European court upholds €150m ‘pay for delay’ pharmaceutical fines

Danish pharmaceutical firm Lundbeck was fined €93.7m by the Commission in 2013 for making “substantial payments” to a number of companies to delay their release to the market of generic versions of the drug, produced after Lundbeck’s main patent for the product had expired. Four corporate groups producing generic pharmaceuticals were fined a combined €52.2m for their roles in six different agreements.

The EU’s general court has now dismissed ten separate grounds of appeal against the fines brought by Lundbeck and the generics groups. The companies concerned had in fact been potential competitors at the time that they entered into the agreements, as found by the Commission; while the restrictions contained in the agreements were more than was necessary for Lundbeck to protect its intellectual property rights, it said.

“The case law requires only that it be demonstrated that the generic undertakings had real concrete possibilities and the capacity to enter the market, which is certainly the case when those undertakings had made significant investments in order to enter the market and when they had already obtained MAs [marketing authorisations] or had taken the necessary steps to obtain them within a reasonable period,” the court said in its judgment.

“The Commission cannot reconstruct the past by imagining the events that would have occurred and which did not in fact occur as a result of those agreements … The parties to those agreements now have every interest in arguing that they had no realistic perspective of entering the market or that they thought that their products infringed one of Lundbeck’s patents,” the court said.

The court found that the Commission had based its assessment of potential competition between Lundbeck and its rivals on “several factors”, including investments made by the generics companies to prepare for their entry into the market and the fact that no court had found the generic products to infringe Lundbeck’s patents.

“Lastly, the fact that [Lundbeck] decided to pay significant amounts to the generic undertakings in order to keep them out of the market during the period of the agreements at issue also shows that those generic undertakings were potential competitors, since they were perceived by [Lundbeck] as a threat exerting competitive pressure on their position on the market,” the court said.

Lundbeck had argued that the agreements were necessary to protect its position, and to guard against the need for future legal action against the generics manufacturers for breaches of patents it held that covered aspects of the manufacturing process. However, the court noted that the “substantial” payments and other incentives offered by Lundbeck under the agreements “corresponded approximately to the profits that they could have made if they had successfully entered the market”.

'Pay for delay' arrangements are usually made in the context of the settlement of patent litigation. They involve a payment or other value transfer from an originator drug company to a generic company in return for the generic delaying its entry to the market. The Lundbeck case was the first in which the Commission had investigated these agreements and their relationship to competition law.

The Commission found that Lundbeck had paid "significant lump sums" to its rivals in this case, among other incentives. These included purchasing stocks of the generic products in bulk for the sole purchase of destroying them, and entering into exclusive distribution agreements with the smaller companies, as well as direct payments.

The court also held that the Commission was entitled to conclude that these agreements amounted to a 'restriction of competition by object'. If Lundbeck had wanted to protect its patents there were less restrictive ways in which it could have done so - including by taking court action against the generics companies had they actually infringed its patents, the court said.

"It should be recalled that it is indeed unacceptable for undertakings to attempt to mitigate the effects of legal rules which they consider excessively unfavourable by entering into restrictive arrangements intended to offset those disadvantages on the pretext that those rules have created an imbalance detrimental to them," the court said.