The Long-Awaited Court of Justice of the EU Judgments in the Lundbeck Appeals

On March 25, 2021, the CJEU handed down its judgments in six connected appeals, collectively referred to as the Lundbeck case. This concerned a number of agreements entered into by Lundbeck in 2002 with companies engaged in making generic medicines. In return for agreeing not to enter (or to withdraw from) the citalopram market, Lundbeck made significant payments to them and purchased their stocks of generic products. The European Commission held in a June 2013 decision that these arrangements were restrictions of competition by object, as the generic manufacturers were at least potential competitors of Lundbeck. The Commission found that the payments made by Lundbeck were roughly equivalent to the profits they might otherwise have expected to make had they entered the market. Fines totalling 145.9 million were imposed. The parties appealed and lost before the General Court. Below is a summary of the decisions of the CJEU.

Key Findings

By six judgments delivered on March 25, 2021, the Court of Justice of the European Union (‘the Court’) dismissed the appeals brought by six pharmaceutical companies against decisions of the General Court confirming the Commission’s 2013 decision fining the companies for being involved in an agreement seeking to delay the marketing of the generic antidepressant Citalopram.

The Court dismissed altogether the pleas in law and arguments made by the appellants.

On Potential Competition

First, the Court held that the General Court below had not erred in affirming the Commission’s assessment that Lundbeck and each of the generic product manufacturers should be regarded as potential competitors at the time when the agreements at issue were concluded.

The Court noted in the first place that if horizontal cooperation agreements, entered into by undertakings that operate at the same level of the production or distribution chain, are to be found to have infringed A.101(1) of the TFEU, there must not only be coordination between the parties, but those parties must at least be actual or potential competitors. On the key question of whether the undertakings should be regarded as potential competitors, the Court stated that there must be “real and concrete possibilities” that the undertaking outside the market will enter and compete against the incumbent. 

The Court stated that the specific structure and economic and legal context of the market need to be examined.  For medicinal markets, where the active ingredient of medicine has entered the public domain (recently), then the regulatory constraints and IPRs need to be considered. Two tests were laid down:

• Does the generics company (the potential competitor) have, 'in fact,' a ‘firm intention and an inherent ability to enter the market’? and
• Are there barriers to entry that are ‘insurmountable’?

In answering these questions, the Court offered a number of conditions:

• The relevant time for the assessment is when the agreements are entered into, although post-execution evidence might be relevant to demonstrate the existence or absence of a competitive relationship between the parties. This would include evaluating how far in advance of potential market entry the agreements have been struck
• At the time of execution, the potential entrant must have taken sufficient preparatory steps to enable it to enter the market within a period of time that would impose competitive pressure on the incumbent
• It is sufficient if the generics manufacturer has taken preparatory steps which show a readiness to challenge the validity of that patent and to take the risk of being subject to infringement proceedings brought by the holder of that patent, for it to be regarded as a potential competitor
• On the question of ‘insurmountable’ entry barriers, the current validity of an originator’s patent is not by itself sufficient to be regarded as an insurmountable barrier. Further, the Commission has no duty to assess the strength or otherwise of such a patent, nor of the probability of a successful patent challenge being mounted
• On the question of market entry, there is no requirement to establish with certainty that the potential competitor will definitely enter the market successfully – only that it has ‘real and concrete possibilities’ to do so.

On Restriction of Competition ‘by Object’

Second, the Court also ruled that the General Court did not err in law in considering that the agreements at issue constitute restrictions of competition ‘by object’. In other words, there is no obligation on the Commission to prove an anticompetitive ‘effect’ arising from the particular provision.

The Court held that for an agreement to be found to be restrictive of competition ‘by object’, there must be a strict analysis of the provisions of the agreement, having regard to their objectives and the economic and legal context of which the agreement forms part. If sufficient competitive harm can be identified by virtue of the relationship itself, then there is no need to assess the effects of the agreement. The Court noted the following:

• Not all originator/generics agreements which have the effect of delaying market entry in exchange for monetary or non-monetary value transfers will be restrictive by object. This principle has been established already by the Court
• However, if it is obvious from the examination of the agreement(s) that there is no other explanation than that the parties have agreed not to engage in competition on the merits, then the agreement will be regarded as restrictive by object
• This exercise must be carried out on a case-by-case basis
• Is the net gain from the value transfer sufficient to provide an incentive for the generics manufacturer to refrain from entering the market?
• There is no requirement that the net gain be greater than the profits it would otherwise have expected to make
• The exercise of patent rights does not entitle the holder of the patent to enter into agreements that infringe the competition rules. On this point, the Court noted with approval, the General Court finding that even where an agreement contained provisions falling within the subject matter of the IPRs, the holder could not conclude agreements by which the actual or potential competitors were paid not to enter the market.

Conclusions

Even though this judgment brings together 6 separate appeals, there remain a number of uncertainties in dealing with the tensions between originators and generic manufacturers. For example:

• The scope of ‘potential competition’ remains uncertain, as it is defined broadly and successful market entry is not required to be shown for a party to be deemed a potential competitor
• Post-execution evidence is only of limited relevance, when in fact it could be crucial in establishing the extent of the originator’s concern over the patent’s validity
• Reverse payments are not necessarily restrictive of competition, but this is left uncertain
• The tension between the exercise of IPRs and competition law remains to be decided on a case-by-case basis