An EU competition law perspective on reverse payments

• Author: Sean-Paul Brankin
• Position: Counsel, Crowell & Moring
• Pages: 9-11

In the Final Report on its Pharmaceutical Sector

Inquiry, the European Commission identified

patent settlement agreements as a focus for

European Union (EU) competition law enforce-

ment in the industry. The Commission’s concerns

relate to so-called “reverse payment” settlements.

These are settlements involving a payment (or

some other value transfer) from the patent hold-

er to the generic company challenging the patent.

The Commission’s interest in reverse payment

settlements has clearly been inspired by the ac-

tivities of the U.S. Federal Trade Commission

(FTC). For a number of years, the FTC has pursued

reverse payment settlements as potential in-

fringements of U.S. antitrust rules. Specifically, the

FTC argues that reverse payment settlements

should be presumed to be unlawful if:

the reverse payment is substantial;

the generic challenger is unable to immedi-

ately enter the market with a competing

product; and

there is no proof of any motive for the pay-

ment other than the delay to generic entry.

However, the FTC’s position is controversial.

Senior U.S. courts have, to date, consistently re-

jected its approach, for example in the famous

Schering-Plough Corp. v. FTC dispute, or in the

Tamoxifen case.1Instead, as in the Tamoxifen case,

courts have held that reverse payment settle-

ments are generally lawful, provided generic en-

try is delayed only during the lifetime of the rele-

vant patent and in relation to products that

would infringe it.

This raises a number of questions for European

lawyers. What is the FTC’s reasoning and is it

right? How does that reasoning apply in an EU

context? And, ultimately, what approach is the

European Commission likely to adopt?

Is the FTC right?

Simply put, the FTC’s fundamental concern re-

garding reverse payments is that the patent hold-

er is using part of the profits from its patent mo-

nopoly to buy off competitive entry. An advisor to

FTC Chairman Jon Leibowitz recently said, “As a

matter of economics, it will generally be most

profitable if the brand and the generic firm avoid

the possibility of competition and share the re-

sulting monopoly profits.” 2

Such concerns may not be misplaced. In fact, the

issue may not be whether some reverse payment

settlements are anti-competitive, but whether the

FTC can effectively distinguish those settlements

that are anti-competitive from those that are not.

It is not clear that the presumption of illegality

proposed by the FTC achieves this, or that there

are workable alternatives available. Certainly the

U.S. courts have not been convinced.

There appear to be three fundamental concerns

with the FTC’s approach in the U.S. context. The

first is that settlements are generally efficient and

socially beneficial. They avoid unnecessary litiga-

tion costs and, more important, create certainty

that allows parties to plan and invest for the fu-

ture. U.S. antitrust law recognizes these benefits

and, as a result, settlements are not generally con-

sidered to infringe antitrust rules even where they

may have an adverse effect on competition (see,

for example, the aforementioned Tamoxifen case).

The second relates to the extent to which there

would be greater competition in the absence of a

settlement. In other words, the counterfactual

analysis. Initially, for example in the Schering-

Plough dispute, the FTC argued that, absent the

reverse payment, the parties would have reached

a settlement involving an earlier generic entry

date: “[If] the patent holder makes a substantial

payment to the challenger as part of the deal,

AN EU COMPETITION

LAW PERSPECTIVE ON

REVERSE PAYMENTS

>>>

1 S chering-Plough Corp. v.

FTC, 402 F.3d 1056

(11th Cir. 2005) cert.

denied, 126 S. Ct. 2929

(2006); In re Tamoxifen

Citrate Antitrust Litig.,

466 F.3d 187 (2nd Cir.

2006); In re Ciprofloxacin

Hydrochloride Antitrust

Litig., 544 F.3d 1323

(Fed. Cir. 2008), cert.

denied, 129 S. Ct. 2828

(2009).

2 Michael Kades,

Whistling Past the

Graveyard: The Problem

with Per Se Legality

Treatment of Pay-for-

Delay Settlements,

Competition Policy

International, Volume 5,

No. 2, Autumn 2009.

9

The issues reviewed in this article by Sean-Paul Brankin, Counsel, Crowell & Moring, are considered in

greater depth in an article by the author in the

Journal of Intellectual Property Law and Practice

, Volume 5,

Issue 1 (Jan 2010), entitled “Patent Settlements and Competition Law: Where Is the European

Commission Going?”