Patent settlements for medicines -- status under EU and US antitrust law -- Luc Gyselen, Partner Arnold & Porter LLP Brussels Symposium on the Interface between Competition and Intellectual Property Law Dalian – China, June 2010

Introduction  Patent settlements in the pharmaceutical sector –definition, typology, theory of harm –different regulatory context in EU and US  Antitrust assessment : focus on reverse payments –US: case law in flux Courts: Cardizem (6th Cir.) v. Schering Plough (11th Cir.), Tamoxifen (2 nd Cir.) and Cipro (Fed. Cir.) FTC and DoJ enforcement policies now aligned – Congress to endorse these policies? –EU: no case law yet, but fact finding through pharma sector inquiry (2009) and active monitoring (2010) old case law: Windsurfing, Süllhöfer EC Transfer of Technology Block Exemption Regulation (« TTBER ») and Guidelines. pending cases Servier and Lundbeck and first signs of guidance. 2

Patent settlements (1) -- definition, typology, theory of harm --  Definition: resolving out-of-court dispute or court litigation concerning validity or scope of a patent, often involving a « value transfer ».  Typology: patent holder transfers various types of value to one or more generic companies: –lump sum payment –license (royalty bearing or royalty free) –supply or distribution agreement –other side deal  Theory of harm: originator and generic company share monopoly rent at the expense of consumers. 3

Patent settlements (2) -- EU/US regulatory context --  US: –generic company files Abbreviated New Drug Application (“ANDA”) and submits Paragraph 4 certification claiming that patent of originator product is invalid or that generic drug does not infringe patent. –originator can bring infringement suit against the generic company and thereby delay generic market entry for up to 30 months. –however, if generic company wins patent litigation, it will benefit from an exclusivity period of six months, during which no other generic company can bring a competing drug to the market. –outcome of litigation: limited risk for generic companies, high risk for originator companies.  EU: –no regulatory linkage between market authorization and patent litigation: risk re o utcome of litigation for generic and originator companies more balanced. –also first mover advantage for a generic company in the EU: lead time over its competitors and settlement agreement can make the latter’s entry less worthwhile. 4

Antitrust assessment (1) -- US case law in flux --  Cardizem (6th Cir.): reverse payment in return for delay in market entry per se unlawful.  Schering Plough (11th Cir.), Tamoxifen (2 nd Cir.) and Cipro (Fed. Cir.): settlements lawful if patent is not a « sham » and generic company enters the market prior to patent expiry.  Cipro: 2 nd Cir. Court takes fresh look at Cipro case, invites FTC and DoJ to file amicus briefs and might revisit its current thinking. 5

Antitrust assessment (2) -- US case law in flux --  Antitrust enforcement agencies: –FTC: continues to challenge settlements involving payments to delay generic market entry, even if market entry occurs prior to patent expiry: cf. Solvay (claim rejected by District Court in 11th Cir.). –DoJ: same position as FTC in Cipro brief: reverse payments presumptively unlawful and rebuttal only if payment merely covers litigation costs and market entry occurs prior delayed until patent expiry.  Congress: moving towards an endorsement of FTC/DoJ view? –2009 health care reform attempt failed. –likely revival in

Antitrust assessment (3) -- EU: sector inquiry law --  fact finding (2009): –207 settlements in period , mostly concerning best selling drugs whose patent protection expired in this period and gave rise to patent litigation. –99 settlements limited generic entry and 45 of these include a value transfer. –In patent litigations, originators worry most about strength of their patent while generic companies worry most about cost of litigation.  monitoring: questionnaires (2010) 7

Antitrust assessment (4) -- EU: no challenge clause in licensing agreements --  Windsurfing (1986): the clause is a restriction of competition –92. (...) such a clause clearly does not fall within the specific subject-matter of the patent, which cannot be interpreted as also affording protection against actions brought in order to challenge the patent ‘s validity, in view of the fact that it is in the public interest to eliminate any obstacle to economic activity which may arise where a patent was granted in error”. –93. It must therefore be held that the (no challenge) obligation (...) constitutes an unlawful restriction on competition between manufacturers.  Süllhöfer (1988): the clause may be a restriction of competition. –16. A no-challenge clause included in a patent licensing agreement may, in the light of the legal and economic context, restrict competition (...). –17. In regard to that context, it should be pointed out that there is no restriction on competition when the licence granted is a free licence inasmuch as, in those circumstances, the licensee does not suffer from the competitive disadvantage involved in the payment of royalties. –18. Nor does a no-challenge clause contained in a licence granted subject to payment of royalties restrict competition when the licence relates to a technically outdated process which the licensee undertaking did not use. –19. (...) if the national court were to consider that the no-challenge clause contained in the licence granted subject to payment of royalties does involve a limitation of the licensee' s freedom of action, it would still have to verify whether, given the positions held by the undertakings concerned on the market for the products in question, the clause is of such a nature as to restrict competition to an appreciable extent. 8

Antitrust assessment (5) -- EU: no challenge clause in licensing agreements -- 9  Art. 5 (1)c of 2004 TTBER excludes the clause from the block exemption but: –“ without prejudice to the possibility of providing for termination of the technology transfer agreement in the event that the licensee challenges the validity of one or more of the licensed intellectual property rights”. –individual exemption not excluded.  2004 Guidelines accompanying TTBER about no challenge clauses in settlement (not licensing) agreements: –§ 209: “In the context of a settlement and non-assertion agreement, non-challenge clauses are generally considered to fall outside Article 81(1). It is inherent in such agreements that the party agree not to challenge ex post the intellectual property rights covered by the agreement. Indeed, the very purpose of the agreement is to settle existing disputes and/or to avoid future disputes.”

Antitrust assessment (6) -- EU: pending pharmaceutical cases --  Reading the tea leaves (DG COMP officials): –settlements that relate to a sham patent or contain restrictions beyond the exclusionary zone of the contested patent (in particular in scope or time): per se unlawful. –settlements which do not allow generic entry immediately and in an unlimited form and which are accompanied by a significant value transfer from the originator to the generic company: closer scrutiny.  Pending cases: Servier (July 2009) and Lundbeck (January 2010) 10