The 2019 AIPPI World Congress in London began its Pharma Day, on September 16, with the heated issue of ‘pay for delay.’
Moderator Jérémie Jourdan, partner at White & Case in Brussels and Paris, raised objections to how IP regulators characterise pay for delay and offered an alternative – and slightly longer – title of ‘patent settlement agreement where parties settle based on different elements of litigation’.
“But I’m afraid it just doesn’t have the same nice ring to it as ‘pay for delay,’ said Jourdan.
Pay for delay is a controversial technique whereby pharma innovators pay generic companies to delay bringing their drug to market. This method of avoiding litigation is a red flag for regulators interested in enforcing anti-competition laws.
Jourdan argued that rather than seeing pay for delay as a means to protect an undeserved monopoly, it should be reframed and viewed as the right of companies to litigate as they see fit.
“One part of litigation is the right to settle; if there is the opportunity, the company should be able to do so,” said Jourdan. “IP rights do not provide immunity from competition law. Rather, the competition law protects the consumer, and it is in the public interest to remove bad patents with pay for delay.”
Erin Dunston, shareholder at Buchanan Ingersoll & Rooney in Pittsburgh, described the origins of pay for delay as the ominous paragraph IV of the US Drug Price Competition Act. Under paragraph IV, generic companies assert to the FDA that their proposed generic product is free to enter the market either because the originator’s listed patent(s) are invalid or they are not infringed by the proposed generic product. Innovators then have 30 days to bring a case against the generic company to obtain a ‘30-month stay’ in which the generic product cannot be approved by the FDA, and thus cannot be brought to market. Instead of litigating, some manufacturers simply decide to pay their competitor to go away.
“The stakes are very high, and it is tempting for the brand to pay the generic to stay off the market,” said Dunston. “The phrase ‘reverse settlement’ has come about when the brand pays the generic.”
The US Supreme Court ruled in 2013 in Actavis v FTC that patent protection does not override antitrust law. In that case the size of the settlement, $30 million per year to delay the rollout of a generic medication, was deemed too steep and unbeneficial for society.
With the ruling, the courts said the size of the damages relative to the payer’s expected costs was an important criterion for establishing anti-competitive behaviour. You can pay your competitor to stay off the market, but it better not be an outrageous sum of money, it seems.
In December last year the EU General Court issued judgments reducing the fines against French pharma company, Servier, in a case in which the pharma innovator paid off several generic companies from entering the market. The General Court upheld the European Commission’s ruling that Servier violated the anti-competitive agreement in Article 101 of the Treaty on the Functioning of the European Union, but that it did not violate Article 102’s prohibition on abuse of a dominant market position.
Further questions linger on what constitutes market abuse in pay for delay schemes. Last year the UK Competition Appeal Tribunal, a judicial body, referred questions to the Court of Justice of the EU (CJEU) regarding anti-competitive behaviour in the case of GSK against the UK Competition and Market Authority. The tribunal has asked for further clarity on whether pay for delay constitutes “restriction by object” and therefore falls foul of anti-competition laws.
Speaking at the AIPPI Congress, Takanori Abe, partner and founder of Abe & Partners in Osaka, offered an anecdote to the audience that Japan has no history of pay for delay because of the country’s corporate culture.
“They are afraid of offending the Ministry of Health so we have zero cases in Japan,” he said.
The panel concluded the session by asking what sort of payment for damages is acceptable.
“Does the size of damages matter?” asked Jourdan. “If you don’t get a benefit, why would you settle? You only settle if you get something.”
Hot and hostile SPCs
In an afternoon session on Pharma Day, European supplementary protection certificates (SPCs) and US patent term extensions (PTEs) were hot topics
James Horgan, assistant managing counsel of Merck Sharp & Dohme in the UK, told the audience he believes SPCs are an important part of incentivising second medical use research and suggested a digital SPC process could be part of the pending Unified Patent Court framework.
“A European virtual SPC system would give a degree of clarity and this would be a tremendous way to get more harmonisation. Global harmonisation is much more complicated to achieve,” said Horgan.
Scott Burwell, IP attorney and partner at Finnegan, Henderson, Farabow, Garrett & Dunner in Washington, DC, said it’s an open question how US courts will decide whether biosimilars have the same active ingredient as the original product.
“For a patent that claims a product, the scope of protection is any use approved for the product before the expiration of the term of the patent,” said Burwell. “Biosimilars will be different in some respect from the innovative product.”
He added that IP lawyers are forced to graph the existing PTE legislation from 1984 to a law that came into effect 25 years later.
Turning to Horgan, Burwell said: “I’m a little envious because there is so much activity with SPCs in Europe. One case down this morning, but nothing has happened in the US since last year!”
He was, of course, referring to the CJEU’s ruling the same morning, September 16, in the Eli Lilly v Genentech case in which the court refused to rule on the question of whether an SPC can be granted to a third party owner. The European court threw out the case because it does not answer ‘hypothetical’ questions.
The session ended with a general nod among panellists that SPCs would be a welcome addition in China to help incentivise medical research.
