On January 16, 2008, the European Commission launched a
sector inquiry into the pharmaceuticals industry by carrying
out a series of unannounced inspections of innovative and
generic pharmaceutical companies. The targeted companies
include both European and U.S. pharmaceutical companies with
significant operations in Europe. The inquiry is likely
to implicate important and controversial issues regarding the
intersection of competition and intellectual property law,
including the legality of patent litigation settlement
agreements and conduct relating to the procurement and
enforcement of intellectual property rights.
The sector inquiry is generally designed to provide the
Commission with insight into commercial practices within the
pharmaceutical industry; however, it was launched in response
to the Commission's concern that competition in the
European pharmaceutical sector may not be working as it
should. Specifically, the Commission noted that there has
been a significant decrease in novel and generic medicines for
human consumption entering the European pharmaceutical market
in recent years.
The sector inquiry also follows two recent and significant
enforcement actions by the Commission against firms in the
pharmaceutical sector. In 2005, the Commission fined
AstraZeneca €60 million for providing
misleading representations to patent offices in the EU, and
thereby restricting the entry of generic medicines to the
market. Last year, the Commission also started
proceedings against Boehringer for alleged misuse of
the patent system to exclude competition in the area of chronic
obstructive pulmonary disease drugs.
The Commission's sector inquiry will focus on similar
business practices; indeed the Commission's announcement
indicated it would examine whether the investigated
parties' exercise of patents and agreements between
competitors, such as terms for litigation settlement
agreements, are compatible with the EC Treaty's rules on
restrictive business practices. In addition, the inquiry
will examine potential abuses of dominant position by market
actors, including possible misuse of patent application
procedures or frivolous lawsuits to prevent or deter launches
of generic alternatives.
Enforcement actions in the United States on patent
settlement agreements have proven controversial and even
resulted in policy disagreements among the two U.S. antitrust
agencies (i.e., the Department of Justice and the
Federal Trade Commission) about the proper application of the
antitrust laws. In addition, antitrust claims in the U.S.
based on frivolous litigation or misuse of the patenting
process generally must satisfy a high standard of proof.
Thus, if the Commission's sector inquiry results in any
enforcement actions, they are likely to generate significant
Finally, this sector inquiry is also notable because it is
the first in which the Commission commenced the inquiry with
dawn raids. (The Commission has in recent years carried
out sector inquiries in the telecommunications, energy and
financial services sectors, but all of these were initiated by
sending out questionnaires to the targeted companies.)
According to the Commission, the motivation to secure
information in this manner stemmed from the fact that the
information sought is usually considered by companies to be
highly confidential and "may also be easily withheld,
concealed or destroyed."
The Commission also recently used dawn raids in a merger
investigation to investigate whether parties had integrated
their business operations prior to obtaining clearance under
the EU's merger control regulations. It remains to be
seen whether the Commission will continue to expand the use of
dawn raids in non-cartel investigations; however, firms should
ensure that their employees and in-house legal department are
prepared for such an event.
The first results of the pharmaceutical sector inquiry are
expected to be published in an interim report by the Commission
this autumn and a final report due in the spring of 2009.
Any subsequent competition law enforcement actions by the
Commission (or EU member state competition authorities) against
individual companies would be launched outside the framework of
the sector inquiry.
Because of the generality of this update, the
information provided herein may not be applicable in all
situations and should not be acted upon without specific legal
advice based on particular situations.
The relatively modest updates to the Guidelines affirm that the antitrust agencies still believe that intellectual property issues do not require an altered analysis, and that the licensing of intellectual property is generally procompetitive.
Last September, we discussed the U.S. Court of Appeals for the Second Circuit's opinion in In re Vitamin C Antitrust Litigation vacating a $147 million judgment against Chinese vitamin C manufacturers...
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