Advocate General Kokott's Opinion in Lundbeck v Commission

On 4 June 2020, Advocate General Kokott ("AG") delivered her Opinion in Case C-591/16 P Lundbeck v Commission.  The AG proposed that the European Court of Justice ("ECJ") should dismiss Lundbeck's appeal against the General Court ("GC") judgment and uphold the European Commission ("EC")'s fine on Lundbeck for anticompetitive agreements aimed at delaying the marketing of generic versions of citalopram.

AG Kokott's Opinion did not come as a surprise in view of the recent judgment of the ECJ in the Paroxetine case earlier this year (Case C-307/18; see our e-bulletin) and is in line with her Opinion in that case (which was broadly followed by the ECJ).

The ECJ judgment in this case is expected in the coming months and although the AG’s Opinion is not binding on the ECJ, it is very often followed by it.

Background

In June 2013, the EC fined Lundbeck c.€94 million and several producers of generic medicines a total of c.€52 million for delaying the market entry of generic versions of Lundbeck's branded citalopram. According to the EC, after Lundbeck's basic patent for the citalopram molecule had expired, it only held a number of related secondary patents (which provided a more limited protection) and generic producers of citalopram were preparing to enter the market.  Instead of competing, Lundbeck and the generics entered into a series of patent settlement agreements under which the generics agreed to delay their market entry in exchange for a "value transfer" by Lundbeck.  The EC held the agreements were market sharing agreements and thus constituted 'by object' restrictions of competition, i.e. they were by their very nature injurious to the proper functioning of normal competition.

On appeal, the GC fully upheld the EC's decision in September 2016 (see our e-bulletin) and Lundbeck subsequently appealed the GC's judgment before the ECJ.

Key points of the AG Opinion

1. Potential competition

The AG considered that the GC was right to find that at the time the agreements were concluded, there was a potential competitive relationship between Lundbeck and the generics.

• The process patents that were still held by Lundbeck at the time of the agreements did not constitute "insurmountable barriers" to generic entry.  The AG relied on the ECJ judgment in the Paroxetine case and noted that the existence of a process patent does not mean that a generic which has in fact a "firm intention and an inherent ability to enter the market, and who, by the steps taken, shows a readiness to challenge the validity of that patent and to take the risk […] of being subject to infringement proceedings" cannot be characterised as a ‘potential competitor’ of the originator (para.48).
• According to the AG, uncertainty surrounding the validity of patents is a "fundamental characteristic" of the pharmaceutical sector and therefore, disputes and legal proceedings constitute evidence of the existence of a competitive relationship between the parties concerned (para.51).
• In addition, it is not for the EC to make predictions concerning the outcome of patent disputes between originators and generics (e.g. by assessing the strength of the patents at issue) in order to analyse the competitive relationships between them for the purpose of applying competition law.  Rather, the EC's assessment must focus on whether – despite the existence of patents – the generic has "real and concrete possibilities" of entering the market at the relevant time (paras 58-59).  Therefore, the EC was not required to show that the generics were able to enter the market without infringing any of Lundbeck's patents (para.64).
• Moreover, the AG agreed with the GC that the fact that a generic does not yet have a marketing authorisation ("MA") for its product does not preclude the existence of potential competition.  A refusal to acknowledge the existence of a potential competitive relationship between the originator and the generic (which also has a firm intention and an inherent ability to enter the market) simply because the generic does not yet have such a MA would amount to precluding any potential competition and thereby prevent competition law from being applied during the preparatory stage of the generic entry.  According to the AG, such an approach would seriously undermine the effectiveness of Article 101 TFEU (which prohibits anti-competitive agreements) (para.106).

2. Restrictions of competition by object

The AG considered that the GC was right to find that the agreements at issue were restrictions of competition 'by object'.

• The AG agreed with the GC that the agreements at issue went beyond the specific subject matter of Lundbeck’s IP rights, which indeed included the right to oppose infringements, but not the right to conclude agreements by which competitors were paid not to enter the market (para.125).
• In that regard, the AG noted that a patent dispute settlement agreement must be classified as a restriction of competition 'by object' if the value transfer from the originator to the generic "has no explanation other than the common commercial interest of the parties not to engage in competition on the merits" (para.128)  If the "sole consideration" for that transfer is the generic's undertaking not to enter the market and challenge the validity of the patent, "this indicates, in the absence of any other plausible explanation, that it is not its perception of the patent’s strength but the prospect of the value transfer that prompted it to refrain from entering the market and challenging the validity of the patent" (para.129).
• According to the AG, Lundbeck adduced no evidence capable of demonstrating that its value transfers were made in exchange for any consideration from the generics aside from their undertaking not to enter the market (para.133).

3. Fine

The AG considered that the GC was right to uphold the fines imposed by the EC both as a matter of principle and as regards their method of calculation.

• The AG noted that it was not unforeseeable from Lundbeck’s perspective that the agreements at issue might be caught by Article 101 TFEU as "Lundbeck could not have been unaware that the only consideration it received from the generics for its payments was their undertaking not to enter the market".  A literal reading of Article 101 TFEU makes it quite clear that agreements between competitors aimed at excluding some of them from the market are unlawful (para.198).
• In addition, the AG reiterated that in order for an agreement to be classified as a restriction of competition 'by object', it is not necessary for the same type of agreement to have been found unlawful in the past or for that agreement to be prima facie or undoubtedly sufficiently harmful to competition (para.201).

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