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Saturday, February 2, 2013

Pay-for-delay - the story continues. How to end it ?

EUROPA - PRESS RELEASES - Press Release - Antitrust: Commission enforcement action in pharmaceutical sector following sector inquiry: EUROPA - PRESS RELEASES - Press Release - Antitrust: Commission enforcement action in pharmaceutical sector following sector inquiry.

The Commission is right in being tough on deals such as those concluded between branded and generic drugs producers.  These have EU-wide (in fact, worldwide) impact, keeping health spending at higher levels than necessary.  For the drugs manufacturers these are "win-win" situations but on the expense of health assistance budgets and of the consumers.
The irony is that the interaction between patent holders and generic manufacturers arises when the later prepare to start producing the patented drug before the expiration of the patent.  Over time, the patent holders found a way to decrease or even deflect the pressure to open up their monopoly on the product with a soft cushion of monetary compensation paid to the generic manufacturer !
On the other hand, I am skeptical on the efficiency of the public antitrust enforcement alone to put an end to such practices.  On the other hand, I am skeptical on the efficiency of the public antitrust enforcement alone to put an end to such practices.  In terms of pay-for-delay agreements in the pharma industry, there seem to be "too many rabbits in the field" and this will stretch the European Commission resources to the maximum. Private enforcement could lend a hand to this effort as the losses to consumers are large and the damages rather easy to assess.  
Legislative measures could also be put in place in the sense of streamlining the patent protection system.  An additional legal provision - which I consider even more efficient - is to subject such agreements to a presumed illegality, which the parties might, eventually overturn in courts.  Such measures are already contemplated on the other side of the Atlantic - see http://www.nytimes.com/2010/07/07/opinion/07wed2.html?_r=0.  In the EU legislation, overcoming the presumption of illegality would require the issuance of block exemptions regulations, as the exemptions conditions set forth in paragraph (2) of article 101 are too strict and would be difficult to apply.  The interdiction should cover the monetary compensations paid to a generic manufacturer in the context of its challenge to the branded product, not the entire settlement or other payments between the patent holder and the generic manufacturer (although it should be clear that these have no connection whatsoever with the settlement – a difficult endeavor!).
Attention should be paid to the extent of the interdiction because, as noticed in the recent report on pay-for-delay settlements issued by the Federal Trade Commission in January 2013 – see here http://www.ftc.gov/os/2013/01/130117mmareport.pdf - a rather small proportion of settlements (40 out of 140 in the FTC study) involved a compensation.  The number is on the rise and the damages to consumers may be significant, so that the FTC the report was sufficient to renew the initiatives to put an end to the harmful practices – see here http://www.rawstory.com/rs/2013/01/18/senate-considers-ending-pharma-pay-for-delay-deals/
In the end, here there is a delicate (market) balance and anyone should pay attention to both the losses of the consumers but also to the potential chilling effects on branded manufacturers.  It should be borne in mind that the pay-for-delay settlements are just the end of the road (or the tip of the iceberg) in a process which is almost always started by the generic manufacturers, perhaps even with a vexatious litigation.