On 8 September 2016, the General Court of the European Union upheld the European Commission’s decision in which the antitrust regulator imposed fines of approximately EUR 150 million on Lundbeck and a number of generic companies for entering into reverse settlement agreements which delayed the entry of cheaper generic versions of a blockbuster antidepressant.
The Commission had first hinted that patent settlement agreements causing delayed generic entry might be problematic in its 2009 report on the Pharmaceutical Sector Inquiry. (more…)
On 8 September 2016, the General Court of the EU (GCEU) handed down five judgments upholding a decision by the Commission of 19 June 2013 imposing fines on Lundbeck, an originator company, and Merck (the parent company of Generics), Arrow, Alpharma and Ranbaxy, four generic companies. The Commission found that the companies had entered into anticompetitive “pay-for-delay” settlement agreements whereby Lundbeck paid a lump sum to the generic companies in exchange for their agreement to delay their entry on the market for Citalopram, an anti-depressant drug.
This ruling is notable in that it is the first time that the GCEU has been asked to rule on patent settlements between originators and generic companies. The GCEU upheld the Commission’s reasoning, noting that the Commission’s reasoning in this case reflects the provisions of its Guidelines on the application of Article 101 of the Treaty on the Functioning of the EU (TFEU) to technology transfer agreements.
On 7 July 2016, the Court of Justice of the European Union (CJEU) handed down a judgment on whether Article 101 of the Treaty on the Functioning of the European Union (TFEU) must be interpreted as precluding effect being given to a licence agreement requiring the licensee to pay royalties for the use of a patent which has been revoked (Sanofi-Aventis v. Genentech, Case C-567/14).
Background
In 1992, Hoechst granted a licence to Genentech for a human cytomegalovirus enhancer. The licensed technology was subject to one European patent and two patents issued in the United States. In 1999, the European Patent Office revoked the European patent.
Under the licence agreement with Hoechst, Genentech was obliged to pay a one-off fee, a fixed annual research fee and a running royalty based on sales of finished products. Genentech never paid the running royalty, however, and in 2008 it notified Hoechst and Sanofi-Aventis (Hoechst’s parent company) that it was terminating the licence. Hoechst and Sanofi-Aventis believed that Genentech had used the enhancer to manufacture its blockbuster drug Rituxan and was therefore liable to pay the running royalty on its sales of that drug.
Sanofi-Aventis initiated two separate actions. In the United States, it brought an action alleging that Genentech infringed the two US patents. The US courts ultimately decided that there was no infringement of the patents in question. Sanofi-Aventis also submitted an application for arbitration against Genentech before the International Court of Arbitration to recover the royalties.
In the arbitral award, the sole arbitrator held that Genentech had manufactured Rituxan using the enhancer and that the company was therefore required under the licence to pay Sanofi-Aventis the running royalties. According to the arbitrator, the commercial purpose of the licence was to avert all litigation on validity. Thus, payments already made under the licence could not be reclaimed, and payments due had to be made regardless of whether the patent had been revoked or was not infringed.
Genentech brought an action before the Paris Court of Appeal seeking annulment of the arbitral award. The company relied on public policy arguments, claiming that a requirement to pay for the use of technology that Genentech’s competitors could use without charge put Genentech at a competitive disadvantage and contravened Article 101 TFEU. The Paris Court of Appeal stayed the proceedings and made a preliminary reference to the CJEU.
CJEU Judgment
The CJEU explained that royalties reflect the parties’ assessment of the value that is attributable to the possibility of exploiting licensed technology, and that this assessment may still apply after expiry of the period of validity of the patent. The court referred to established case law (Case 320/87 Ottung) and held that, where the licensee is free to terminate the licence agreement by giving reasonable notice, an obligation to pay a royalty throughout the validity of the agreement (i.e., not the validity of the IP rights) does not fall within the purview of the Article 101(1) TFEU prohibition.
The CJEU argued that Article 101(1) TFEU does [...]
Subscribe
