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Would you risk settling a pharma patent case today?

James Nurton

Following the Actavis and Lundbeck decisions, branded pharma companies and generics will be reluctant to settle disputes. That is bad news for innovation and for patients

Actavis“Antitrust investigation”: two words to strike fear into the heart of any IP owner. In the EU, fines can total 10% of turnover; in the US, you face treble damages. Then there are the possible criminal penalties (including company directors being sent to jail), not to mention the burden of protracted litigation. Companies such as Microsoft and AstraZeneca are among those who bear the financial scars from encounters with antitrust authorities.

The pharmaceutical industry is particularly vulnerable to accusations of abuse, partly thanks to a business model that hinges on monopoly protection arising from patents and other IP rights, and partly because many governments have a direct interest in keeping prices down. Over the past few years, attention has focused on so-called pay-for-delay (or reverse payment) deals where a patent owner agrees to pay generic rivals to delay entering the market.

LundbeckThese agreements typically arise when a generic company is threatening to challenge the validity of the patent: the patent owner benefits by retaining its monopoly, while the generics earn something for nothing. You can see why, to an independent observer, pay-for-delay deals smell a bit: why is someone being paid not to manufacture? What if the patent might be invalid? Does maintaining the patent monopoly mean that prices are kept artificially high?

Addressing some of these questions, the US Supreme Court ruled this month in FTC v Actavis, a case where manufacturer Solvay had paid Actavis and others not to manufacture generic rivals to its AndroGel product. Coming down 5-3, the Court said essentially that reverse-payment deals can be anti-competitive, and it is down to lower courts to examine the facts in each particular case. This seems like a recipe for longer, more intensive litigation.

Coincidentally, last week the European Commission fined branded company Lundbeck and various generic rivals a total of €146 million over pay-for-delay agreements with generics (including, as it happens, Actavis) over citalopram (branded as Celexa). The case is slightly unusual in that it involves process patents that extended protection after the basic patent had expired. Lundbeck is challenging the decision before the courts in Luxembourg, so we’ll see what facts come out.

Justice-RobertsCompetition authorities argue that pay-for delay deals “harm patients and national health systems” by keeping prices artificially high. But in a strong dissent in the Actavis case, Chief Justice Roberts noted that the effect of the ruling might be to discourage generics from challenging pharma patents. That could mean that patents that should be invalidated remain in force, keeping prices artificially high. And, as Jason Rutt of Rouse in London (formerly head of patents at Pfizer UK) told me this week: “Most pharma companies will not take the risk of settling these disputes. No-one wants to be found guilty of anticompetitive behaviour.”

So cases where the patent is likely valid (where, say, the patentee thinks they have a 60% to 70% chance of success) will probably be fought rather than settled – with all the extra costs that involves. Lawyers will win, but innovators, generics and consumers will lose. The industry might also look beyond patents: in Europe, regulatory data protection must seem increasingly attractive and companies might also consider trade secrets (though they are probably of limited value in this industry where licensing is so common). Neither is ideal for industry or the public.

The interventions of competition authorities and courts so far have alarmed the industry, increased risk and potentially killed off settlements. As Rutt says, what we need now are some positive rules and examples of model behaviour. That’s the best way to ensure a healthy pharmaceutical industry.


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