The UK's Competition and Markets Authority
("CMA") has fined three pharmaceutical
companies a combined £50 million following an investigation
into certain "pay-for-delay" patent settlement
agreements. On 12 February 2016, the CMA published a press release
confirming its preliminary decision that the agreements between
Glaxosmithkline (GSK) and two generic companies
had the object or effect of restricting, distorting or preventing
competition. The payments made by GSK to each of the other parties
in exchange for delayed entry also amounted to an abuse of
GSK's dominant market position.
GSK held a number of patents protecting paroxetine, a drug used
for the treatment of depression and anxiety disorders. These
patents had allowed GSK's Seroxat product to gain blockbuster
status. The generic companies sought to enter the UK market with a
generic version of paroxetine, and GSK had commenced proceedings
against both generic companies alleging that such entry would
infringe GSK's patents.
The parties decided to settle the litigation and, in exchange
for the generics' agreement to delay their generic entry to the
market, GSK agreed to make various value transfers to them. This
took the form of both cash payments and permission to distribute
limited quantities of GSK's product to the market. The
agreements were in place between 2001 and 2004. When independent
generic competition eventually reached the market at the end of
2003, average prices for paroxetine dropped by 70% in the first two
The Office of Fair Trading (the CMA's predecessor) opened an
investigation in August 2011. The CMA took over the investigation
and reached the decision that:
the agreements constituted infringements of Article 101 of the
Treaty on the Functioning of the European Union ("TFEU")
and Chapter I of the UK's Competition Act 1998 (the
the payments by GSK to the generics were to induce a delay to
their market entry and so constituted an abuse of a dominant
position in breach of Article 102 TFEU and Chapter II of the
The CMA therefore imposed a fine on GSK of £37.6 million.
The generic companies received total fines of £7.3
The application of competition law to patent settlement
agreements involving a transfer in value remains relatively a new
concept within the EU. Such agreements were identified as potential
infringements by the European Commission's enquiry into the
pharmaceutical sector in 2008 and the Commission has continued to
monitor patent settlement agreements entered into between
originator and generic companies. The European Commission and
national competition regulators have also issued a number of
decisions imposing heavy fines in recent years, the first of which
was the Commission's decision to fine Lundbeck and a number of
generic competitors in relation to agreements regarding citalopram
in 2013. However, the concept is still evolving, and there is yet
to be a judgment by European Courts on the issue. Lundbeck's
appeal of the Commission's decision to the General Court is due
to be decided upon later this year, and it is sure to have a
substantial impact on the approach adopted by regulators to such
agreements in the future.
The CMA has recently faced criticism over its limited
enforcement activity, and focus on investigations in small sectors
with limited impact. In response, the CMA's chairman publicly
commented that early 2016 would see the imposition of more
significant, high impact fines, and this case may well have been in
mind when such comments were made. The CMA also currently has two
other investigations open in the pharmaceutical sector; one
examining whether Pfizer and Flynn Pharma had engaged in excessive
pricing in relation to their epilepsy drugs, and another which is
looking at discounting practises in the pharmaceutical sector in
general. Although these investigations remain in their early
stages, if infringements are ultimately found it can be expected
that the CMA will also be seeking to impose substantial financial
penalties in those cases.
The decision of the CMA is being challenged
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