Beyond “pay-for-delay” – the EU-Commission’s investigation into patent filing practices and communication measures

The Commission suspects Teva of having deployed a strategy with the intention of delaying the market entry of generic drugs that competed with Teva’s originator drug Copaxone. This may have amounted to an abuse of a dominant position prohibited under Art. 102 TFEU, the Commission states in its press release.

While the Commission has sanctioned patent settlements that delay the market entry of generic drugs (“pay-for-delay”) in a number of cases, with this new investigation, the Commission is exploring two novel “theories of harm”. The authority is concerned that Teva’s patent filing practices – namely the filing and selective withdrawal of divisional patents – and communication measures impeded the market entry of generic drugs.

The article takes a closer look at the Commission’s allegations, supplements publicly available facts on the case and explains the context. We also assess the two theories of harm considered by the Commission in detail and compare the case with relevant precedents at European and national level. We conclude with the practical implications of the investigation.

Facts and Commission’s allegations

Teva’s drug Copaxone is used to treat multiple sclerosis and contains the active ingredient glatiramer acetate. In 2015, the patent protection for glatiramer acetate expired and generic drugs entered the market, driving Teva’s sales down. Teva responded by introducing a three-times-per-week version of the drug with a different dosage (40 mg/ml instead of 20 mg/ml daily) combined with a potential communication campaign that the Commission says may have created a false perception of health risks associated with competing generic drugs.

Further, Teva filed various divisional patents that related to the 40 mg/ml three-weekly dosage regimen of Copaxone and withdrew at least one of the patents at the European Patent Office (EPO) during the course of opposition appeal proceedings and before the EPO’s Technical Board of Appeal issued its preliminary opinion on the validity of the patents. Teva also enforced its patents and, inter alia, successfully sought a preliminary injunction against Mylan in Germany; it also unsuccessfully challenged decisions by regulatory authorities to authorise generic versions of Copaxone in the United Kingdom and the Netherlands.

According to the Commission’s press release, the authority will analyse whether these practices to file, enforce and selectively withdraw divisional patents, along with Teva’s alleged communication campaign, “abusively blocked or delayed the market entry of competitors to its blockbuster drug Copaxone”.

Context – the Commission’s agenda in life sciences

The Commission has emphasised on several occasions that it will scrutinise practices that may impede the market entry of generic drugs under competition laws (eg Communication of 25 November 2020 on a Pharmaceutical strategy for Europe).

In particular, since its pharmaceutical sector inquiry in 2009, the Commission has investigated a number of pay-for-delay settlement agreements between pharmaceutical companies – and has imposed substantial fines. The Commission’s first decision in a pay-for-delay case in 2013 against Lundbeck and several generic competitors has recently become final after it was upheld by the European Court of Justice (ECJ) (see our blog post here).

A report of 2019 by the Commission on competition law enforcement in the pharmaceutical sector focused on two additional potentially anti-competitive practices in the context of the market entry of generic products – a “misuse of the regulatory framework” and “disparagement practices to curb the uptake of newly launched generic products”. These two practices reflect the practices subject to the Commission’s investigation in the Teva case.

Whereas the above-mentioned pay-for-delay-cases were considered an infringement of the cartel prohibition under Art. 101 TFEU that covers anti-competitive agreements by at least two undertakings, the present investigation relates to unilateral conduct by Teva that might fall under the prohibition to abuse a dominant position under Art. 102 TFEU. The Commission will thus have to prove that Teva did hold a dominant position in relation to Copaxone and actually abused it to exclude competitors from the market.

Potentially abusive patent filing practices

As mentioned above, the Commission identifies two potential types of abuse in its press release. The first potential abuse relates to Teva’s practice of filing and selectively withdrawing divisional patents. The Commission raises the question of whether the divisional patents “multiplied” the patent barriers for potential generic competitors and obliged them to file repeated challenges, requiring time and resources.

The press release does not provide much detail on the facts of the case. From public sources, it can be taken that various generics including Mylan and Synthon opposed the validity of Teva’s patents before the EPO as well as bringing actions before national courts to challenge the validity of Teva’s patents. For example, Mylan and Synthon successfully challenged Teva’s EP’335 divisional patent before the UK courts and after that launched its generic product in the UK. By contrast, in Germany, Teva successfully sought a preliminary injunction against Mylan based on the same EP’335 divisional patent after the EPO Opposition Division upheld EP’335 at first instance. In the proceedings before the German court, Mylan argued that Teva had withdrawn the corresponding parent patent before the EPO had time to issue its preliminary opinion in the opposition proceedings, thus undermining the validity of the divisional patent, but the court rejected the argument. Later, however, the EPO revoked EP’335 on appeal (after Mylan had obtained a – rather unique – preliminary injunction against Teva from another German court to prevent Teva from again abandoning the patent in question during the EPO appeal proceedings before a decision could be issued) – proving that Mylan’s objections against the validity of the divisional patent had been justified. Teva has enforced other European patents within the same family and opposition proceedings are still ongoing that relate to those patents.

As the following overview of related European and national precedents shows, the case might not fall under any of the categories of practices that have already been established as anti-competitive. However, similarities exist with cases that have been considered problematic. The outcome of the investigation against Teva may thus ultimately depend on further details of the case (e.g. evidence on the goals that Teva pursued with its strategy):

• The landmark case on the misuse of patent procedures is The Commission imposed fines of EUR 60 million, and the decision was upheld by the ECJ in 2012. The ECJ identified two types of misuse by the company that breached Art. 102 TFEU. AstraZeneca had made misleading representations vis-à-vis patent offices to obtain supplementary protection certificates. A second type of misuse of the patent system identified by the ECJ was that AstraZeneca had selectively deregistered particular marketing authorisations, which in turn had made it more difficult for generic companies to obtain these. Teva’s practices do not appear to fall into either of these categories. In particular, there is no mention of there having been any misleading representations by Teva vis-à-vis patent offices.
• Variations of the two elements of the AstraZeneca case are the following two national cases: The French Competition Authority in 2017 fined Janssen-Cilag, a subsidiary of Johnson & Johnson, EUR 25 million, inter alia, for alleged “abusive interference” in the regulatory process. In 2019, the Paris Court of Appeal upheld the decision by applying the standard established in the AstraZeneca In the UK, the CMA in 2011 fined Reckitt Benckiser EUR 12 million for withdrawing and delisting its drug Gaviscon Original Liquid before the generic name for the product had been published. This practice had the consequence that the drug could neither be prescribed under its generic name nor replaced by generic versions.
• An even higher threshold for abuse was applied in the cases ITT Promedia and Protégé International. In both cases, the dominant undertakings had pursued one or several lawsuits against their opponents, who had defended themselves, inter alia, by claiming that the lawsuits constituted “vexatious litigation”. Both the Commission (in 1996 and 2009, respectively) and the General Court (in 1998 and 2012, respectively) stressed the fundamental relevance of the ability to assert one’s rights through the courts and therefore set a very high threshold for vexatious litigation. Legal remedies pursued by a dominant undertaking can only be deemed abusive if they (i) cannot reasonably be considered as an attempt to establish its rights and can therefore only serve to harass the opposite party, and (ii) are conceived in the framework of a plan the intention of which is to eliminate competition. Should these standards also apply to an alleged misuse of the patent system (which is unsettled), this high threshold would likely not be met.
• The case at European level that appears closest to the Teva investigation (but which did not end with an infringement decision) is Boehringer/Almirall in 2011. It did not relate to the market entry of generic drugs but to competing originator drugs. Almirall claimed that Boehringer had filed a series of patents with the effect of potentially blocking or at least significantly delaying the market entry of Almirall’s drug. Boehringer had registered combination patents and a divisional patent which covered the newly developed active ingredient by Almirall. In the patent validation proceedings, both the EPO and the English first-instance court concluded that Boehringer’s combination patent was invalid. Boehringer pursued the invalidity proceedings in the next instances and at the same time filed actions for infringement against Almirall in civil courts. The Commission launched an investigation and signalled competitive concerns but terminated the probe after Boehringer and Almirall entered into a settlement. As part of the settlement, Boehringer abandoned its patents and withdrew its infringement action so that Almirall could enter the market.
• Finally, there are common elements of the Teva case with one precedent at national level – the Pfizer case in 2011. The Italian competition authority imposed fines on Pfizer in the amount of EUR 11 million for putting in place what was described as a “complex legal strategy aimed at extending the patent protection of its originator product to delay generic entry”. This involved filing divisional patents and supplementary protection certificates that extended the period of patent protection for its originator At the same time, there was clear evidence that Pfizer was not intending to launch any new products based on the divisional patents. Further, Pfizer enforced these exclusive rights against generic competitors.

Communication measures as abuse

Secondly, the Commission is investigating whether Teva may have pursued an abusive communication campaign to disparage competing products, i.e. went beyond the necessary marketing of the follow-on product. The Commission sees indications that Teva’s campaign, primarily directed at healthcare institutions and professionals, may have created a “false perception of health risks” associated with the use of competing generic drugs.

There have been some recent precedents on disparagement practices:

• The ECJ held that communication campaigns aimed at reducing competitive pressure can in principle be anti-competitive (judgment Hoffman-La Roche/Novartis of 23 January 2018), but this finding referred to a different case, namely that of misleading information regarding the safety of an off-label use of a product.
• In another case (Agria Polska), the ECJ concluded that a communication campaign was not abusive. Agria Polska and four other companies complained to the Commission and accused competitors of pursuing a communication campaign with false claims towards Austrian and Polish authorities with the intention of eliminating them from the market. The Commission denied any abuse under Art. 102 TFEU, and its assessment was confirmed by the ECJ in 2018. The difference in this case with Teva’s communication campaign is that it was not directed at authorities, as in Agria Polska, but at hospitals, physicians and pharmacists. The Agria Polska case is nevertheless instructive because the ECJ applied its jurisprudence in AstraZeneca (abuse due to misleading representations towards authorities) and ITT Promedia (vexatious litigation) also to the case of a communication campaign.
• At national level, there are two cases in France in which fines were imposed for disparagement practices. In 2013, the French Competition Authority imposed a fine of EUR 41 on Sanofi-Aventis for its disparagement campaign directed at physicians and pharmacists regarding risks and the lack of efficiency of competing generic drugs. Both the Paris Court of Appeal and the French Supreme Court confirmed the decision. In 2013, the French Competition Authority fined the company Schering-Plough EUR 15 million for disparaging competing generic products. According to the authority, Schering-Plough had briefed its sales teams and pharmaceutical representatives to spread “alarmist messages” among physicians and pharmacists on the risks of competing generic drugs.

Take-aways and outlook

Antitrust enforcement currently has a strong focus on life sciences. Last year, competition authorities around the world (in the EU, UK, USA and China) imposed fines on pharmaceutical companies of over EUR 500 million in total. With the initiation of the investigation into Teva’s practices, it is apparent that the pharmaceutical sector will remain under scrutiny in the EU.

Following on from the Commission having identified certain “patent filing” and “disparagement” practices as potentially problematic in its sector inquiry report of 2009 and its report on competition law enforcement in the pharmaceutical sector of 2019, the Commission has now initiated its first investigation into these types of conduct. During a recent panel discussion, Margrethe Vestager, the EU Commissioner for Competition, said that the Teva case speaks to the “breadth” of the practices that enforcers are considering.

As mentioned above, the Commission will not only have to prove that Teva’s practices amounted to an abuse, but also that Teva held a dominant position related to Copaxone. The Commission’s press release does not address this issue, except for a brief reference to the “wide use” of the drug for the treatment of certain forms of multiple sclerosis.

Pharmaceutical companies should in any case make sure that practices that might have the effect of delaying the market entry of competing drugs comply with competition laws.

Unfortunately, there is yet no clear guidance from the case law, as our overview shows. The ECJ has defined certain types of patent acquisition and enforcement practices as abusive – patent acquisition based on misleading representations to patent offices, and vexatious litigation. Further, one precedent from the Commission concerning the acquisition of a patent that blocked a competing drug might provide certain indications. The Teva case, however, is somewhat different, with the filing of multiple divisional patents related to a follow-on product and Teva‘s strategy in the EPO proceedings of selectively withdrawing patents to avoid a negative precedent. The Teva investigation will thus shed further light on the relevant legal framework under EU law.

This article was co-authored by Rafi Allos & Fabian Kolf.