Sophie Lawrance, Noel Watson-Doig & Sivaloganathan Kumaran
On 8 March 2018, the Competition Appeal Tribunal (CAT) gave an initial judgment in appeals brought by GlaxoSmithKline (GSK) and a number of generic manufacturers against the Competition and Markets Authority’s (CMA) 2016 Paroxetine decision. The CMA’s investigation into paroxetine (a selective serotonin reuptake inhibitor “SSRI” anti-depressant) was the first UK case to grapple with the contentious area of patent settlement agreements which limit generic companies’ ability to enter the market.
The CAT has not reached a final judgment, instead referring five issues to the EU Court of Justice (CJEU) for a preliminary ruling:
1. Potential competition: whether an interim injunction against generic manufacturers was an insurmountable barrier to entry.
Whether an anti-competitive agreement between GSK and the generic companies exists depends on whether the companies were competitors. The CAT provisionally decided that an interim injunction is not an “insurmountable” barrier to entry (for example, the injunction could be discharged) and that the parties were therefore at least potential competitors. This question was also central to the Lundbeck appeal to the General Court, and is part of Lundbeck’s further appeal to the CJEU. The CJEU has recently considered somewhat similar issues in its Roche judgment, concluding that even potentially unlawful products may form part of the relevant market if they are actually used in practice.
2. Restriction of competition by object: when the strength of a patent (and so the outcome of litigation on that patent) is uncertain, does a value transfer from the patentee to a would-be generic entrant, coupled with the generic’s agreement not to enter the market with its own product, constitute a restriction by object?
The CAT acknowledged that uncertainty over patent strength means that infringement by the generic challengers is a possible litigation outcome. In the CAT’s view, this outcome should not be considered any less competitive than a finding that the patent was invalid/not infringed. While this recognises the value of patent rights, it arguably does not address the competitive value of settlement agreements, where entered into in appropriate circumstances.
Subsidiary questions address the competitive benefits resulting from the distribution arrangements entered into in connection with some of the settlement agreements, but observes that those benefits are dwarfed by “the full competitive benefits resulting from independent generic entry”.
3. Restrictions by effect: in order to show a restriction by effect is it necessary to establish that the counterfactual would have been more competitive?
The CAT again queried the relevance of the outcome of the underlying patent litigation. If the likely outcome of that litigation was success for GSK, the CAT suggested that the approach proposed by the CMA would be to reduce the counterfactual assessment to “the probability of a possibility” of a more competitive outcome.
It is curious that the CAT does not seem to acknowledge this problem in the context of object infringements. Yet this approach seems to risk creating a situation where an agreement is deemed to restrict competition by object, yet does not possess the requisite degree of probability for effects on competition to be established. This is inconsistent with recent case law on restrictions by object, and is an issue that will need to be fully considered by the CJEU. (Damages litigation in relation to patent settlement agreements is likely to bring this issue to the fore even if the CJEU elects to side-step this problem.)
4. The correct approach to defining the relevant product market: is the relevant product market paroxetine or all selective serotonin re-uptake inhibitors?
While the Tribunal supported the CMA’s finding of dominance on the basis of a market limited to paroxetine, it criticised its reasoning. It considered the CMA to have taken an overly narrow approach to market definition, which focussed excessively on price, with only limited attention to therapeutic substitutability and other non-pecuniary factors.
However, the CAT supported the view that once there were potential generic entrants, the market was limited to paroxetine and its generics. It recognised that this preliminary view was a departure from existing case law.
This approach suggests that market definition (rather than just the parties’ relative position on a market) is flexible and may change over time. This does not appear to be in line with the established approach to market definition in competition cases, and substitutes an analysis based on perceived competitive constraints for an assessment based principally on objective demand factors.
As the CAT itself notes, this approach would suggest successful drugs will almost always be found to constitute a distinct market at least from the time when generic entry becomes likely, regardless of the options that doctors have for substitution on therapeutic grounds. Ultimately, this aspect of the appeal may be the furthest reaching for the pharmaceutical industry as a whole.
5. Abuse: are potential benefits to the NHS relevant to the assessment of whether GSK had abused a dominant position by entering into the agreements?
The final question on abuse relates back to points referred in relation to anti-competitive agreements). The central issue is whether the limited pro-competitive benefits derived from the presence of the generic companies as distributors of an authorised generic product are sufficient to undermine the main finding as anti-competitive effects.
The full questions as referred to the CJEU are available here.