On the 12th of February 2016, the UK Competition and Markets Authority (CMA) fined GlaxoSmithKline (GSK) and the successor companies to Alpharma Limited around £45m in total for breaches of Chapter I of the Competition Act 1998, the prohibition against anti-competitive agreements. The case shows the continued danger in pharmaceuticals reaching settlement agreements in IP disputes with generic drug providers.

The case in question relates to agreements between GSK and Alpharma, made between 2001 and 2004. The drug in question was paroxetine, an anti-depressant and allegedly profitable drug for GSK, which garnered £90m in sales in 2001. GSK held patents relating to this drug and when Alpharma attempted to bring generic equivalents to GSK’s product to market, GSK threatened Alpharma with litigation, alleging patent infringement. GSK then entered into settlement agreements with Alpharma over this patent infringement, closing the issue. The terms of that settlement agreement are key in that Alpharma were effectively (according to the CMA) paid not to enter the market with a generic alternative for a number of years, protecting GSK’s product.

This is the latest ‘pay for delay’ case and joins similar penalties imposed in a number of other cases by competition authorities, both in the EU and in the US. The CMA’s belief is that the behaviour kept the price of the product artificially high, costing the UK National Health Service millions. This was evidenced by a 70% fall in the price of the product after 2003, when generic production of the product finally started.

Whilst the CMA’s logic looks clear, producers of patented pharmaceuticals have once again been penalised for protecting their patents and settling cases out of court. Whilst in some circumstances such behaviour could be seen as deliberately anti-competitive, it does leave pharmaceutical producers in a position where it would be difficult to settle ‘generic’ cases out of court, without being accused of pay for delay behaviour. What for instance is the position when the large pharmaceutical provider is genuinely litigating to defend a patent that had not yet expired?

It would seem in such circumstances, the competition regulator would have to first rule on the patent dispute in question to decide whether it was legitimate, before deciding on the possible anti-competitive effect of any settlement agreement. The regulator is not in a position to make such patent based findings and so these pay for delay cases are prosecuted on the assumption that the patent enforcement was illegitimate. Although not privy to the details of the case, damaging internal emails at large pharmaceutical firms referring to a desire to illegitimately delay generic entry are a good example of likely evidence for competition regulators.

It could also be argued that such decisions by the CMA could actually hurt generic providers and the wider market by forcing large pharmaceutical firms to litigate to conclusion all alleged patent infringements, creating huge legal costs for smaller, accused companies. It should be noted that Alpharma’s successor companies were fined for accepting the settlement offer, alongside GSK.