Author：Yang Yi Intern Lawyer
1. Pharmaceutical patent settlements attract antitrust attention
Anti-monopoly and intellectual property protection have the same goal, that is, to protect competition and encourage innovation, improve the efficiency of economic operation, safeguard the interests of consumers and the public, which are coordinated with each other, but also conflict to a certain extent. The issue of pharmaceutical patent exercise and protection is in a special cross-border area at the intersection of anti-monopoly law and patent law, and the issue of pharmaceutical link system and reverse payment agreement is a concrete manifestation of the tension between patent law and anti-monopoly.
On September 11, 2020, the State Drug Administration (SDA) and the State Intellectual Property Office (SIPO) jointly issued the Interim Measures for the Implementation of the Early Dispute Resolution Mechanism for Pharmaceutical Patent Disputes (Draft for Soliciting Opinions). The main content of the Interim Measures includes: the patent information registration system for marketing drugs, the system of declaration of patent status by仿制药 applicants, the setting of a waiting period for the examination and approval of generic drugs (45 days of litigation and 9 months of waiting period), the protection period for the first generic drug (12 months of market exclusivity), and the gradual establishment of China's pharmaceutical patent linkage system.
On October 18, 2020, the Standing Committee of the National People's Congress issued a decision on amending the "Patent Law of the People's Republic of China", which added Article 76, and the patent linkage system was officially included in the Patent Law and took effect on June 1, 2021. Patentees can file a lawsuit with the court on patent disputes during the process of drug marketing approval. The State Council drug supervision department can also make a decision to suspend the approval of the marketing of the relevant drug according to the effective judgment. The drug marketing approval applicant and the relevant patentee or interested party can also request administrative adjudication from the State Council patent administrative department for the patent disputes related to the drug applied for registration.
The pre-emptive nature of the patent dispute resolution mechanism has also indirectly facilitated settlements between patent-holding pharmaceutical companies and generic drug companies on pharmaceutical patents. Collusion-induced inducements between patent-holding and generic drug companies will be more pronounced, and conduct such as reverse payment agreements will be subject to antitrust attention.
Reverse payment agreement (reverse payment / pay-for delay) is a typical model of pharmaceutical patent and settlement agreement, usually the two parties to the contract are the brand-name drug enterprise and the generic drug enterprise. The brand-name drug enterprise pays a certain amount of money to the generic drug enterprise to delay the launch time of the generic drug, and the monopoly benefits are allocated to maximize the interests of both parties. Reverse payment agreements objectively extend the term of patent protection and may continue to maintain the validity of the patent that should be invalid, obtain monopoly benefits, and thus affect the competition in the drug market and the overall welfare of consumers. At present, there is no relevant case in our country's judicial and law enforcement practice, but there is already practical experience in the United States and the European Union.
Second, the anti-monopoly practice of the United States and the European Union in drug patent settlements
1. The FTC adopted a global settlement in the Teva case to resolve the issue of reverse payments against Teva
The Federal Trade Commission (FTC) has increasingly focused on the issue of reverse payments in drug patent cases in recent years. Pharmaceutical companies pay settlements to generic drug companies to reach agreements that prevent the generic companies from bringing low-cost generic drugs to market, thereby stymieing competition from generics. These anticompetitive transactions cost consumers and taxpayers an additional $3.5 billion in higher drug prices each year.
In three separate federal court antitrust suits against Teva Pharmaceutical Companies, the Federal Trade Commission has reached a global settlement that, if approved by the various courts, will prohibit Teva from making reverse payment settlements of patent disputes.
Under the terms of the permanent injunction, Teva is prohibited from entering into settlements that include reverse payments, in which a brand-name drug company pays a generic drug company to delay entry into the market. Although Teva is currently bound by a prior order in the FTC v. Cephalon case, the new injunction is broader in scope, prohibiting Teva from engaging in the two most harmful and common forms of reverse payments: (1) tied transactions, in which a generic drug company receives a commercial transaction in addition to a settlement of a patent infringement lawsuit, and (2) promises not to sell authorized generic drugs, which are often called “no-AG promises,” in which a brand-name drug company agrees not to compete with the authorized generic drug for a period of time. The prior order did not ban “no-AG promises.” The amended new order will remain in effect for 10 years from the date of its issuance, providing direct relief to consumers and免除了在三个未决案件中进行审判和上诉的费用和风险。
To achieve global resolution, the FTC has filed the necessarypleadings in three pending federal court cases:
FTC v. Actavis case (No. 09-cv-955 N.D. Ga.): The Federal Trade Commission filed suit on January 27, 2009, charging that Solvay (now AbbVie Products LLC) and Watson (a generic drug company, now Actavis Holdco, a subsidiary of Teva) delayed the launch of a generic version of AndroGel (a hormone replacement drug). After the district court dismissed the FTC's complaint, the Supreme Court reversed that decision in June 2013 (570 U.S. 136), holding that reverse payment agreements may violate the antitrust laws. The case of the Federal Trade Commission (FTC) was sent back for a new trial, and the trial is scheduled to begin on March 4, 2019.
FTC v. Allergan case (No. 17-cv-321 N.D. Cal.): The Federal Trade Commission filed suit on January 23, 2017, charging a reverse payment agreement that prevented consumers from using lower-cost generic drugs, specifically: (1) a promise not to sell the authorized generic. Endo Pharmaceuticals Inc., the manufacturer of the brand-name drug Lidoderm, entered into a no-AG agreement with Watson Pharmaceuticals, a generic drug company. (2) a payment of $96 million to Watson of the patent drug Lidoderm (a局部 patch used to relieve pain). Endo and Teikoku have resolved the Commission’s charges, which included orders that prevent them from entering into similar agreements, including no-AG agreements, for 10 years.
FTC v. AbbVie case (No. 14-cv-5151 E.D. Pa.): The Federal Trade Commission filed a complaint on September 8, 2014, charging that there was a reverse payment agreement between AbbVie, Inc. (a brand-name drug company) and Teva (a generic drug company). The complaint also included allegations that AbbVie and its partner, Besins Healthcare Inc., had filed meritless patent infringement suits against potential generic drug competitors, including Teva, to delay the launch of lower-priced generics. The court dismissed the FTC’s reverse payment claim in 2015. The decision was appealed to the Third Circuit Court of Appeals.
Under the Hatch-Waxman Act, the first generic applicant to challenge a brand-name drug patent, as compared to any other generic applicant, is entitled to 180 days of exclusivity following the receipt of the final FDA approval. However, a patent-held drug company is authorized to sell its own generic version of the drug at any time, including within 180 days after the first generic competitor enters the market. A no-AG commitment may be extremely valuable for the first applicant’s generic drug, as it ensures that the company captures all of the generic drug sales and is able to charge a higher price during the exclusivity period.
In the case of FTC v. Actavis, Inc., the Supreme Court of the United States explained how such settlements of patents by agreement damage competition. Through reverse payment, a patent holder can eliminate the “risk of competition” and induce a generic firm to forgo its patent challenge in exchange for a share of the monopoly profits of the brand-name drug.
2. European Union: Generics (UK) Ltd and others v. Competition and Markets Authority
In 1999, the patent for the active ingredient of the antidepressant fluoxetine expired. In December 2000, the "data exclusivity" enjoyed by the inventor, GlaxoSmithKline plc, ended. As a result, the company faced the entry of generic drug companies (IVAX, GUK and Alpharma) into the market. To maintain its monopoly, GlaxoSmithKline used several strategies. First, it sought protection by applying for secondary patents covering several polymorphs of the active ingredient and the corresponding manufacturing methods. Second, upon learning that generic drug companies were considering entering the market, it entered into three agreements with them. Under one of the agreements, IVAX was appointed by GlaxoSmithKline (GSK) as the exclusive distributor. The other two agreements terminated the litigation with two manufacturers. As part of these settlements, the latter (GUK and Alpharma) agreed not to manufacture, import or supply the drug in the United Kingdom. On the other hand, GlaxoSmithKline (GSK) agreed to a series of value transfers, including the purchase of shares in the generic drug companies, to grant them "marketing allowances" and to pay 50% of their litigation expenses.
In line with the previous case law, the court found that in order to determine whether an agreement aims to restrict competition, it is necessary to establish whether the agreement has caused a sufficient degree of harm to competition, having regard to the economic and legal context. With the expiration of the intellectual property protection period for the pharmaceutical industry and the intensification of competition, prices have plummeted. Therefore, by means of a settlement agreement that delays the entry into the market of actual or potential competitors, prices can be kept at a much higher level than would be the case. At the same time, the court also clarified that not all reverse payment agreements constitute a restriction of competition. In certain cases, this situation is objectively necessary in order to achieve the goals sought by the parties. For example, when the innovator compensates the generic drug manufacturer for the costs of litigation.
The court set forth a number of factors to be considered in determining the amount of the damages, one of which related to the transfer of value, which must first be considered in terms of all the monetary and nonmonetary value transfers between the parties. Similarly, it was necessary to determine whether the above transfers corresponded to the actual transaction agreements (authenticated and legal) between the parties (e.g., compensation for goods and services). Finally, the growth in transferred value would need to provide sufficient net benefits to the generic drug companies to act as a sufficient deterrent to entry into the market. The court clarified that such benefits should not exceed the profits that the generic drug company would have reasonably expected to obtain had it won the case. Secondly, the potential impact of the proposed settlement. The court confirmed, based on previous case law, that in analyzing the goals of the agreement, the anticipated pro-competitive effects of the agreement must be taken into account as part of the agreement. On the other hand, the court also noted that the exclusion of “ Purpose” infringing competitive benefits not only needed to be proven and relevant but also had to be related to the agreement. The judgment indicated that the competitive benefits claimed by the parties in this case had not yet reached this threshold.
Three, the future anti-monopoly regulation considerations of our country for patent and settlement agreement
Due to the concealment and diversification of monopoly behavior, the distinction between types of behavior is becoming increasingly blurred. In a series of solutions triggered by pharmaceutical patent disputes, the design of patent settlement agreements needs to consider whether it will trigger anti-monopoly regulations. For example, if the patent drug enterprise requires the generic drug enterprise to delay the listing time and not to file a request for invalidation of its drug patent, etc., and pays a certain amount of consideration in the patent settlement agreement, it may fall within the scope of anti-monopoly regulations and may constitute a horizontal monopoly agreement or an abuse of intellectual property rights.
With regard to the existing regulatory system, Article 13 and Article 17 of the Anti-monopoly Law regulate horizontal monopoly agreements and the abuse of a dominant market position. In addition, Article 4 and Article 5 of the Provisions on the State Administration for Market Regulation on the Prohibition of the Abuse of Intellectual Property Rights to Exclude or Restrict Competition also make relevant provisions, but it is still open to question whether generic drug companies can be classified as "交易相对人" here. On January 4, 2019, the State Council Anti-monopoly Commission issued the second and third chapters of the State Council Anti-monopoly Commission's Guidelines on Intellectual Property Rights in the Field of Anti-monopoly, which regulate the possible exclusion and restriction of competition in intellectual property rights agreements and the abuse of a dominant market position involving intellectual property rights in more specific terms. However, the second chapter mainly involves research and development and licensing behavior, and the agreements of competitors in the same industry mainly refer to the agreements of standard formulation, and the drug patent and settlement agreement is still difficult to be included in the specific existing types.
When conducting an antitrust analysis of a patent settlement agreement, it is still necessary to define the relevant product and geographical markets to which the agreement refers, as well as the impact of the settlement agreement itself on competition.
In the Anti-monopoly Guidelines for the Intellectual Property Field issued by the State Council Anti-monopoly Commission, in light of the characteristics of intellectual property, the following factors should also be considered specifically when determining the market dominance of operators:
(1) The possibility of the transaction counterpart turning to technologies or goods that are substitutes and the cost of such a switch;
(II) The extent to which the downstream market relies on goods utilizing intellectual property rights;
(3) The counter-balancing power of the transaction counterparties to the operator.
In determining whether the agreement reaches the level that requires antitrust regulation, it is necessary to consider the market environment and specific transaction scenarios in which the patented drug is located. Referring to the experience of the United States and the European Union, factors that may be considered by the court include the benefits granted to generic drug companies by the agreement itself, the benefits that can be obtained from the expected outcomes of litigation, whether there are ongoing patent infringement suits, etc. In the process of preventing risks and formulating settlements, enterprises should carefully consider whether the settlement terms may trigger the attention of antitrust.