ECJ Rules For The First Time On 'Pay-For-Delay' Agreements

On 30 January 2020 the European Court of Justice ("ECJ") clarified for the first time the criteria governing whether so-called "pay-for-delay" agreements entered into between originator and generic pharmaceutical companies fall foul of EU competition law rules. Such agreements are a form of patent dispute settlement, whereby in return for a value transfer, a generic manufacturer acknowledges the patent of the originator pharmaceutical company, and agrees to refrain from marketing its generic version of the drug in question for a specified period of time. Pay-for-delay agreements have been in the spotlight of the European Commission ("EC") and national competition authorities for over a decade.

In line with the non-binding Opinion delivered by Advocate-General Kokott on 22 January 2020, the ECJ held that such agreements may constitute "by object" infringements of the prohibition on anti-competitive agreements (such that a competition regulator is not required to prove effects on the market) or "by effect" infringements, and may also amount to an abuse of a dominant position.

The ECJ had been asked to provide guidance on this issue by the UK Competition Appeal Tribunal ("CAT"), by way of a reference for a preliminary ruling in the UK Paroxetine case. That case involves an appeal by GlaxoSmithKline ("GSK") and five generics against a 2016 decision of the UK Competition and Markets Authority ("CMA") imposing fines totalling £45 million on the basis that such pay-for-delay agreements infringed competition law.

Why is the ECJ's judgment important?

The ECJ's judgment is expected to have significant implications for both ongoing and future cases in the pharmaceutical sector:

The ECJ has sent a clear message to both originator and generic companies that once a generic has demonstrated a clear intention to market a rival version of an originator drug, it is likely to be considered a "potential competitor" of the originator (and thus any patent settlement between the originator and that generic involving a value transfer is likely to attract antitrust scrutiny). The ECJ held that patent settlement agreements can be lawful. In particular, the existence of a value transfer (pecuniary or not) is not, by itself, sufficient to classify the agreement as a restriction of competition by object. This is because such value transfer may be justified taking into account the parties' legitimate objectives (e.g. if it constitutes compensation for the generic's litigation costs). However, the ECJ considered that where the value...