Pay for delay deal

Respect for the principles of competition does not only require the establishment of rules to guarantee competition but also the control of market players, it is the European Commission which is responsible for this function. It has the power to impose fines against any actor who acts contrary to the rules provided for by the European Union treaties, but also to conduct investigations to improve the functioning of the European market. Through his intervention, new ways were discovered to outsmart the competition. This was particularly the case in 2009, the European Commission published the final report of its investigation into competition in the pharmaceutical sector which revealed the proliferation of “pay for delay” agreements. These are agreements aimed at delaying the entry of competing companies into the market in return for a transfer of value which is most often a sum of money. This type of agreement is most often used in the pharmaceutical industry. The prohibition of these agreements is not clearly provided for by the treaties, yet it cannot be denied that some of them have an impact on competition within the European market: how to detect agreements in the pharmaceutical sector, which is harmful for competition?
First of all, you should know that European competition law is governed by 2 main principles: the prohibition of the abuse of a dominant position and the prohibition of cartels. The abuse of a dominant position consists, for a market actor, in taking advantage of a favorable position in the market to attract other actors to the market or prevent the entry of new companies, these will distort competition, they are therefore prohibited. As for the cartel, it is an agreement between several companies in order to set the market conditions in the way that is most favorable to them, it can be an agreement on prices for maintaining artificially high, or an agreement to to provide for production quotas. This completely changes the rules of competition and the market, which is why cartels are, in the majority, proscribed by European law.

The own ability to enter the market

The CJEU has established the criteria making it possible to know whether or not an amicable settlement agreement of a dispute between the holder of a pharmaceutical patent and a manufacturer of generic drugs corresponds to an agreement likely to hinder competition law and therefore prohibited. by European Union law, in a judgment of January 30, 2020.
To qualify the agreement as anti-competitive, it was necessary that there was a relationship of potential competition between the parties to the agreement. For this, there must be “real and concrete possibilities for this company to access the said markets and compete with the companies established there.” “. This therefore implies assessing the existence of “firm determination as well as the specific capacity to enter the market”. The question is whether the circumstances would have allowed the generic drug company to enter the market without the agreement with the patent holder.
The second criterion is that of harmfulness for competition: an agreement will be considered as a restriction on competition as soon as it will be harmful for it, for example it will lead to an increase in prices on the market or else it will prevent the entry into the market of new players.
In a second step, the judges brought up the idea according to which, as soon as they impact the competitive structure of the market, these agreements are liable to be penalized under Article 102 of the TFEU as an abuse of dominant situation.

European Union law

In 2013, the Commission used its sanctioning power to sanction laboratories and pharmaceutical companies for six agreements which constituted restrictions on competition. In the 1970s, a Danish laboratory developed and patented an antidepressant drug, based on an active named Citalopram. When the patent expired, the Danish laboratory only held secondary patents which only granted it limited protection, these patents did not prevent manufacturers of generic versions of this antidepressant from entering the market. To overcome this problem, the Danish laboratory has concluded six agreements with companies active in the production or sale of generic drugs concerning citalopram. This agreement provided that, against a large sum of money and the buy-back of all their generic drugs by the company, the companies would agree not to enter the market. The Commission qualified these agreements as a restriction of competition “by object” and considered that these agreements were contrary to the competition rules laid down by Union law and amounted to infringements of Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 53 of the Agreement on the European Economic Area (EEA). The Commission has imposed fines of almost 150,000,000 euros. These pharmaceutical players have instituted an appeal for the partial annulment of the Commission decision and a reduction in the fine.

The General Court of the European Union dismissed the appeal in its entirety

In five judgments issued on March 25, 2021, the CJEU rendered its decision based on the criteria defined by the judgment of January 30, 2020. It dismissed the appeal brought by the companies and the laboratory. Different questions have arisen in this case.
The first issue that arose is whether there is a potential competitive relationship between the laboratory and the manufacturing companies. Indeed, competition law can only apply to companies that have a competitive relationship with each other. Indeed, the judges recall “that, in order to fall under the principle prohibition provided for in Article 101, paragraph 1, TFEU, the conduct of companies must not only reveal the existence of collusion between them – namely an agreement between undertakings, a decision by an association of undertakings or a concerted practice, but this collusion must also adversely and appreciably affect the play of competition within the internal market ”. It is therefore necessary to study the situation to know whether both characteristics are present in this case.

the Competition Authority is not competent to establish a force review

First of all, the CJEU considered that the court was right to confirm that the laboratory and the generic companies were in a competitive situation when the agreements were concluded. To assess whether there is a relationship of potential competition, the judges say that “it is necessary to determine whether there are real and concrete possibilities that this former integrates said market and competes with the latter”. In the case of the facts of the present case, it is necessary to assess whether the manufacturer has actually taken steps to enter the market and whether the time within which he has carried them out allows him to put competitive pressure on the market. laboratory. Then, it is necessary to wonder about the elements external to the manufacturer which can influence its entry on the market: are there barriers to the entry of the market presenting an insurmountable character which would prevent its integration within the market ? With regard to barriers to entry, the Court reiterates that “the existence of a patent which protects the manufacturing process of an active principle which has fallen into the public domain cannot, as such, be regarded as such a barrier insurmountable. “.

Thus, the presence of patents cannot be an obstacle to the qualification of potential competitors of companies manufacturing generic drugs as soon as it “effectively has the firm determination as well as the own capacity to enter the market and which, through its steps, shows itself ready to challenge the validity of this patent and to assume the risk of seeing itself, when it enters the market, confronted with an action for infringement brought by the holder of the said patent ”. The Court specifies that the Autorité de la concurrence is not competent to establish an examination of the force of the patent or of the probability that a dispute between the manufacturer of the generic and the manufacturer of the originator will lead to a finding of the validity or patent infringement.

The second problem that arises is that of the qualification of “restrictions by object”. European judges consider that “the qualification of” restriction by object “must be retained when it emerges from the examination of the amicable settlement agreement concerned that the transfers of values ​​provided for therein are explained solely by the commercial interest of both the patent holder than the alleged infringer not to compete on the merits ”. To assess the reality of this restriction of competition “by object”, it is necessary to analyze whether the net positive balance of transfers of value from the manufacturer of originator drugs to the benefit of the manufacturer of generic drugs was sufficiently large to effectively encourage the manufacturer to generic drugs to give up entering the market. The European judges consider that in order to qualify an agreement as “restriction by object”, it is not necessary to take into account the force of the patents in question, nor that a similar agreement has already been qualified as “restriction by object” by the Commission. “All that matters is the individual and detailed examination of the practice concerned, which must demonstrate the sufficient harmfulness of it, in this case the voluntary substitution of practical cooperation for the risks of competition by virtue of the merits, substitution of which experience shows that it is particularly harmful to the free play of competition. “. The Court concludes its analysis by affirming that the agreements which made it possible to delay the entry into the market of the laboratory’s potential competitors can be qualified as restrictions on competition “by object” because of their particularly harmful nature for competition.

Consequently, the CJEU considered that the agreements concluded between the originator manufacturing laboratory and the companies manufacturing generic drugs constituted restrictions on competition incompatible with Article 101 paragraph 1 of the TFEU, it therefore dismissed the applicants’ appeal.

Pay for delay

The regulations within the Member States of the European Union concerning “pay for delay” agreements are therefore essentially jurisprudential and result from the interpretation of existing texts on competition law. However, there are other states in which this practice is not regulated at all. In Switzerland, for example, despite the importance of the pharmaceutical sector, market entry postponement agreements are not subject to any regulation. The question therefore arises of how to protect competition on the Swiss market in this situation. In Switzerland, competition law is regulated by the federal law on cartels (LCart), is it applicable in the event of an agreement to delay the entry into the market of certain players? Article 3 of the LCart stipulates that companies “which establish a state market or price regime” are excluded from the scope of the provisions of the law. However, many medicines in Switzerland are subject to the TARMED tariff, therefore this law would not apply to these medicines. For the situations which would remain subject to the LCart, one could consider the application of article 5 paragraph 3 of the LCart: “Are presumed to lead to the elimination of effective competition insofar as they bring together companies that are actually or potentially competing. , agreements: […] which restrict quantities of goods or services to be produced, purchased or supplied; “. It would therefore be possible for the Swiss courts to draw inspiration from the assessment of European law concerning agreements restricting competition and that they apply the same criteria as those adopted by the Court of Justice of the European Union to determine whether a agreement constitutes a prohibited cartel within the meaning of competition law.

Eternoscorp supports you to ensure that the agreements you enter into are as advantageous as possible for you while respecting the rules of competition.