On 21 October 2022, the Spanish National Markets and Competition Commission (CNMC) imposed a €38.9 million fine on pharmaceutical company Merck Sharp and Dohme (MSD) for abusing its dominant position in the Spanish market for contraceptive vaginal rings. In particular, the CNMC concluded that MSD conducted a litigation strategy against Insud Pharma, a competing company, which delayed the entry of competing product "Ornibel" into the Spanish market.
The CNMC's decision shows competition authorities' increasing interest in the pharmaceutical sector and, specifically, in the misuse of litigation strategies by pharma companies with the aim of delaying the entry of generics into the market.
The infringing conduct: unjustified legal actions
MSD is a pharmaceutical company that held the patent for the contraceptive "Nuvaring" – the first vaginal ring in Spain -, for which it enjoyed exclusive use from 2002 until 2018. In June 2017, Insud Pharma, a competitor, launched "Ornibel", an alternative vaginal ring that was protected by its own patent1 . The rings developed by MSD (Nuvaring) and Insud Pharma (Ornibel) are similar from a medical perspective as they use the same active ingredients, have the same pharmaceutical form (vaginal ring) and the same safety characteristics and efficacy. However, the two products are technically different in terms of their components and the degree of saturation of the hormone used in their composition.
Despite those technical differences, MSD filed legal actions against Insud Pharma's product before Commercial Court No 5 of Barcelona, claiming that Ornibel infringed Nuvaring's patent. Particularly, in June 2017, MSD filed a request to conduct fact-finding proceedings, arguing that Insud Pharma had refused to provide the requested samples of its product to justify its claims. However, MSD failed to inform the Court that Insud Pharma had replied to MSD's request and had offered to provide the requested samples. In fact, Insud Pharma had requested that MSD sign a non-disclosure agreement prior to providing the requested information regarding its product.
Subsequently, in September 2017, MSD also filed a request to the Court for interim relief ex parte (i.e., without a hearing with the other party), to suspend the manufacture and sale of the Ornibel ring in Spain – the Court granted the requested interim relief. In December 2017, after Insud Pharma had provided the Court with an expert report evidencing the differences between the MSD's and Insud Pharma's rings, the interim relief was lifted by a court order, concluding that MSD had not provided sufficient evidence of Insud Pharma's alleged infringement of MSD's patent.
The investigation and sanction
On 8 April 2019, the CNMC received a complaint from Insud Pharma for an alleged abuse by MSD of its dominant position.
In the course of its investigation, the CNMC adopted a narrow market definition, restricting the relevant market to the Spanish market for the combined hormonal contraceptive vaginal rings. When analysing whether MSD held a dominant position, it concluded that MSD held a 100% share in the Spanish market of combined hormonal contraceptive vaginal rings from 2002 to 2017, as it owned the exclusive license to use the patent for Nuvaring, the only vaginal ring marketed in Spain until 2017. The CNMC pointed out that MSD's market share had gradually decreased since June 2017, when Ornibel was granted a commercialisation license in Spain and other generic vaginal rings started being marketed in Spain. However, the CNMC concluded that, as a result of the litigation strategy and the suspension of the manufacture and sale of the Ornibel ring in Spain ordered by the Court in September 2017, MSD held a dominant position in the Spanish market for combined hormonal contraceptive vaginal rings from 2002 until at least the expiration of its patent, in April 2018.
As regards the specific conduct, the CNMC confirmed the existence of a strategy by MSD to file unfounded legal actions in Spain aimed at delaying and hindering the entry into the market of the competing product manufactured by Insud Pharma, at least from 2017 until the expiry of the patent in 2018. That conduct constituted a very serious infringement prohibited by Article 2 of the Spanish Competition Act (LDC) and Article 102 of the Treaty on the Functioning of the European Union (TFEU). As a result, it imposed a €38,9 million fine on MSD, 5.75% of the undertaking's total turnover.
The fine imposed was higher than the one initially proposed by the CNMC's Competition Directorate (i.e., €28 million), as the CNMC ultimately considered that the conduct affected a market (the market for pharmaceutical products), with a significant impact on the population and with a strong link to the protection of the general public interest. Furthermore, the infringement was developed by means of a litigation strategy that distorted judicial procedure, which is in place as a guarantee for companies and citizens, as the strategy followed entailed the wrongful use of the mechanisms of the administration of justice. Moreover, the infringing conduct was particularly difficult for the competition authority to detect as, given the very specific nature – both legal and technical – of patent infringement proceedings, it is particularly costly and difficult for competitors to prove that litigation is unjustifiable. Moreover, the CNMC also calculated the illicit profit that MSD had generated from its infringing conduct.
Conclusion: increasing scrutiny by competition authorities over litigation strategies in the pharmaceutical sector
The CNMC's decision is based on the caselaw established by the Court of Justice of the European Union's ruling in ITT Promedia (1998)2 (vexatious litigation) and in AstraZeneca (2012)3 (misuse of the patent system by providing misleading information to patent offices). It follows the European Commission's trend of keeping a very close eye on the pharmaceutical sector and focussing in particular on litigation strategies that could constitute abusive conduct under the competition rules.
In particular, since the publication by the European Commission of its Pharmaceutical Sector Inquiry Report4 in 2009, which aimed to analyse the reasons for delays in bringing generic drugs to the market and the apparent decline in innovation, there has been increased antitrust scrutiny in the pharmaceutical sector over the use of a wide range of practices which may hinder the introduction of generic drugs into the market – from patent settlement "pay for delay" agreements to, more recently, litigation strategies and disparagement campaigns (see our recent update on the Teva Copaxone EU case).
The legal test in these cases is not clear as regulators keep pushing the boundaries with new cases: there is no bright line of when a litigation strategy crosses the line from legitimate protection of valid IP rights to impermissible misuse of the patent system. What this recent case makes clear is that it is paramount to make sure that information provided to the Court in an injunction proceeding must be accurate, complete and not misleading – and even more so in ex parte injunction situations where the judge does not have the benefit of hearing arguments from the other side. Overall, in view of the heightened interest and complications in the legal test in this area, it is more important than ever for companies in the pharmaceutical sector to devise their litigation strategies carefully to avoid allegations of impermissible misuse of the patent system.
Footnotes
1. A generic medicine may have its own patent, independent and different from that of the original medicine. The entry into the market of a generic drug is marked by expiry of two separate periods: (i) the data protection applied by medicine agencies, and (ii) the protection granted by a patent. Consequently, it is possible to obtain a marketing authorisation for a generic medicine even when the originator is still protected by a patent.
2. Case T-111/96, ITT Promedia NV v. Commission of the European Communities, 1998 –The CNMC concludes that the actions brought by MSD meet the two cumulative conditions established by the case law in ITT Promedia, since the legal actions taken (i) did not respond to the legitimate objective of defending its own interests and rights, and (ii) they were brought as part of a strategy aiming to supress competition.
3. Case C-457/10 P, AstraZeneca AB and AstraZeneca plc v European Commission, 2012 – The CNMC considers that the case law in the AstraZeneca ruling is fully applicable in the MSD case, as the deception of a judicial body in proceedings such as those at issue is equivalent to deceit before the patent offices.
4. European Commission, Competition DG (8 July 2009): "Pharmaceutical Sector Inquiry. Final Report". Available at https://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/staff_working_paper_part1.pdf
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