Recent judgments from the EU’s top court narrow the scope for patent settlement agreements

November 2024  |  SPECIAL REPORT: HEALTHCARE & LIFE SCIENCES

Financier Worldwide Magazine

November 2024 Issue

On 27 June 2024, the Court of Justice of the European Union (CJEU) rendered its long-awaited rulings in the European Commission’s (EC’s) perindopril case, concerning patent settlement agreements between an originator (French pharmaceutical company Servier) and several generic manufacturers (including Slovenian company Krka).

The CJEU ruling in relation to Servier’s agreements with Slovenian company Krka is the most notable, as the CJEU prohibited a settlement that the lower-tier General Court (GC) had considered pro-competitive.

The CJEU’s ruling expands the scope of what constitutes a problematic patent settlement agreement under European Union (EU) competition law. The CJEU held that while pro-competitive effects should be considered as part of the overall context, they are not determinative when assessing whether a specific practice restricts competition by object.

The fact that the settlement enabled Krka to enter some national markets was not considered relevant in this case, as Krka was prevented from entering other national markets. The judgment further limits pharmaceutical companies’ ability to resolve patent disputes amicably if this involves market entry restrictions.

Background

Servier held a compound patent over blockbuster cardiovascular drug perindopril, until its gradual expiry in the late 1990s and early 2000s. Servier applied for supplementary process patent protection in subsequent years, and the validity of those secondary patents was eventually challenged by several generic manufacturers, including Krka, before the European Patent Office and national courts.

In 2003, Krka started developing its own version of perindopril, based on the salt form covered by Servier’s process patent. Krka obtained a number of marketing authorisations to place the product on the market in several Central and Eastern EU member states, while concurrently preparing to launch its generic version of perindopril in other member states, such as France and the Netherlands.

In 2006, Servier initiated patent infringement claims against Krka in Hungary and in the UK for violation of the underlying process patent. To resolve the patent dispute, Servier and Krka concluded a set of agreements, which included a settlement and a licence agreement.

Under the settlement agreement, Krka agreed to withdraw all validity claims against Servier’s process patent over perindopril, and not to challenge it in the future. In return, Servier agreed to drop the existing patent infringement claims against Krka.

The settlement agreement also included a non-marketing clause, which barred Krka and its subsidiaries from launching or marketing any generic perindopril that could potentially infringe the process patent, unless expressly authorised by Servier.

Under the licence agreement, Servier granted Krka an exclusive, irrevocable licence to “use, manufacture, sell, offer for sale, promote and import its own products which contained the alpha crystalline form of erbumine in the Czech Republic, Latvia, Lithuania, Hungary, Poland, Slovenia and Slovakia”.

The agreement stipulated that Krka would remit 3 percent of its net sales as royalties to Servier, while Servier maintained the prerogative to utilise the process patent, either directly or through intermediaries, in specified member states.

EC decision and appeal to the GC

Krka did not receive direct monetary compensation for staying out of some national markets and dropping the existing (and any future) patent challenge claims against Servier over the process patent for perindopril.

However, in the EC’s view, the licence agreement between Servier and Krka served as an inducement for Krka to accept restrictions in the other markets covered by the settlement agreement. The GC overturned the EC’s findings. The lower-tier EU court considered the non-challenge and non-marketing clauses as legitimate means to end the underlying patent disputes, based on Krka’s acknowledgment of the validity of the process patent.

Furthermore, the GC found that the licence agreement was pro-competitive, as it encouraged Krka’s market entry in the seven Central and Eastern member states.

The CJEU ruling

The CJEU’s adviser in this case, Advocate General (AG) Juliane Kokott, sided with the EC and concluded that the absence of a monetary compensation as part of the settlement agreement was not a relevant factor.

As Krka was the most established competitor to Servier, monetary compensation would not have been a persuasive measure to induce Krka to stay out of the perindopril market. Launch would have allowed Krka to build up or retain its customer base, its distribution networks and its brand image in the markets covered by the licence agreement.

The CJEU followed AG Kokott and emphasised that the crux of the matter is whether the value conferred through the licence constituted a sufficient inducement for Krka to withdraw from Servier’s primary markets. The court found that the licensing agreement functioned as an illegitimate quid pro quo for the generic manufacturer’s commitment not to compete in the national markets not covered by the licence.

The CJEU further noted that although the licensing agreement may have been reached in pursuit of a legitimate aim, the parties’ intention is not decisive for the purposes applying article 101(1) of the Treaty on the Functioning of the European Union (TFEU). A well-intended aim of resolving patent litigation does not justify anticompetitive agreements.

It also rejected the notion that granting a licence in some markets (i.e., the seven Central and Eastern European markets), can produce enough pro-competitive effects to justify restrictions on market entry in the remaining markets. Such reasoning would disregard “the nature of that infringement, consisting not in a simple patent dispute settlement agreement in return for a reverse payment, but of a market-sharing agreement”.

Takeaways

The CJEU’s Krka judgment provides important guidance on assessing patent settlements under EU competition law. It clarifies that patent settlements without reverse monetary payment can still be contrary to article 101(1) of the TFEU. The judgment limits pharmaceutical companies’ ability to resolve patent disputes amicably if this involves market entry restrictions.

 

Michael Frese is counsel and Antonio Cammalleri and Leonor Catela are associates at Skadden, Arps, Slate, Meagher & Flom LLP. Mr Frese can be contacted on +32 (2) 639 0315 or by email: michael.frese@skadden.com. Mr Cammalleri can be contacted on +33 (6) 8131 8467 or by email: antonio.cammalleri@skadden.com. Ms Catela can be contacted on +32 (2) 639 2134 or by email: leonor.catela@skadden.com.

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BY

Michael Frese, Antonio Cammalleri and Leonor Catela

Skadden, Arps, Slate, Meagher & Flom LLP

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