EC Competition Law and Veterinary Medicines

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1 EC Competition Law and Veterinary Medicines 5th Annual Conference Regulation of Veterinary Medicines in Europe, Prague 3-6 March 2009 Howard Rosenblatt Latham & Watkins operates as a limited liability partnership worldwide with affiliated limited liability partnerships conducting the practice in the United Kingdom, France and Italy. Copyright 2009 Latham & Watkins. All Rights Reserved.

2 Legal framework The goal of European competition law: Avoid the acquisition or strengthening of market power over consumers by means other than competition on the merits: Article 81 EC: Prohibits agreements between firms that unduly restrict competition, thus giving them collective market power (e.g., price fixing, certain non-competes). Article 82 EC: Prohibits unilateral abuse a dominant position: Must have a pre-existing dominant position Must engage in conduct that forecloses competition Likely injury to the competitive process No legitimate business justification 2

3 Potentially severe sanctions Large Fines: technically up to 10% of the infringing company s turnover. For hardcore cartels, additional criminal sanctions in some Member States (e.g. Ireland, U.K.), and potential extradition to the U.S. Private damage actions Unenforceability of agreements 3

4 Commission's pharmaceutical inquiry Commission launched a wide-ranging investigation into the pharmaceutical industry, starting with dawn-raids on 15 January 2008, followed by still ongoing burdensome information requests. The inquiry does not include veterinary medicines, but the output shows the agency s current thinking on many of the issues facing both industries. 4

5 Commission's pharmaceutical inquiry The Commission issued a Preliminary Report on 28 November 2008: Originator/branded drug companies reportedly engage in damaging practices which delayed or blocked market entry of competitors and defensive patenting strategies that have the same effect. Commissioner Neelie Kroes: You will not be surprised if I tell you that the Commission will not hesitate to open antitrust cases against companies where there are indications that the antitrust rules may have been breached. 5

6 Commission's pharmaceutical inquiry Practices criticized by the Commission (the Tool-box of anticompetitive activity): Patent Litigation Patent Clusters Opposition to Marketing Authorizations Patent settlement agreements But the report does not seek to reach any conclusion as to whether certain practices described in the report infringe EC competition law. Let s do that now. 6

7 Patent litigation The Report For generic companies patent litigation with an originator company can in itself create obstacles to market entry, namely by creating costs and by using interim injunctions, preventing the sale of the generic product. Litigation can be an efficient means of creating obstacles in particular for smaller generic companies. Patenting strategies appear to be coupled with assertive, if not aggressive, efforts of judicial enforcement. Some originator companies seem to engage in litigation as a deliberate strategy to delay generics, even though they rate their chances of winning in court as low. 7

8 Patent litigation The Law In most cases, bringing a judicial action is a fundamental right protected by the European Convention for the Protection of Human Rights and Fundamental Freedoms. A lawsuit can itself infringe competition law in wholly exceptional circumstances : 1. The action cannot reasonably be considered as an attempt to establish its rights and can therefore only serve to harass the opposite party, and 2. The action is conceived in the framework of a plan whose goal is to eliminate competition. (ITT Promedia NV v. Commission, Case T-111/96) 8

9 Patent litigation The Law The first prong is not satisfied unless the lawsuit is manifestly unfounded, based on an objective view. It is not a question of determining whether the rights which the undertaking concerned was asserting when it brought its action actually existed or whether that action was well founded, but rather of determining whether such an action was intended to assert what that undertaking could, at that moment, reasonably consider to be its rights. (ITT Promedia) 9

10 Patent clusters The Report One commonly applied strategy is filing numerous patents for the same medicine (forming so-called patent clusters or patent thickets ). Documents gathered in the course of the inquiry confirm that an important objective of this strategy is to delay or block the market entry of generic medicines. Divisional patent applications can add to the legal uncertainty for generic companies. 10

11 Patent clusters The Report 11

12 Patent clusters The Report 12

13 Patent clusters The Law The Case law is developing, requiring a balancing of legal/business risk. The case law seems heading in the direction that firms have a right to avail themselves of public administrative processes and argue their best case regardless of motivation or effect. The principle rests on a right to engage in conduct that has an objective justification. But there is no objective justification for misrepresentations to agencies (e.g., fraud on the patent office) or objectively frivolous arguments. 13

14 Marketing authorizations oppositions The Report The evidence gathered reveals that interventions before marketing authorisation bodies may, in certain instances, be a deliberate strategy pursued by some originator companies to delay generic entry. The interventions might well lead to delays in generic products obtaining pricing and reimbursement status. 14

15 Marketing authorizations oppositions The Law Law is developing but there is little reason to treat authorization bodies differently from patent offices (or courts). Intervention therefore should be an abuse of dominance only if: (1) A dominant intervenor makes material misrepresentations or frivolous claims, and (2) The intervention is likely to have an anticompetitive effect. Bona fide judicial actions against marketing authorization bodies should be protected under ITT Promedia or as legitimate business justification. 15

16 Patent Settlements The Report In 48% of the settlement agreements relating to the EU, the generic company s ability to market its medicine is restricted. A significant proportion of settlements contained in addition to the restriction a value transfer from the originator company to the generic company, either in the form of a direct payment or in the form of a license, distribution agreement or a side deal. 16

17 Patent Settlements The Law Settling lawsuits is a good thing. Parties generally can settle on terms that limit competition to something less restrictive than the scope or duration if the plaintiff loses. Absent sham, an agreement that generic will enter the market on a date certain prior to the expiration of the patent reflects the parties best assessment of risk of the potential outcomes. 17

18 Patent Settlements The Law The more serious issue are settlements that include reverse payments. Generic agrees to refrain from entering the market until a date certain prior to expiration of the patent. In addition, the patent holder pays the generic some money. What s the money for? 18

19 Patent Settlements The Law The US view(s): Federal Trade Commission s view: Such payments presumptively unlawful because they are in exchange for delayed entry and merely a way to share the resulting monopoly profits. Department of Justice view: Not necessarily. Payments can reflect the asymmetric risks between the parties. All facts and circumstances should be considered, including the strength of the infringement claim at the time of settlement. Courts view (so far): More lenient towards reverse payments than both FTC and DOJ. 19

20 US FTC s View 20

21 Patent Settlements The Law In Europe: Settlements giving effect to anything up to the scope and duration of the patent will probably be presumptively lawful. Settlements that restrict competition beyond the scope or duration of the patent should be presumptively unlawful. Reverse payments will increase the risk. If the EC is willing to examine the underlying basis for the payment, the parties will want to show (a) the patent claim was not obviously weak, (b) the payment was needed to settle the case. 21

22 Parallel Trade Article 81 EC allows manufacturers to prohibit resellers from making active sales outside their designated Member State but prohibits restriction of passive sales. Recent ECJ case law suggests that manufacturers can try to achieve the same result by limiting supply to resellers to the amount necessary to supply their own market, where necessary to protect the manufacturer s distribution system. (GSK vs. Sot. Lelos) Manufacturers may refuse to supply resellers quantities that are out of the ordinary (based on market size and past dealings) 22

23 Recent merger decisions Rhone-Poulenc/Cooper and Merck/Rhône-Poulenc Merial Unconditional clearance in Phase I Akzo Nobel/Hoechst Roussel Vet Divestiture required of several vaccine products in several countries Pfizer/Pharmacia Divestiture required of Pharmacia s oral penicillin for companion animals business in Germany. Combined share 80%. Schering-Plough/Organon Biosciences Divestiture required of several vaccine and medicine markets after finding very high shares. 23

24 A word about Joint Ventures Joint ventures and other forms of cooperation can create significant efficiencies and cost savings: Joint R&D Joint purchasing Joint production Even between competitors, they often are entirely lawful: Does the venture eliminate independent competition that otherwise would have occurred? Alternatively, does the venture allow for activity that would not have been practical otherwise? Is the cooperation narrowly tailored to achieve the objectives? 24

25 THANK YOU Howard Rosenblatt