason,” including a review, among other things, of the size and scale of the payment in relation to future litigation costs and fair value for services. In contrast, in the Lundbeck case and the later J&J/Novartis case, European Commission found on the facts that the “object” of the agreements was anti-competitive – similar to the concept of a per se violation under US competition law – and appeared to reach beyond the scope of any patent protection and were different from settlement of patent disputes. Nevertheless, the Commission indicated that settlement agreements between companies with patents and their generic competitors would not necessarily always be incompatible with EU competition law, suggesting a case by case analysis is necessary.

That having been said, neither the Activis case nor the European Commission pronouncements provide clear guidance on whether or when a reverse payment or size of a reverse payment in patent settlement litigation might lead to antitrust liability, or whether patent validity and the scope and strength of patent protection needs (even as a practical matter) to be considered in judging such payments. The Activis majority stated that “[I]t is normally not necessary to litigate patent validity to answer the antitrust question …. An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival.”

However, what is “large” or “unexplained” or a “payment” is not defined, or neither is the relationship that should be expected in relation to litigation costs. Other issues that remain to be resolved in both jurisdictions include whether non-cash payments should be considered (and how to value them), and what kinds of business justifications (e.g., compensation for other services unrelated to delayed entry) should be considered as sufficient to justify the settlement and outweigh competitive concerns.

The recent appeals have not yet been resolved; and industry is left with a number of uncertainties in both the EU and the US, including exposure to possible private actions. As we stated in July, the case raises the important question for any market where one party holds significant intellectual property; “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?” We will have to continue to watch this space.