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General Court upholds Commission's decision that reverse payment settlements constitute a 'by object' infringement

General Court upholds Commission's decision that reverse payment settlements constitute a 'by object' infringement

General Court upholds Commission's decision that reverse payment settlements constitute a 'by object' infringement

03.10.2016 NL law

On 8 September 2016, the General Court ("GC") dismissed in their entirety the appeals brought by Lundbeck and the generic companies Alpharma, Merck KGa, Generics UK, Arrow and Ranbaxy against the European Commission's "reverse payment settlements" decision.

On the basis of these settlements, the generic companies, in exchange for a value transfer, could not launch a generic version of Lundbeck's branded citalopram for the duration of the agreements. The settlements were in part motivated by the fact that – whilst Lundbeck's initial patents had expired – it still had patents in place covering the product's manufacturing process. The GC judgments constitute the first EU court decisions ruling on the qualification of reverse payment settlements under EU antitrust law.

First, the GC confirmed that the Commission was correct to establish that Lundbeck and the generic companies were potential competitors when signing these settlements. The GC rejected Lundbeck's claim that the generic companies should not be considered as potential competitors, since its process patents were presumed to be valid under EU law as a result of which legal market entry was precluded. The GC found that the generic companies had real concrete possibilities to enter the market at the time that the agreements were concluded. The steps taken by the generic companies, such as obtaining or applying for a market authorization, demonstrated this possibility. Those factual circumstances trump any presumption of validity of intellectual property, according to the GC. 

The GC also agreed with the Commission that the settlements constitute a restriction of competition by object. In reaching this conclusion the Commission took several factors into account, such as the disproportionate nature of the reverse payments and the absence of provisions that would allow the generic companies to enter the market after the termination of the agreements, without having to fear infringement actions brought by Lundbeck. The GC found, contrary to Lundbeck's claim,  that the Commission correctly considered the value transfers as problematic, as they broadly corresponded to the profits that the generic companies could have made when entering the market or to the damages they would have obtained if they had successfully challenged Lundbeck's patents. As a result, they were high enough to remove the generic companies' incentive to enter the market and thus eliminated the competitive pressure. Consequently, the GC concluded that the settlements were comparable to market exclusion agreements and as such they constituted a restriction of competition by object.

Moreover, the GC rejected claims that the Commission should have applied the "scope of the patent" test and taken into account that the contractual restrictions did not exceed the scope of Lundbeck's process patents. The GC noted that the concept of restriction of competition by object does not include or allow for a "scope of the patent" test. The GC found that even if the restrictions imposed through the settlements potentially fell within the scope of Lundbeck's patents, these restrictions were not objectively necessary to protect the patents, as they could have been achieved through other paths, such as litigation. Finally, the GC rejected arguments relating to the alleged efficiencies brought by the settlements and errors in the calculation of the fines.

In view of the controversial nature of a significant part of the information included in the GC's decision, we believe that appeals will be lodged in the near future.

 

This article was published in the Competition Law Newsletter of October 2016. Other articles in this newsletter:

  1. Court of Justice ends Pilkington's fight against fine in the car glass cartel
  2. General Court upholds Commission's decision that reverse payment settlements constitute a 'by object' infringement
  3. European Commission puts price signalling on the agenda
  4. European Commission orders Ireland to recover illegal tax benefits worth up to €13 billion from Apple
  5. Commission publishes Preliminary Report on the e-commerce sector inquiry
  6. Brussels Court of Appeal confirms interim measures against exclusive TV broadcasting rights

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