"Pay for Delay" Agreements infringe EU Competition Law: European General Court

By Richard Eccles


The European General Court has issued a judgment confirming that "pay for delay" agreements in the pharmaceuticals sector constitute serious infringements of EU competition law. Such agreements generally involve payments by the holder of product rights to generics manufacturers in return for agreement by the generics companies to delay their entry into the market with generic equivalents of the relevant product.

The present case concerned Lundbeck and its anti-depressant product citalopram. The European Commission adopted an infringement decision in June 2013, imposing fines totalling €146 million (including €93.8 million on Lundbeck) for infringement of Article 101 of the Treaty on the Functioning of the European Union (TFEU). Lundbeck and the generic companies appealed the decision and the General Court has upheld the Commission's decision and the fines in full, in a series of judgments issued on 8 September 2016. 

The background facts were that Lundbeck's basic patent for citalopram expired in the EEA between 1994 and 2003, following which it held only certain process patents which provided more limited coverage. As a result, generics manufacturers could enter the market, albeit subject to the risk of possible patent infringement action by Lundbeck under its process (as opposed to product) patents. Instead, however, the generics manufacturers each agreed with Lundbeck not to enter the market, in return for substantial payments, which were found to equate approximately to the profits that the generics companies could have expected to gain if they had entered the market. The Commission found that Lundbeck had, in addition to making significant payments, purchased the generics companies' stock solely to destroy it, and had entered distribution agreements with the generics operators providing guaranteed profits to them.

The General Court concluded that Lundbeck and the generics suppliers were potential competitors at the time that these agreements were entered into, in that the generics suppliers had real and concrete possibilities of entering the market. Instead, they gave up the opportunities of generating profit through the normal competitive process taking and avoided the risk and uncertainty concerning possible action by Lundbeck to enforce its process patents, in return for the significant reverse payments from Lundbeck for not competing.

The General Court concluded that the Commission had been correct to refuse to apply the exceptions criteria under Article 101(3) TFEU in favour of the parties. The General Court concluded that the agreements were not essential to preserve the Lundbeck's incentive to innovate.  Moreover there were no other specific benefits to consumers as a result of the agreements. Also the General Court did not accept that the agreements could be justified as settlement agreements to avoid litigation costs or divergent court rulings, since the agreements did not enable any patent dispute between the parties to the agreements to be resolved.  Rather, Lundbeck retained the right to bring patent infringement proceedings against the generics companies on expiry of the agreements. In any event, the General Court concluded, even if the agreements had enabled such costs savings, it had not been shown that the restrictions in the agreements were indispensable to achieving any such objective, given that other types of settlement agreements could have been entered into without the competition restrictions involved.

These are the first European Court judgments that confirm the Commission's position that "pay for delay" agreements infringe EU competition law. Further appeals are also pending with the General Court concerning similar types of agreements involving Servier and five generics competitors and delayed generic entry of perindopril (a cardio-vascular medicine), following a Commission decision of 2014.