European Union: The European Commission Issues Its Final Report On Competition In The Pharmaceutical Sector

The European Commission (EC) recently issued its Final Report on its inquiry into competition in the pharmaceutical sector. The inquiry, which began in January 2008 under Articles 81 and 82 of the EC Treaty, was mandated to examine why fewer novel medicines were being brought to market and why generic entry was frequently delayed.

The Final Report reiterates many of the findings from the preliminary report, which we discussed in TLQ 4:4. In the preliminary report, the EC identified a "tool box" of methods that originator companies could use to block or delay generic entry or that may explain the difficulties in bringing new medicines to market; these methods include creating multiple patent applications for the same medicine (i.e., patent clusters or patent thickets and evergreening), initiating disputes and litigation, negotiating patent settlements that constrain generic entry (i.e., reverse payment settlements), and intervening during the generic regulatory approval process.

In the Final Report, the EC stated that it is able to identify areas of action and set priorities for future attention by quantifying industry practices and setting out a factual basis for its findings. The EC has toned down the criticism of originator companies that was present in its preliminary report, and has instead turned its attention towards the influence and reform of the regulatory framework. Specifically, the Final Report suggests:

  • Intensifying competition law scrutiny. The EC pledged to make full use of its powers under antitrust rules, noting specific areas of focus will be market concentration (e.g., mergers between originators and acquisitions of generic companies) and company practices (e.g., defensive patenting strategies and reverse payment settlements).
  • Establishing a European-wide community patent system and a unified litigation system. This would reduce administrative burden and uncertainty.
  • Streamlining the marketing authorization process for generics. This would include mutual recognition of Member States' authorizations as well as coordination between agencies to avoid discrepancies in the application of the legal framework. Further harmonization between Europe and the US is also encouraged.
  • Improving pricing and reimbursements systems and developing a pro-competitive environment for generic uptake. National authorities should introduce provisions granting pricing and reimbursement status to generics without requiring detailed assessment where the corresponding originator already benefits from such status, and Member States should respect time limits for pricing and reimbursement decisions.

EC Competition Commissioner Neelie Kroes has indicated that the Final Report is just the beginning: with the insight gained from the inquiry, the EC will now step up its antitrust enforcement work, and regulatory adjustments are expected to follow. Indeed, at the time the Final Report was issued, the EC announced the opening of an investigation against an originator company and five generic companies related to a cardiovascular medication on the basis that they may have conspired to delay generic entry.

McCarthy Tétrault Notes:

The EC's focus on the competitive relationship between originator and generic companies and among originator companies is in stark contrast to the approach taken by the Canadian Competition Bureau, which has so far focused its attention on competition in the generic drug sector. While the EC has examined practices that could affect or delay generic entry, the Competition Bureau has found that healthy competition exists among generic drug manufacturers but that the benefits of this competition are not being passed on to consumers.

With respect to enforcement, the EC's Final Report gives a comprehensive description of the current state of competition in the pharmaceutical sector and areas that require attention and action. Unfortunately, however, the Final Report provides little in the way of guidance on how companies' practices will be examined under EC competition rules. Some guidance may come, should the EC follow through on its stated intent to increase enforcement activity.

In the Canadian context, the Competition Bureau does not have jurisdiction under its investigatory powers to undertake industry examinations and issue binding recommendations.

Instead, the Competition Bureau would have to address the alleged anti-competitive activities, like those noted by the EC in its report, on a case-by-case enforcement basis under either the criminal or civil provisions of the Competition Act, applying the principles set out in the Competition Bureau's Intellectual Property Enforcement Guidelines. We would expect, for example, that the Competition Bureau could address delay tactics, such as the initiation of disputes and litigation, under the abuse of dominance provisions of the Competition Act.

Reverse payment settlements may raise issues under the abuse of dominance provisions. Those settlements might also potentially engage the criminal, and — as of March 2010, following their enactment — the civil provisions dealing with collaborations between competitors. The area of patent settlements, particularly reverse payment settlements, will be especially interesting to monitor in the near future as both the EC and the new US administration have stated their intention to focus on this issue. Notably, the US Department of Justice recently aligned itself with the Federal Trade Commission's position that such payments are presumptively unlawful. It is not clear that there will be a change in the law; however, US courts have generally taken a permissive approach to these payments. It also remains to be seen how this area will be addressed in Canada and whether it will be accorded any greater attention in light of developments in the EC and the US.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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