H I R S C H & PAR T N E R S
Avocat Solicitor Rechtsanwalt
Pharmaceutical settlement agreements and
competition law
A litigation perspective on the Commission
Sector Enquiry
Dr Denis Schertenleib
Avocat & Solicitor
Partner Hirsch & Associés
Paris France
[email protected]
An introduction to the findings
of the Sector Enquiry
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HIRSCH & PARTNERS
Dr Denis Schertenleib
Patent monopoly bears a cost
for the public
Price drop
following
generic entry
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Dr Denis Schertenleib
On average a delayed entry of 7
months past loss of exclusivity
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Dr Denis Schertenleib
An asymmetry in settlement
payments from originator to generic
and generic to originator
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Dr Denis Schertenleib
Settlements were criticized in
the preliminary report
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Dr Denis Schertenleib
Settlements were criticized in
the preliminary report
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Dr Denis Schertenleib
The final report does not purport to
issue guidance on settlements
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Dr Denis Schertenleib
However the final report maintains
a suspicion over settlements
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Dr Denis Schertenleib
Reverse payments and profit
sharing:
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Dr Denis Schertenleib
A litigation perspective on the
conclusions of the Sector
Enquiry
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Dr Denis Schertenleib
Classification of settlement
agreements

A: no limitation on generic entry.

B.I: limitation on generic entry but no value
transfer from the patentee.

B.II: limitation on generic entry with a value
transfer from the patentee.
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HIRSCH & PARTNERS
Dr Denis Schertenleib
Settlement agreements

Patent litigation “axioms”:
 Any
person having locus standi can challenge a
patent.
 Parties
to a litigation can end it by a settlement.
 Settling
consists in mutual compromises on legal
rights and claims.
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Dr Denis Schertenleib
Settlements involve
compromise

Winning is obtaining 100% of one’s claims.

Losing is obtaining 0% of one’s claims.

Anything in between is a compromise.

By definition, settling litigation involves each
party accepting to obtain less than 100% of its
original claims.
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Dr Denis Schertenleib
Parties have the freedom to
settle

The strength of both the patentee’s and the
infringer’s case is liable to change during the
litigation.

It is a principle of civil proceedings that parties
have the freedom to discontinue proceedings.

Such termination involves bargaining on the
parties’ original claims.
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Dr Denis Schertenleib
Settling claims is equivalent to
abandoning them

Settling claims made in Court is equivalent to not seeking the
enforcement of the corresponding rights.

It is economically equivalent to not making these claims or not
engaging in litigation.

Not engaging in litigation should not be deemed anticompetitive.

Thus merely making a compromise on Court claims should not be
deemed anticompetitive.
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Dr Denis Schertenleib
Settlements on bona fide
Court claims should be lawful

Arguably a settlement should not be anticompetitive, if it
involves only remedies that a Court could order.

It is submitted that any judicial remedy that can be
granted by a Court, could form the subject matter of a
bona fide settlement without infringing EU competition
law.
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Dr Denis Schertenleib
Remedies that can be obtained
by a patentee

Injunctions preventing the infringer from manufacturing and selling
the subject matter of the patent:

limited to the scope of the patent,

at least for the duration of the patent,

but some jurisdictions allow for injunctions covering the “spring board”
effect.

Damages for infringement.

Legal costs.
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Dr Denis Schertenleib
Remedies that can be obtained
by an infringer

Revocation of the patent.

Legal costs.

Damages for threats, loss of image, abuse of process,
disruption to the market.

Damages covering the cost of being kept out of the
market by a non-final Court decision (e.g. interim or first
instance decision).
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Dr Denis Schertenleib
Settlement agreement limiting
generic entry – type B

The Commission Report appears to cast some suspicion
on settlement agreements that limit generic entry.

Para 742: “The generic company’s entry can be limited
in several ways. The clearest limitation of generic entry
is when the settlement agreement contains a clause
explicitly stating that the generic company recognizes
the validity of the originator company’s patent(s) and
refrains from entering the market until the patent(s) have
expired” (emphasis added).
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Dr Denis Schertenleib
The source of the patentee’s
monopoly is patent law

It should be recalled that it is patent law that prevents
generic entry and not an eventual settlement agreement.

Type B.I. settlements merely recognize existing IP rights.

Accepting the validity of a patent and not entering the
market until after its expiry, should not be deemed
anticompetitive as it involves merely complying with the
monopoly granted by patent law.
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Dr Denis Schertenleib
Common settlement provisions
that exceed judicial remedies

Limitations extending beyond the scope of the patent.

Limitations extending beyond the duration of the patent.

Commercial “side deals” (supply, exclusivity…).

Market and customer sharing.
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Dr Denis Schertenleib
Potential indicia of
anticompetitive settlements

Limitation on generic companies:
 Beyond
the scope of a patent (e.g. different products).
 Beyond
the duration of a patent.
 Reverse
payments.
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Dr Denis Schertenleib
Reverse payments – type B.II.
settlements

A reverse payment is a value transfer from an originator
to a generic company.

A value transfer may be a monetary payment but can
also be:




the purchase of an asset;
a distribution agreement;
a commercial benefit granted to the generic company (e.g. to
enter the market before patent expiry in another geographical
area or with another product); or
the grant of a patent licence to the generic company. (Para 742)
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Dr Denis Schertenleib
Reverse payments

If they involve a sum commensurate with what could be
ordered by a Court against a patentee, then reverse
payments should not be anticompetitive.

Difficulties arise when this payment involves:

sums related to the “value” of the patent that may be revoked;

in exchange for a delay in market entry.
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Dr Denis Schertenleib
The value of patent monopoly

The “value” of the patent is the commercial value of the
monopoly.

The value of the patent monopoly is commensurate with:

The profits that the patentee obtains through the exclusion of
others.

The profits that the generic company could make by entering the
market.
H I R S C H & PAR T N E R S
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Dr Denis Schertenleib
Reverse payments

Reverse payments that involve a share of the value of
the patentee’s monopoly, may be suspicious.

However, in the context of revocation proceedings,

unless the generic company has a revocation case so weak that
it simply seeks to avoid Court costs,

what significant incentives would there be for settling a case
without a reverse payment?
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Dr Denis Schertenleib
Reverse payments - a “safer”
approach

To reduce competition law risks, reverse
payments could be linked to remedies that can
be ordered by a Court, such as:
 legal
costs;
 damages
for loss of image; or
 the
cost of being kept out of the market by a non-final
Court decision.
H I R S C H & PAR T N E R S
HIRSCH & PARTNERS
Dr Denis Schertenleib
Side deals - a “safer” approach

Side deals have to be analyzed as any commercial
agreement.

There is no clear evidence that they will be treated more
leniently than standalone commercial agreements.

Guidelines on the Technology Transfer Block Exemption:
“Licensing in the context of settlement agreements is
treated like other licence agreements” (Para 204, 2004/C 101/02).
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Dr Denis Schertenleib