EU Court of Justice Takes a Firm Stance Against Patent Settlement Agreements | Skadden, Arps, Slate, Meagher & Flom LLP
The European Union’s Court of Justice (ECJ) has rendered its two long-awaited judgments in the European Commission’s (EC’s) perindopril case. The 27 June 2024 judgments concern:
- The EC’s appeal of the General Court’s annulment of the EC’s infringement decision on Servier’s patent settlement agreements with Krka (Case C-176/19 P).
- Servier’s appeal of the General Court’s ruling on the alleged abuse of dominance and restrictive patent settlement agreements with several other generic manufacturers (Case C-201/19 P).1
Key Points
- The ECJ largely upheld the EC’s original decision that Servier’s patent settlement deals with generic drugmakers concerning perindopril violated EU competition law, thereby partially overturning the General Court’s judgment.2
- The ECJ found that patent settlements may be anticompetitive “by object” under Article 101 TFEU, confirming prior case law.3 Granting a patent license in some markets in exchange for the licensee agreeing not to enter or challenge patents in other markets is considered unlawful market-sharing, the ECJ said.
- The General Court’s ruling on EC’s abuse of dominance allegations was overturned. According to the ECJ, the General Court relied on incorrect grounds when it invalidated the EC’s market definition for perindopril to support the abuse of dominance findings. The ECJ referred the matter back to the General Court to rule on the Article 102 TFEU allegations.
This alert focuses on the Krka ruling, which expands the scope of problematic value transfers in the context of patent settlement agreements under Article 101 of the Treaty on the Functioning of the EU (TFEU). The judgment cements the EU’s hard line on patent settlement agreements and limits the scope for resolving patent disputes amicably.
Background
French pharmaceutical company Servier held a patent on blockbuster heart drug perindopril until its expiry in the late 1990s and early 2000s. Servier then applied for supplementary process patents in subsequent years, and the validity of those additional patents was eventually challenged by several generic manufacturers, including Slovenian company Krka, before the European Patent Office and national courts.
Servier ultimately struck a series of settlements with the generic manufacturers, including Krka, which in turn were restricted from entering certain EU markets and challenging Servier’s patents.
With specific reference to Krka, Servier concluded three separate agreements, one of which constituted an exclusive and irrevocable license over the process patent for perindopril in the Czech Republic, Latvia, Lithuania, Hungary, Poland, Slovenia and Slovakia. In return, Krka was required to pay Servier a 3% royalty on its net sales throughout those territories.
The other two agreements covered several other national markets, where Krka would be prevented from introducing generic versions of perindopril.
In a July 2014 decision, the EC found that the generic manufacturers (including Krka) had to be regarded as potential competitors to Servier at the time the agreements were concluded, and found these agreements to be in violation of Articles 101 and 102 TFEU as illegal market-sharing, imposing €427 million in fines.
On appeal in 2018, the General Court mostly agreed the deals were anticompetitive, except for the Krka arrangements, which were viewed as a valid license transfer rather than a restriction of competition by object.
The General Court considered the arrangement between Servier and Krka covering the Eastern European markets to be a valid transfer of technology rather than an inducement for the latter to stay out of the markets covered by Servier.4 In addition, the General Court found that Krka had agreed not to compete in Servier’s territories because it acknowledged the validity of Servier’s patents.
Finally, unlike the other generic manufacturers, Krka did not receive any payments.
The ECJ Judgment (Case C-176/19 P)
On June 27, 2024, the ECJ largely overturned the judgment of the General Court in the Krka case.
Notably, it confirmed that the Krka agreement constituted restrictions of competition by object. Specifically, it found that the granting of the licensing agreement to Krka constituted an illegitimate quid pro quo for the generic manufacturer’s commitment not to compete in the national markets not covered by the license (see para. 469).
The ECJ held that the General Court disregarded:
- the fact that the license agreements concerned markets that did not fall within the scope of the infringement, and
- the nature of that infringement, consisting essentially in a market-sharing agreement (see paras 174-175).
In addition, the ECJ emphasized that the key question is whether the overall agreement influenced the generic’s conduct to restrict competition, regardless of the form of the contracts or the parties’ subjective views. The General Court should have examined if the value transferred via the Krka license was large enough to induce Krka’s abstention from Servier’s core markets, the ECJ determined (see paras 107 and 200).
The ECJ also rejected the notion that only agreements that set out, according to the terminology used by the ECJ, a “hermetic division” of the market breach Article 101 TFEU (see para. 217). Removing a potential rival source is a sufficiently appreciable effect. In the ECJ’s views, the EC did not therefore have to prove that Krka would probably have entered the perindopril market absent the conclusion of the agreements with Servier (see paras. 215-216 and 355-356).
The ECJ further noted, echoing its recent ruling in Superleague,5 that although the licensing agreement may have been reached in pursuit of a legitimate aim, the parties’ intention was not decisive for the purposes of the application of Article 101(1) TFEU.
The top court emphasized that a well-intended aim of resolving patent litigation does not justify anticompetitive agreements (see paras. 181 and 224) and thus rejected the notion that granting a license in some markets can excuse restrictions on generic entry in others (see para. 174).
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1 See Judgment of the Court of Justice of 27 June 2024, European Commission v Servier SAS, Servier Laboratories Ltd, Les Laboratoires Servier SAS, Case C-176/19 P; Judgment of the Court of Justice of 27 June 2024, Servier SAS, Servier Laboratories Ltd, Les Laboratoires Servier SAS v European Commission, Case C-201/19 P.
2 See Judgment of the General Court of 12 December 2018, Servier and Others v Commission, Case T-691/14.
3 See Judgment of the Court of Justice of 30 January 2020, Generics (UK) Ltd and Others v Competition and Markets Authority, Case C-307/18; Judgment of the Court of Justice of 25 March 2021, H. Lundbeck A/S and Lundbeck Ltd v European Commission, Case C-591/16 P. These cases concerned so-called “reverse payment” settlement agreements, which occur when the holder of a patent (normally the originator) agrees to compensate a potential or alleged patent infringer (normally a generic manufacturer) as part of a patent settlement.
4 In support of its reasoning, the General Court held that, where there is a genuine dispute relating to a patent and a licence agreement directly connected with the settlement of that dispute, an agreement settling that dispute can be characterised as a restriction of competition by object only if it can be demonstrated that the licence agreement masks a reverse payment.
5 See Judgment of the Court of Justice of 21 December 2023, European Superleague Company, Case C‑333/21, para. 167.
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