INNsight articles by Duncan Curley, August 09

The European Commission’s high profile investigation into the causes of delay to the entry on to the market of generic drugs in the European Union and the behaviour of companies operating in the pharmaceutical sector has culminated in the publication of a Final Report on 8th July 2009.  The European Commission’s Press Release that accompanied the Final Report was entitled “Shortcomings in pharmaceutical sector require further action”.  Whilst the litigation strategies and tactics of the originator companies were not singled out for specific criticism in the main Press Release, at the same time, the Commission opened formal investigative proceedings against Servier and a number of generic companies, commenting (in a separate Press Release) that “disputes and litigation against potential generic competitors” were instruments that were used by the originator companies when confronting generic market entry. 

The Final Report notes that the top ten biggest selling drug products in the sample analysed by the Commission accounted for 59% of all of the contacts and disputes between originator and generic companies during the period examined (2000-2007).  This is not really surprising, since the bigger the product, the more likely it is that a generic company will be willing to take on the risk of a dispute with an originator, in order to gain market entry.  The Commission also noted that for each big product, there was often a proliferation of disputes between the originator companies and generics in various Member States.  This is a well recognised flaw in the present European system for the enforcement of patents – there is no pan-European legal solution to a cross-border patent issue and the originator companies are often happy to fight separate national battles in different Member States.  

The Commission observed an overall increase in the number of litigation cases, with an approximate fourfold rise in the number of disputes between 2000 and 2007.  Germany had by far the highest number of cases, followed by the UK and Spain.  Although the originator companies were busiest at launching legal claims against the generics in the EU overall, in the UK, the majority of cases were actually started by the generic companies, even though litigation in the UK jurisdiction is by far the most expensive, with an average of approximately €993,000 per case.  The Final Report also refers to the difficulties caused by conflicting decisions of the courts in the different Member States (sometimes on the same patent), but this is a feature of the patent system in the EU which all companies have to endure, for the time being. 

According to the Commission’s data, a majority of the patents that were litigated were ‘primary’ product patents (although there was also a significant percentage of cases that involved process patents). This finding contrasts with the commonly held view (confirmed by respondents to the Commission’s questionnaires that were sent out during the course of the inquiry), which is that secondary patents are most often the subject of litigation between originator and generic companies.  Only 8% of disputes ended in a settlement.  Overall, the generic companies won 62% of all patent litigations in which a final judgment was delivered.  These figures may reflect the fact that the generic companies are getting better at litigating, or simply that for the originators, it may be worthwhile pursuing litigation with only slim a chance of success.   

In its Interim Report published in November 2008, the message from the European Commission seemed to be that the litigation statistics demonstrated that a significant proportion of the patent cases that were brought (or defended) by the originator companies were ‘objectively baseless’, meaning that the originators were not acting in good faith in attempting to enforce (or defend) their exclusive rights, but rather, they were trying to take advantage of litigation enforcement procedures in order to delay generic entry. 

The Commission’s Final Report is more neutral in tone.  The Commission is careful to say that it is not drawing any conclusions about whether the litigation strategies used by the originators are compatible with European competition (antitrust) law.  The truth is that there is very little caselaw on this issue.  Perhaps by instituting formal proceedings (against Servier and others) and developing the caselaw, the Commission hopes to bring some clarity to the application of the competition rules to the behaviour of companies, in a litigation context.  This would be a tall order, because the Community Courts will no doubt be keen to preserve the unfettered rights of companies to have access to the Courts and to litigate (something which the Commission acknowledges in its Final Report).

Another aspect of litigation that has attracted the attention of the Commission’s investigation is the issue of interim injunctions (temporary restraining orders) against generic companies. The Commission notes in its Final Report that there were 255 requests for interim injunctions by originator companies in the period 2000-2007, of which 44% were granted.  In one of the most interesting pieces of analysis in the Final Report, the Commission observes that the subset of cases involving interim injunctions had a relatively high ratio of subsequent settlements (73%, or 44 out of 60 cases).  Furthermore, there was a tendency to end litigations on conditions that were favourable to generic companies.  Adding up the generic companies’ successes on interim injunction hearings and the settled cases that were favourable to the generics, the Commission concludes that in “in almost half of the closed cases, the grant of interim injunctions might not have been justified, whilst in another 25% of the cases that were settled the situation is unclear”.  

Although the Commission has completed the first ever comprehensive investigation into the patent litigation strategies and tactics of the originator pharmaceutical companies (in the EU), the Commission does not really seem to have discovered anything earth-shatteringly new.  Many of the litigation strategies referred to in the Report have been practised for years.   Whilst litigation strategies and tactics may be difficult for the Commission to nail with the blunt instrument of competition law, further developments are likely to follow.  The AstraZeneca Article 82 ‘abuse of dominance’ case is still moving (slowly) towards a judgment from the Court of First Instance.  This may contain some guidance on when ‘abuse of public procedures’ can constitute a breach of European competition law.  In the meantime, all companies should take note of the warning signs from the Sector Inquiry.  The Commission’s investigations into the pharmaceutical sector are likely to continue and the Final Report heralds a period of more interventionist activity by the regulator.