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Competition inquiry accuses drug firms of patent clustering

Drug companies made multiple patent applications for the same medicine and started litigation to prevent or block rivals from entering the market for generic drugs, according to evidence presented as part of a European Commission inquiry.02 Dec 2008

The Commission published a preliminary report on its competition inquiry into the pharmaceutical sector on Thursday. It finds that competition in the industry does not work as well as it should.

Competition Commissioner Neelie Kroes said that the tactics that block or delay the market entry of generic companies are presenting significant cost to healthcare systems, consumers and taxpayers.

"We now have a solid view of what is happening and why: the next step is to discuss our findings with the stakeholders and to draw the necessary conclusions," said Kroes. "It is still early days, but the Commission will not hesitate to open antitrust cases against companies where there are indications that the antitrust rules may have been breached."

But the Commission also acknowledged that the practices identified may not be actionable breaches of European competition law.

The preliminary report focuses on the relationship between 'originator companies' – those that develop and sell new medicines; and 'generic companies' – those that lawfully produce and sell equivalent drugs once the originators' patents expire.

The report takes a sample of medicines that faced loss of exclusivity in the period 2000 to 2007 in 17 Member States and estimates that additional savings of around €3 billion would have been possible on that sample over this period if generic medicines had entered the market without delay.

The report shows that originator companies used a variety of methods with the objective of delaying or blocking market entry of generic companies and other originator companies, and therefore maintain high income streams for the originator companies.

Documents found by the Commission during the sector inquiry included anti-competitive declarations. "We identify options to obtain or acquire patents for the sole purpose of limiting the freedom of operation of our competitors," said one. "Rights covering competitive alternatives are maintained in major markets until risk of competing products appearing is minimal."

Another said: "I suppose we have all had conversations around 'how can we block generic manufacturers.'"

Delaying strategies included filing so-called “patent clusters”. In one case, 1,300 EU-wide patents were filed for a single medicine.

There were also nearly 700 cases of reported patent litigation with generic companies, which on average lasted nearly three years. The generic companies ultimately won more than 60% of these cases.

Originator companies also concluded more than 200 settlement agreements with generic companies in the EU, in which they agreed on the terms for ending an ongoing litigation or dispute. More than 10% of the settlements were so-called “reverse payment settlements” which limited the entry to the market of the generic medicines and provided for payments from the originator to the generic companies. These payments amounted in total to more than €200 million.

The Commission found that originator companies intervened in national procedures for the approval of generic medicines in a significant number of cases, which on average led to four months of delay for the generic medicine.

The preliminary report also found evidence that originator companies practice defensive patenting strategies to fence off competition from other originator companies. This may obstruct innovation, lead to higher costs for competing pharmaceutical companies and delay consumers' access to innovative medicines, said the Commission.

Guy Lougher, head of EU and competition law at Pinsent Masons, the law firm behind OUT-LAW.COM, said the Commission may not be able to prove breaches of competition law.

"Unless the Commission has evidence to hand that the practice of so-called defensive patenting involves making applications for secondary patents that are known to be invalid or misleading at the point of application, it may well be difficult for the Commission to bring a successful infringement case based on 'patent clustering'," he said. "Furthermore, the Commission will have to be careful about how it interprets the conditions of settlement agreements and it is known they are watching with interest similar interpretation issues in the US Courts".

"If the Commission, however, has evidence that payments by originators to generic manufacturers were motivated by the sole purpose of preventing new products coming to market in a timely way, then such a practice could be vulnerable to challenge under EU competition law," said Lougher.

Until the issue is resolved, Lougher said that other businesses will face uncertainty.

"The Commission's forthright criticism of the commercial practices adopted by many originators will create a cloud of uncertainty over the extent to which companies, whether dominant or not, can compete robustly by legitimately invoking available administrative and judicial procedures," he said. "It is to be hoped this uncertainty can be resolved speedily."

The preliminary findings of the sector inquiry have been published for public consultation until 31 January 2009. A final report is expected in spring 2009.