Insights from the latest "pay-for-delay" CJEU judgments: fines on Servier and generics drug manufacturers largely upheld (but not over yet)

On 27 June 2024 the EU Court of Justice (CJEU) handed down its much-anticipated judgments in the Servier saga, largely upholding the European Commission (EC)'s 2014 infringement decision imposing fines on French pharmaceutical company Servier and several generic companies for entering into patent settlement and licence agreements held to amount to "by object" restrictions of competition and, in the case of Servier, an abuse of dominant position.

In reaching this conclusion, the CJEU overturned the earlier judgments of the General Court (GC) on two key points:

• The CJEU concluded that the settlement and licence agreements between Servier and Krka (one of the generic companies), amounted to a restriction of competition by object, finding that the GC had made a number of errors of law. It referred an assignment and licence agreement between these parties back to the GC for reconsideration; and
• The CJEU concluded that the GC had relied on "incorrect grounds" when finding that the EC defined the relevant market too narrowly. The definition of the relevant market is key to determining whether Servier abused a dominant position via a combination of settling patent disputes with generic challengers and "killer acquisitions" of rival technologies. The CJEU therefore referred parts of the case back to the GC to reconsider the abuse of dominance infringement and the applicable fine.

The CJEU also dismissed the appeals of Lupin, Niche Generics, Unichem Laboratories, Matrix and Teva. It thereby confirmed the judgments of the GC that held that the agreements with Servier constituted market-exclusion agreements and restricted competition. Those companies therefore remain liable for the fines imposed by the EC.

Key takeaways

The key takeaways from the CJEU judgments can be summarised as follows:

• The CJEU confirmed that while patent settlement agreements and licence agreements are legitimate in and of themselves, depending on the context in which they are signed and the combined effect that they have, they may nonetheless amount to a restriction of competition "by object" (which means that the EC does not need to prove anti-competitive effects). This is especially the case if the agreement provides an inducement to delay entry to the market.
• The analysis as to whether an anti-competitive objective can be imputed to such legitimate agreements is fact-sensitive and needs to be conducted on a case-by-case basis; it cannot be conducted simply by relying on abstract principles. To this end, the EC and the CJEU will carefully examine the evidence to see whether it supports the hypothesis that the agreements in question amount to a restriction of competition by object.
• The CJEU therefore reiterates that companies engaged in patent settlement negotiations with their competitors (whether actual or potential) should tread very carefully and avoid value transfers which induce the counterparty to stay out of the market for a period of time without any pro-competitive plausible explanation (see also our previous blogpost on the Teva-Cephalon case).
• Any claimed pro-competitive effects must arise in the geographies covered by such agreements, and in any event have no bearing on whether the agreement constitutes a "by-object" restriction of competition.
• The CJEU recalls that where the market for a patented medicine is to be opened to manufacturers of generic versions, an analysis must be undertaken to assess whether the generic manufacturers could realistically and concretely compete with the originator if they were to enter the market. Even if the generic manufacturers are not yet present in the market, the existence of an agreement between them and the originator can be seen as a strong indication that they are in fact (potential) competitors.
• The test as to whether a patent settlement agreement or licence agreement (or combination thereof) amounts to market sharing is not whether a competitor is prevented from entering the market, but whether the competitor could have credibly and realistically entered the market in the absence of the agreement. Actual events which happened after the conclusion of such agreements may be taken into account in assessing whether the competitor would have likely entered the market.
• The CJEU upheld a “narrow” approach to product market definition – in this case, molecule level. This is particularly relevant to pharmaceutical companies and their legal advisors, as a narrow market definition increases the risk of a company being found to be dominant.
• The more recent focus of the EC's investigations in the pharmaceutical sector has been less on patent settlement agreements and more on other types of conduct, in particular disparagement and misuse of patent procedures (such as in the Teva Copaxone case, see our blogpost here), but the analysis in this judgment remains welcome guidance, as companies are still settling patent disputes and this is still a "live" issue.
• More broadly, these latest judgments follow a pattern that has seen the CJEU tend to side with the EC on appeal against competition law infringement decisions, while the GC has seemed more willing to overturn the EC's decisions.

Please see our detailed briefing for more in-depth analysis of the CJEU judgments, as well as further background on the case and a recap of the earlier EC decision, General Court judgments and the subsequent opinion of Advocate General Kokott.