It is a well-established and universally accepted principle of
competition law that a payment by one competitor to another
competitor not to enter a market is anticompetitive, and in
Australia since 2010 a criminal offence.
In the US over the past decade pharmaceutical companies, the Federal Trade Commission (FTC) and class action applicants have battled the question of whether this established principle of competition law applies in the context of a settlement of a patent dispute. The answer is now clearly and unequivocally yes.
Recent decisions of the US Supreme Court and the Director General of Competition (DG Comp) in the EU have confirmed that reverse payments in patent settlements are subject to competition law and are potentially anticompetitive. If the Australian Federal Court were to follow these two clear decisions then a reverse payment could constitute criminal cartel conduct under the Competition & Consumer Act (CCA), in addition to potentially constituting an anticompetitive agreement. Therefore, such settlements could be at risk of criminal sanctions, pecuniary penalties and damages claims by private parties including class actions.
Whilst there is no Australian authority on this issue, the jurisprudence in the US is now very clear and strong.
The EU, whilst not having jurisprudence, has a very clear and strong prosecution by the DG Comp consistent with the US Supreme Court. Accordingly, it is inconceivable that the ACCC, State Governments, private health insurers and class action law firms can ignore the clear legal position now being adopted in both the US and the EU that reverse payment settlements are subject to competition law and are potentially anticompetitive. It can only be a matter of time before enforcement proceedings are brought by the ACCC or private proceedings by an affected party that a reverse payment is in breach of the CCA.
|FTC v Actavis, Inc
US Supreme Court 17 June 2-13
European Commission 19 June 2013
Offending reverse payment settlement terms:
Offending reverse payment settlement terms:
US Supreme Court finding:
European Commission finding:
In a nutshell what is the problematic conduct?
Both the US Supreme Court and the European Commission (EC) have ruled that a settlement of patent litigation proceedings which involves the innovator paying consideration for the delay of the entry of competing generic drugs raises competition law issues (pay for delay).
However, "where a reverse payment reflects traditional settlement considerations, such as avoided litigation costs or fair value for services, there is not the same concern that a patentee is using its monopoly profits to avoid the risk of patent invalidation or a finding of non-infringement." Accordingly, where justifiable consideration is paid a limitation on the ability of a generic company to enter is unlikely to raise competition concerns.
Examples of problematic reverse payment settlements
Problematic reverse payment settlement agreements have two essential terms:
- Settlement agreement that the generic company will:
- refrain from challenging the validity of the innovator company's patent(s) (non-challenge clause); and/or
- refrain from entering the market until the patent has expired (non-compete clause); and/or
- solely be a distributor of the innovator product concerned; and/or
- source its supplies of API from the innovator company; and
- Unjustifiable consideration is paid by the innovator company to the generic company, which can take many forms:
- payment of a lump sum for unspecified services;
- payment for purchasing the generic company's stock of the generic drug; or
- annual payments for distribution services.
How wide spread is the problem?
The EC over the period 2009 to 2011 reviewed a large sample of patent litigation settlements in the EU. The EC's analysis indicated that of the patent settlements it reviewed in 2011, 11 percent are problematic from an antitrust perspective. Therefore, these issues are not one off and are reasonably prevalent in the industry to attract scrutiny.
Exposure is to past and future reverse payment settlements
Both past and future reverse payment settlements are potentially subject to the CCA. Therefore, all past reverse payment settlements should be carefully reviewed to assess competition law risk, as it can only be a matter of time before the Australian Competition and Consumer Commission, State governments, private health insurers or class action applicants follows the clear and strong jurisprudence set by the US Supreme Court and the EC in June 2013.
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