H I R S C H & P A R T N E R S A v o c a t S o l i c i t o r R e c h t s a n w a l t Pharmaceutical settlement agreements and competition law A litigation perspective on the Commission Sector Enquiry Dr Denis Schertenleib Avocat & Solicitor Partner Hirsch & Associés Paris France

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS An introduction to the findings of the Sector Enquiry

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS Patent monopoly bears a cost for the public Price drop following generic entry

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS On average a delayed entry of 7 months past loss of exclusivity

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS An asymmetry in settlement payments from originator to generic and generic to originator

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS Settlements were criticized in the preliminary report

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS Settlements were criticized in the preliminary report

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS The final report does not purport to issue guidance on settlements

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS However the final report maintains a suspicion over settlements

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS Reverse payments and profit sharing:

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS A litigation perspective on the conclusions of the Sector Enquiry

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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).

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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).

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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)

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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.

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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 & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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?

H I R S C H & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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 & P A R T N E R S Dr Denis Schertenleib HIRSCH & PARTNERS 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).