The European Commission recently published its eighth report on the monitoring of patent settlements in the pharmaceutical sector. The Commission’s sector inquiry that concluded in July 2009 identified that some patent settlements may be problematic from a competition law perspective and can result in the consumer paying the ultimate price for a delay in market entry by a generic product. Since then the Commission has conducted annual monitoring exercises, collecting data on the number of settlement agreements and the type of restrictions agreed by parties in the sector.

As part of the monitoring exercise, requests for information were sent to the innovator and generic companies which had co-operated with the Commission in the sector inquiry and/or were reported as having settled a matter in the relevant period. In this case, the report has been issued for the period 1 January 2016 to 31 December 2016.

Results

57 originator and 50 generic companies responded to the Commission’s request, reporting a total of 107 settlement agreements. 13 of these agreements covered at least half of the EU member states. 55 of the settlement agreement agreements covered Portugal, and the Commission reports that this is likely due to the introduction in 2011 of mandatory arbitration proceedings in Portugal for certain infringement cases against generic medicines. Over 20 patent settlement agreements covered the UK or France. 22 of the 107 settlement agreements concerned the same INN or pharmaceutical substance.

Categories of agreements

Settlement agreements can take a variety of different forms. The Commission classifies agreements according to (i) whether the agreement imposes a limitation on generic entry, and (ii) whether the agreement contains a value transfer from the originator to the generic company. Settlement Agreements are split into three categories:

  • Category A: Category A covers settlement agreements with no limitation on generic entry. The report describes Category A agreements as unproblematic from a competition standpoint, as they provide that the generic company can market its own product immediately, under the conditions chosen by the company itself. 27% of patent settlements reported in this period were classified as Category A (29 agreements). 31% of the Category A agreements were on a “walk-away” basis, and contained no value transfer. 59% of agreements in this category provided a value transfer from the originator to the generic company.
  • Category B.I: Category B.1 agreements accounted for more than half of the reported settlement agreement (66 agreements or 62%). This category refers to settlement agreements with a limitation on generic entry but provides for no value transfer from the originator to generic company. The limitations on generic entry may be in the form of a prohibition on the generic company from challenging the originator’s patents (a “no-challenge clause”) and/or a restriction from entering the market before expiry of the relevant patents (a “non-compete clause”). Unless in the context of a royalty-free licence permitting an immediate launch, a settlement agreement that contains a licence granted by an originator to a generic company will fall under this category, as the generic company is not in a position to determine the conditions of the commercialisation of its product. This would include an agreement for delayed market entry, payment of royalties by the generic company or restrictions on quantities that may be marketed.
  • Category B.II: According to the report, category B.II agreements are “likely to attract the highest degree of antitrust scrutiny“. These types of agreements contain limitations on generic entry and a value transfer from originator to generic companies. However, the anti-trust implications need to be considered on a case by case basis. Category B.II agreements are less common than the other types, accounting for 11% of all reported settlement agreements. The report notes that the proportion of settlement agreements falling into this category has decreased (from 22%) compared to the period covered by the sector inquiry ending in June 2008…

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