Chillin'Competition

The first instalment of this series discussed the issues of principle addressed by the Court in Generics. The judgment is equally important in what is says about pay-for-delay. It is possible to infer a fully-fledged framework for the assessment of these agreements. Crucially, this framework is wholly in line with the relevant precedents on  Article 101(1) TFEU (a question we have regularly discussed on the blog and elsewhere, for instance here).

The distinction between genuine and non-genuine intellectual property settlements

It was already possible to distinguish from the case law – in particular from BAT (Toltecs-Dorcet) – that the question of whether a settlement relates to a genuine intellectual property dispute is relevant and important in practice.

Where a supposed settlement does not relate to a genuine dispute (in the sense that the parties – or at least one of them – seek to achieve something they would not be able to achieve via the exercise of their intellectual property rights), the assessment can be relatively straightforward. Such agreements conceal a ‘naked’ market-sharing arrangement that is known to be restrictive by object.

Where the agreement relates to a genuine dispute (in the sense that the settlement replaces intellectual property litigation before the courts), on the other hand, the assessment may need to be more detailed. In this sense, Generics provide a valuable template, as I do not believe there were examples in the Court’s case law.

This difference between genuine and non-genuine disputes will be relevant for the upcoming cases on pay-for-delay. As I have written elsewhere, any moderately attentive reader of the Lundbeck decision cannot avoid the impression that the settlements in the case were a sham. You should not take my word for it: read the very representations made by the firm in the context of the proceedings and reproduced in the decision.

The status of pay-for-delay: an illustration of the Court’s default approach to ‘by object’ infringements

The Court’s approach to the assessment of restrictions by object has long been clear. An agreement amounts to a ‘by object’ infringement where it has no plausible purpose other than the restriction of competition. We also know since T-Mobile that an agreement is not caught by Article 101(1) TFEU – whether by object or effect – if it is incapable of having a restrictive impact (this is something that AG Kokott emphasised in her Opinion).

What is the added value of Generics, against this background? The judgment makes explicit some points that were implicit in the case law (it is the first time some expressions are used).

The relevant test is formulated in paras 89-90. An agreement amounts to a ‘by object’ infringement where the only ‘plausible’ explanation for it is the restriction of competition. It follows logically that such categorisation is excluded where the parties can advance an alternative explanation casting a ‘reasonable doubt’ (para 107) about the status of the practice as caught, by its very nature, by Article 101(1) TFEU.

The Court has consistently held since Cartes Bancaires that the ‘by object’ category must be interpreted restrictively. Thanks to Generics, we know what this statement means in concrete terms. It means that (leaving market integration aside) the category encompasses agreements the only plausible explanation for which is the restriction of competition.

We also know that the bar to rule out that an agreement amounts to a ‘by object’ infringement is low (‘plausibility’ and ‘reasonable doubts’ do not come across as particularly cumbersome).

Another crucial contribution of Generics relates to the legal status of a ‘reverse’ payment. In line with the case law, the Court clarifies that a payment from an originator to a generic producer does not mean, in and of itself, that the agreement is restrictive by object (paras 84-85).

As already held, the objective purpose of such payments must be considered in the relevant economic and legal context. The Court even identifies the instances in which a ‘reverse’ payment would be objectively justified and thus would fall outside the scope of Article 101(1) TFEU (para 85).

The assessment of potential competition and the role of circumstantial evidence

The assessment of potential competition in pay-for-delay cases is a fascinating puzzle. On the one hand, patents are presumed valid; on the other hand, there is not such thing as a presumption of infringement of a patent by a new entrant (such as a generic producers).

How is it possible to tell whether a generic producer has real, concrete possibilities to enter the market where there is genuine uncertainty about its ability to do so? Is it possible to rule on potential competition prior to a final court ruling on validity and/or infringement?

The Court answers in the affirmative to the latter question. Crucially, it does so without questioning the presumption of validity of intellectual property rights in EU law, and without revisiting the principle whereby EU law does not question the existence of such rights.

How? One crucial step is that ‘a patent which protects the manufacturing process of an active ingredient that is in the public domain’ is not deemed to constitute an ‘insurmountable barrier’. In this sense, the Court is careful to clarify that it is examining the status of potential competition in a very specific context (see para 51 for a description of that context).

A second crucial step in the analysis is the role given to circumstantial evidence. In a context of uncertainty, indicators such as the very fact that they conclude an agreement (para 55) or the very fact that there is a ‘reverse’ payment (para 56) can lead to the conclusion that the parties are, indeed, potential competitors.

According to the Court, the fact that the agreement relates to a genuine dispute does not rule out the finding that they are potential competitors.

What is the takeaway from the above? The key conclusion, in my view, is that potential competition exists whenever an authority can show that market entry is plausible. The threshold coincides with the threshold that applies when assessing whether the agreement restricts competition by object.

The eagle-eyed among you may remember that I wrote in my article on pay-for-delay that the threshold for potential competition is one of likelihood (that is, that market entry is ‘more likely than not’ to occur). The judgment clarifies that the bar is lower – plausibility of entry is enough.

If you ask me: what I wrote at the time made sense in my head (a potential competitor worthy of the name must exercise a constraint on existing players). Thinking about it, however, I believe it is more reasonable to align the threshold with the assessment of ‘by object’ conduct, as the Court does.

As a side note: if you were wondering whether there is a discrepancy between the judgment and my prior writings, it all boils down to this threshold.

On proof

If you read the above, you may get the impression that, after Generics, it is all about proof. Has the authority (or claimant) established, to the requisite legal standard, that the parties are competitors? Has the defendant managed to cast reasonable doubts about the characterisation of the agreement as restrictive by object?

I agree, which is why there will be a third part addressing issues of proof. Thanks in advance for your comments!