The UK's Competition and Markets Authority ("CMA") has fined three pharmaceutical companies a combined £50 million following an investigation into certain "pay-for-delay" patent settlement agreements. On 12 February 2016, the CMA published a press release confirming its preliminary decision that the agreements between Glaxosmithkline (GSK) and two generic companies had the object or effect of restricting, distorting or preventing competition. The payments made by GSK to each of the other parties in exchange for delayed entry also amounted to an abuse of GSK's dominant market position.

GSK held a number of patents protecting paroxetine, a drug used for the treatment of depression and anxiety disorders. These patents had allowed GSK's Seroxat product to gain blockbuster status. The generic companies sought to enter the UK market with a generic version of paroxetine, and GSK had commenced proceedings against both generic companies alleging that such entry would infringe GSK's patents.

The parties decided to settle the litigation and, in exchange for the generics' agreement to delay their generic entry to the market, GSK agreed to make various value transfers to them. This took the form of both cash payments and permission to distribute limited quantities of GSK's product to the market. The agreements were in place between 2001 and 2004. When independent generic competition eventually reached the market at the end of 2003, average prices for paroxetine dropped by 70% in the first two years.

The Office of Fair Trading (the CMA's predecessor) opened an investigation in August 2011. The CMA took over the investigation and reached the decision that:

  • the agreements constituted infringements of Article 101 of the Treaty on the Functioning of the European Union ("TFEU") and Chapter I of the UK's Competition Act 1998 (the "Act"); and
  • the payments by GSK to the generics were to induce a delay to their market entry and so constituted an abuse of a dominant position in breach of Article 102 TFEU and Chapter II of the Act.

The CMA therefore imposed a fine on GSK of £37.6 million. The generic companies received total fines of £7.3 million.

The application of competition law to patent settlement agreements involving a transfer in value remains relatively a new concept within the EU. Such agreements were identified as potential infringements by the European Commission's enquiry into the pharmaceutical sector in 2008 and the Commission has continued to monitor patent settlement agreements entered into between originator and generic companies. The European Commission and national competition regulators have also issued a number of decisions imposing heavy fines in recent years, the first of which was the Commission's decision to fine Lundbeck and a number of generic competitors in relation to agreements regarding citalopram in 2013. However, the concept is still evolving, and there is yet to be a judgment by European Courts on the issue. Lundbeck's appeal of the Commission's decision to the General Court is due to be decided upon later this year, and it is sure to have a substantial impact on the approach adopted by regulators to such agreements in the future.

The CMA has recently faced criticism over its limited enforcement activity, and focus on investigations in small sectors with limited impact. In response, the CMA's chairman publicly commented that early 2016 would see the imposition of more significant, high impact fines, and this case may well have been in mind when such comments were made. The CMA also currently has two other investigations open in the pharmaceutical sector; one examining whether Pfizer and Flynn Pharma had engaged in excessive pricing in relation to their epilepsy drugs, and another which is looking at discounting practises in the pharmaceutical sector in general. Although these investigations remain in their early stages, if infringements are ultimately found it can be expected that the CMA will also be seeking to impose substantial financial penalties in those cases.

The decision of the CMA is being challenged

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