Chillin'Competition

I really appreciate that people took the time to comment on my last post on Lundbeck. The point of the blog is after all to encourage discussion. As I write this, five readers have posted their thoughts on the blog. Xavier Boutin did so via our Linkedin group.

This time, I felt I would not to justice to these comments by replying to them one by one, as I usually do. I thought it was a better idea to address the main issues in this format.

The point of my post

A few of the comments discussed potential competition in general and uncertainty in general. These comments were interesting, and I agree with what I read. However, they do not really address the specific issue I raised in my post. Allow me to go back to the initial question:

Can one really say that a generic producer is a potential competitor if it needs to infringe a patent in order to enter a market?

The discussion that followed must be understood as relating to this narrow point of law. Kiko’s comment (thanks!) defines a useful framework. Potential competition presupposes the (i) ability and the (ii) incentive to enter a market. These are the two preconditions for potential competition to exist. Thus, the question can be rephrased as whether a generic producer has the ability and the incentive to enter a market when it would need to infringe a patent. One can think of at least two answers:

• No potential competition: The exclusive right (i.e. the patent regime) precludes market entry and thus the ability of the generic producer to do so. This answer is consistent with E.On Ruhrgas (in which the regulatory framework also precluded market entry) and with the principle according to which EU law does not question the existence of intellectual property rights. The decision in Lundbeck suggests that the Commission (para 632) and the General Court (para 628) have endorsed this approach in the past.
• Potential competition: The exclusive right does not preclude the generic producer’s ability to enter the market because the patent may be declared invalid, or because the patentee may choose not to bring an action against the alleged infringer. As I understand the decision, these are the arguments that the Commission advanced in Lundbeck.

I explained in the post that I am not persuaded by the second answer. Think in particular of the following:

• Substantive reasons: Because EU law does not question the existence of intellectual property rights, patents are presumed to be valid. If the existence of intellectual property rights is not questioned, I fail to see how considerations about the outcome of a potential challenge should play a role in the analysis. For as long as a patent is deemed valid, a generic producer would lack the ability to enter a market if doing so requires the infringement of a patent.
• Certainty and probability: Some passages of the judgment suggest that a generic producer is a potential competitor because it may be a potential competitor. In other words, potential competition is said to exist even though there is uncertainty about one of the preconditions (i.e. the ability to enter the market). It is not clear to me how a 50% or 60% probability of potential competition can be equated with the certainty of potential competition (i.e. a 100% probability). [note: uncertainty in my post refers to potential competition, not to uncertainty about entry, as some have suggested. The difference is important!].
• Economic and legal context: If the probability of potential competition is equated with the certainty of potential competition, a fundamental layer of complexity pertaining to the economic and legal context of the agreements is removed. It seems to me that the legal analysis that follows is inevitably affected. I had this specific issue in mind when I referred to the evaluation of the economic and legal context in the judgment.

‘Yes, but they were process patents’

Xavier suggests that the outcome might have been different if the case had concerned a basic patent, as opposed to a process patent. This is an interesting and plausible reading of Lundbeck. However, it is important to think about its implications. If the outcome of a case depends on the perceived strength of patent protection, competition law be second-guessing the patent system. The competition law system would become a parallel regime for the protection of intellectual property, which would refine and evaluate the merits of protection. Intervention in this sense would entail a fundamental departure from the case law.

‘Is it just that you dislike the outcome?’

I have already explained in the blog (in a post on which Joan also commented!) that I am not interested in the outcome of individual cases. As an academic, it does not matter who ‘wins’ or who ‘loses’ a particular case. What matters to me is the consistency of the system and the evolution of the law. To me, the legal route through which a given outcome is reached is as important, if not more, than the outcome itself. I believe the posts reflects this perspective well.

Someone who has carefully read Lundbeck can credibly claim that the points of law I discussed in the post are not even decisive for the outcome of the case. Arguably, the outcome could have been the same had the discrete points of law I raised been decided differently. I am sure other people will elaborate on this question. But it is not the one in which I am interested.

‘Is it maybe that the judgment does not reflect your understanding of the case law?’

Kiko’s comment is very timely. Alfonso and I have just completed a paper on the notion of restriction of competition. We will upload it soon on ssrn and look forward to your comments. In this paper, we build on some of our previous work.

I would say Lundbeck is in line with my understanding of the case law. As I point out in the post, if one considers that generic producers are potential competitors, it seems inevitable to conclude that the agreements are restrictive by object. A payment to a potential competitor to stay out of the relevant market has no plausible explanation other than the restriction of competition. But please note that, if a generic producer is not a potential competitor, then this explanation becomes implausible (as competition would not have existed even in the absence of the agreements). Interestingly, Lundbeck appears to be somewhere in between.

Perhaps because I actively seek to develop a global understanding of the case law, I may be more inclined to refer to rulings that others may not see as obviously relevant. Coditel II, Erauw-Jacquery or BAT spring to mind immediately when thinking about the scope-of-the-patent test or the restrictions that are inherent in the exploitation of an intellectual property right. More than the opposite, this exchange made me think that I should put together some thoughts and contribute to the ongoing discussions.

Thanks again!