Pay for Delay: a Comparative Analysis of India and Other Significant Countries

Further, the Competition will also take in to due account if the Commissioner for Competition decides to put these type of settlements under the garb of the civil or criminal provisions with the some of the civil remedies being levying a penalty in monetary terms or in the worst case scenario, restraining the settlement in being effected and imposed, subject to the quantum of the adverse effects these settlements have, if they have on the competition by asserting the dominant position and its abuse. Herein, the Bureau will have to conduct a thorough scrutiny as to how these settlements would or could the effect of giving rise to Substantial Prevention or Lessening of Competition (S. P. L. C. ).

The Bureau follows a “But-For” analysis for examining if or not there is a Substantial Prevention or Lessening of Competition (S. P. L. C. ), according to which this analysis involves a “Scrutiny of the estimated date when the products’ generic would have been released had there not been a settlement and the delayed date which has been agreed between both the parties for the late entry and the difference and variation between the prices which would have been exiting in each of the situations”. In Canada, since the reverse payment settlements are in contravention to the Section 45 of the Competition Act which enshrines “Conspiracy”, the court under Section 36 gives the power to the those people who fall in the domain of the largest group of customers who have been affected by this practice to file a civil suit in the court to claim the loss they suffered.

India

Much of the Indian perspective and status quo in the stand towards the current regime of Pay For Delay has been molded into shape keeping in light the United States take on this practice. I path breaking research conducted by the American Federal Trade Commission elucidated that the agreements of this nature cause a loss which roughly amounts to 3. 5 Billion U. S. D. to the people of United States alone, which makes it all the more imperative for the Indian pharmaceutical industry to take the requisite steps to tackle this problem. In Indian particularly, the Competition Commission of India is tantamount to the Federal Trade Commission and is the watchdog when it comes to gauging whether settlements which relate to patents deal with reverse payment settlements and in furtherance are illegal or not. Over the course of time, the these two regulatory bodies in India and United States have developed a synergy with each other, wherein the staff of the Competition Department of F. T. C. on many occasions has visited and aided Indian authorities to develop a robust mechanism to deal with this practice, as a result of which in 2012 a Memorandum of Understanding was signed between the two countries, which inter alia stipulates-(1)

The agencies will cooperate as agreed and work to keep each other informed of significant competition policy and enforcement developments, and (2) That the agencies will consult on competition matters and communicate through regular meetings to exchange information on policy and enforcement priorities. The C. C. I. is vested with the power to examine the efficacy of whether an agreement falls under the domain of Pay for Delay by analyzing whether they have a negative impct on the competition by imposing harming consumer interest, establishing arbitrary monopoly and affecting innovation. Under Oredr 23, Rule 3 of the Code of Civil Procedure, 1908, it is enshrined that the Court which has affected the compromise/settlement must pay due regard to the fact as to whether such compromise if a lawful OR unlawful nature.

Moreover, Section 61 read along with Section 60 of the Competition Act expounds that the term “unlawful” has a very wide ambit and with the reason being that these settlements which pertain to Pay for Delay and very varied and diverse in nature and case specific. It is also pertinent to mention that as per Section 32 of the Act, the Commission is also given teeth to have a vast outreach so as to put under its ambit the extra territorial activities of the companies in question and to examine whether their activities could have the possibility of disparaging the competition in India. This stems from the famous case wherein the Commission had to initiate a suo moto enquiry against Unichem Laboratories Ltd. , Matrix Laboratories Ltd. and Lupin Ltd. by E. C. C. In the Servier case so as to delve into the effects which the conduct of these companies was having on the market.

Australia

As seen above settlement agreements are a common phenomenon in pharmaceutical industries and now the author would portray some facts about such agreements with respect to Australia. Australia has a specific Productivity Commission which finds out the anticompetitive “pay for delay” or “reverse settlements” between originators and generics. The ACCC, that is the Australian anticompetitive regulator will look into the matter as a major issue and companies should be ready to tackle it. Till now in Australia there has been no case for pay for delay settlement but if they do enter the market they are in all circumstances due to cause some loss to the competition market. Such situations may rise when:

• Existence of cartel arrangements between generic company and Originator Company wherein restrictions were put up on the generic manufacturer to deal with some goods. The ACCC has already observed that these generic manufacturers are the real competitors in the market and asking them to stop supplying some products is anti competitive in nature.
• Apart from such cartel arrangements, there exists pay for delay arrangements which later result in lessening of competition or be in conflict with any of the provision of competition law.
• There can be agreements wherein a specialized supplier of particular goods is restrained from entering the market and thereby also deterring the competition laws and the provisions of fair competition. Australia while looking into these pay for delay settlements proposed the formation of a new monitoring scheme but it does not find place in the draft agreement. The productivity commission recommended such a measure because there have been no proof of such anticompetitive settlements in Australia which clearly shows the lack of methods which would monitor such activities and not the total absence of such agreements. With the help of such monitoring schemes, the authorities would get a better picture of the pay for delay agreements thereby dissuading these patent settlement agreements.

They would also cover a wide range of agreements regarding those cases which occur outside Australia as well. A recent development took place in September 2016 that the Australian government was handed over its final report by the commission regarding pay for delay settlements.

Although the Australian courts have not adjudicated many disputes regarding competition law and IP issues but the most relevant here being the 2015 decision brought against Pfizer by ACCC regarding the issue of the initiation of an exclusive supply arrangement with the pharmaceuticals with respect to Lipitor, prior to the expiry of its patent in 2012. The decision of the court was that pre-patent expiry tie-up of pharmacies, collectively with the making of bundled opportunities and a unique rebate fund available to pharmacists who entered into the special groups and arrangements or associations turned into not a misuse of market laws, because the conduct had been engaged in to enhance the possibilities of pharmacies persevering with to cope with Pfizer and its atorvastatin products in preference to returning straight away to their usual standard provider.

The court ruled that the conduct carried on by Pfizer was not with the aim of discouraging or stopping an individual from participating freely the competition in the market, rather was just for making Pfizer an active competition. A report was submitted by the Productivity Commission on its inquiry into IP settlements in Australia. Here the Productivity Commission raised pay-for-delay or reverse payment settlements as a capability trouble in Australia and recommended introducing a new scheme which would give a broad coverage technique and capable of tracking (administered via the ACCC) for pay-for-delay settlements. The introduction of the sort of regime could require pharmaceutical companies and the originator to resort patent agreement agreements with the ACCC, giving the ACCC extra visibility of the extent to which reverse settlements are being entered into in Australia, and the details of those agreements to be given to the ACCC.

Germany

Germany has well-known case laws which allow patent settlement agreements if the limitations provided in an agreement still come under the ambit of the objectives of the patent in issue. Although there have been none pay for delay cases in Germany but a careful reading of the German laws would make us believe that such settlements are allowed in Germany. Here, the competition law would eagle eye the reach of the patent and on the conjecture that the patent validity is not determined; such a reverse settlement would succeed the antitrust issues. The CJEU abandoned the long drawn German approach and thereby going by the path of the German Federal Supreme Court’s decision in the case of Bayer v Süllhöfer. In this case the court observed that there is no difference between settlements focusing on putting an end to litigation or who have other objectives, also strictly adhering to a stringent formula to fight pay for delay settlements. Two recent developments by the commission in this respect were the Lundbeck decision and the Perindopril decision in which it observed that Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) was infringed. In the latter one, in para 1137, the Commission scrutinized the amount given by the patent holder to restrict the receiver’s business, mainly whether it intended to recompense the proceeds or income the recipient originally restricted from entering the market. The European Commission although shares the ideology of German courts in such settlements which use the non challenge clauses. In the Süllhöfer case it had advised the use of non challenge clause and allows such settlements of some patent disputes which are genuine in nature.

The Commission observed, “In the context of a settlement agreement, non-challenge clauses are generally considered to fall outside article 101(1) of the Treaty. It is inherent in such agreements that the parties agree not to challenge ex post the intellectual property rights which were the centre of the dispute. Indeed, the very purpose of the agreement is to settle existing disputes and/or to avoid future disputes. ” (TTBER Guidelines 2014, paragraph 242). Apart from going into litigation tedious methods another effective way to fight patent disputes is by agreements or settlements. In cases of patent settlement where the IP rights in controversy are open to license or cross license in exchange for the pull down of the order of dissolution of the right, are considered correct in the eyes of competition law. The issue is regarding the settlements where there is money or value transfer or in other words the reverse payment from the licensor in exchange of limiting the licensee’s access to market, thereby unlawfully restricting competition.

Here, in Germany following the European Union model, these agreements are analyzed on the basis of the Technology Transfer Block Exemption (EU). These are some guidelines which lay down the standards which renders licensing some agreements to be anticompetitive. It is not automatically rendered void rather needs to be assessed carefully. The Commission considers these pay for delay clauses in settlements as undesirable non permissible in which the licensor entices the licensee to not to attack the patent or obstruct the arrival of a new product in the market, thereby reducing the options in the market and being anticompetitive. As there is a lack of such cases in Germany, they thereby seek help from European Commission, which has always looked at it very strictly. Agreements of pay for delay nature between generic and originators are criticized to great extent by the Commission.

• In the case of Lundbeck the Commission imposed a fine on a pharma company named Lundbeck and some other fines on generic producers. The Commission decided, which was later affirmed by the General court also that such pay for delay settlements affect the antitrust rules. The generic companies here agreed with Lundbeck to stay out of competition for some value and other incentives although there was no patent dispute. Thus, this was a clear picture of restraining competition and they were not justified.
• In December 2013 the Commission fined American pharmaceutical organisation Johnson & Johnson and Novartis of Switzerland for the belief of an anticompetitive settlement to put off the marketplace introduction of a inexpensive generic adaptation of the painkiller Fentanyl inside the Netherlands, thereby infringing article 101 TFEU. The Fentanyl choice became no longer appealed.
• Fine imposed by Commission on French pharmaceutical company Servier and five generic producers in the case of Preindopil. They entered into agreements to protect Servier’s product perindopril, from whatever the price imposed by generics. Servier introduced some patent settlements through which it tried to stop these competitiors from entering the market and stopped the entry of generic medicines, violating article 101 AND 102 of TFEU. In the seventh report on the monitoring of patent settlements, by European Commission, there is a case of potential risk originating from such settlements where an originator gives values to generics to restrict their entry into competition. But if the settled right has some objective indications and the restrictions imposed remain within the purview of ambiguity then such antitrust provisions cannot strike a hammer.

China

There have been a lack of cases in China regarding such anti competition law regarding patent settlement disputes and there have been no precedents set in this respect. The law in this area is at its developing stage and therefore its implementation in IPR is difficult. Looking into a settlement agreement intersecting an IP infringement matter, the competition authorities look into whether the person holding the license has violated the monopoly laws either by abusing their dominating position or changing their rates of selling their products. It is observed that while looking into a settlement agreement putting out an IP dispute relating to infringement if the licensor according to competition authorities has violated the Anti monopoly law by abuse of dominant position, charging exhorbitant royalties, tie up agreements or exclusive dealing without any proper cause.

Such settlement of IPR disputes in China are new and thus they have learnt to tackle them from EU and US where generally originator pharma companies enter into agreements with generic to pay them some value to monopolise their position in the market. Such an activity is considered as a horizontal monopoly as it would divide the market or obstruct the introduction of new products. Another case which came up in China is the Qualcomm case where the company was accused of monopolizing its position. It also abused its dominant position to restrain competition in SEP licensing and chip markets.

The following orders were made where it was asked to stop the tie in agreements of non wireless SEPs and they should stop imposing unreasonable and unfair conditions in agreements of licensee. Such as force payment of royalties, or coercive cross licensing, tie in agreements with regard to potential licensees. Another order was that it should not impose the non challenge clause on licensees and no such restrictions should be imposed upon any company which is under the control of Qualcomm.