# C_2021032EN.01000901.xml

| 29.1.2021 | EN | Official Journal of the European Union | C 32/9 |
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29.1.2021

EN

Official Journal of the European Union

C 32/9

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Summary of Commission Decision

of 26 November 2020

relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the EEA Agreement

(Case AT.39686 – Cephalon)

(notified under document C(2020) 8153)

(Only the English text is authentic)

(Text with EEA relevance)

(2021/C 32/07)

On 26 November 2020, the Commission adopted a decision relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the EEA Agreement. In accordance with the provisions of Article 30 of Council Regulation (EC) No 1/2003 (1)
  , the Commission herewith publishes the names of the parties and the main content of the decision, including any penalties imposed, having regard to the legitimate interest of undertakings in the protection of their business secrets.

Introduction

| (1) | The Decision establishes that in a patent dispute settlement agreement (‘Settlement Agreement’) the originator company Cephalon, Inc. (‘Cephalon’, United States) induced its generic challenger Teva Pharmaceutical Industries Ltd. (‘Teva’, Israel), by means of beneficial commercial transactions and some cash payments, not to enter the market with a generic version of the sleeping disorder medicine modafinil. This agreement constitutes a restriction of competition by object and by effect and an infringement of Article 101 TFEU and Article 53 of the EEA Agreement. |
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(1)

The Decision establishes that in a patent dispute settlement agreement (‘Settlement Agreement’) the originator company Cephalon, Inc. (‘Cephalon’, United States) induced its generic challenger Teva Pharmaceutical Industries Ltd. (‘Teva’, Israel), by means of beneficial commercial transactions and some cash payments, not to enter the market with a generic version of the sleeping disorder medicine modafinil. This agreement constitutes a restriction of competition by object and by effect and an infringement of Article 101 TFEU and Article 53 of the EEA Agreement.

| (2) | The Decision orders Cephalon and Teva to refrain from repeating any act or conduct having the same or similar object or effect as the Settlement Agreement and imposes fines on Cephalon and Teva for the period of 4 December 2005 to 12 October 2011. |
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(2)

The Decision orders Cephalon and Teva to refrain from repeating any act or conduct having the same or similar object or effect as the Settlement Agreement and imposes fines on Cephalon and Teva for the period of 4 December 2005 to 12 October 2011.

| (3) | On 23 November 2020, the Advisory Committee on Restrictive Practices and Dominant Positions issued a favourable opinion on the Decision and on the fines imposed on Cephalon and Teva. |
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(3)

On 23 November 2020, the Advisory Committee on Restrictive Practices and Dominant Positions issued a favourable opinion on the Decision and on the fines imposed on Cephalon and Teva.

Settlement Agreement as a restriction by object

| (4) | Provigil is a modafinil-based medicine used for the treatment of excessive daytime sleepiness associated in particular with narcolepsy. It was Cephalon’s best-selling product and its main source of revenue. |
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(4)

Provigil is a modafinil-based medicine used for the treatment of excessive daytime sleepiness associated in particular with narcolepsy. It was Cephalon’s best-selling product and its main source of revenue.

| (5) | At the time of signing the agreement in 2005, Cephalon’s primary patent protecting modafinil had expired. Teva was Cephalon’s most advanced generic rival and the only real competitive threat in Europe. It had already entered in the United Kingdom and was preparing to enter in other countries where it was about to obtain marketing authorisations. It was thus a potential competitor to Cephalon. |
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(5)

At the time of signing the agreement in 2005, Cephalon’s primary patent protecting modafinil had expired. Teva was Cephalon’s most advanced generic rival and the only real competitive threat in Europe. It had already entered in the United Kingdom and was preparing to enter in other countries where it was about to obtain marketing authorisations. It was thus a potential competitor to Cephalon.

| (6) | Cephalon held a number of secondary patents on modafinil. While Cephalon itself had doubts as to the strength of these patents, it was still attempting to enforce them against Teva. Teva was convinced that these patents were both invalid and not infringed (invalidity was, years later, confirmed by courts). Nonetheless, the parties concluded the Settlement Agreement in December 2005. Through Teva’s commitment not to compete and not to challenge Cephalon’s secondary patents, the parties replaced the risks and uncertainty of litigation and competition with the certainty of a market exclusion arrangement. For years, this agreement eliminated Teva as a competitor. |
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(6)

Cephalon held a number of secondary patents on modafinil. While Cephalon itself had doubts as to the strength of these patents, it was still attempting to enforce them against Teva. Teva was convinced that these patents were both invalid and not infringed (invalidity was, years later, confirmed by courts). Nonetheless, the parties concluded the Settlement Agreement in December 2005. Through Teva’s commitment not to compete and not to challenge Cephalon’s secondary patents, the parties replaced the risks and uncertainty of litigation and competition with the certainty of a market exclusion arrangement. For years, this agreement eliminated Teva as a competitor.

| (7) | Teva accepted the non-compete and non-challenge commitments in return for a transfer of significant value from Cephalon. This value transfer was made predominantly through a package of commercial transactions and only in a small part through cash payments. These transactions included, for instance, an agreement for Teva to supply the input material (API) for modafinil to Cephalon at guaranteed prices and volumes whilst Cephalon had already several API suppliers supplying it at lower prices. Another example is a licence to modafinil-related IP rights held by Teva, even if Cephalon had always considered that it did not need such licence. |
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(7)

Teva accepted the non-compete and non-challenge commitments in return for a transfer of significant value from Cephalon. This value transfer was made predominantly through a package of commercial transactions and only in a small part through cash payments. These transactions included, for instance, an agreement for Teva to supply the input material (API) for modafinil to Cephalon at guaranteed prices and volumes whilst Cephalon had already several API suppliers supplying it at lower prices. Another example is a licence to modafinil-related IP rights held by Teva, even if Cephalon had always considered that it did not need such licence.

| (8) | The Decision concludes that these transactions would not have occurred under normal circumstances, either not at all or at least not at the same terms. They have no plausible explanation other than the commercial interest of the parties to agree on not competing in the modafinil markets. The Decision demonstrates that the total value transfer was significant, that the transactions were very attractive to Teva and that it was this package of transactions and payments that induced Teva to stay out of the market. |
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(8)

The Decision concludes that these transactions would not have occurred under normal circumstances, either not at all or at least not at the same terms. They have no plausible explanation other than the commercial interest of the parties to agree on not competing in the modafinil markets. The Decision demonstrates that the total value transfer was significant, that the transactions were very attractive to Teva and that it was this package of transactions and payments that induced Teva to stay out of the market.

| (9) | As a part of the Settlement Agreement, Cephalon granted to Teva a non-exclusive licence to market generic modafinil during the last three years before the expiry of the litigated secondary patents (i.e. from 2012 onwards). In return, Teva would have had to pay Cephalon royalties ranging from 10 % to 20 % of its net profits from the sale of generic modafinil. This licensing agreement was never implemented due to the merger of Teva and Cephalon. The Decision shows that this arrangement actually further delayed Teva’s independent entry and softened price competition between Cephalon and Teva, whilst at the same time it raised barriers to entry for other potential generic competitors. |
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(9)

As a part of the Settlement Agreement, Cephalon granted to Teva a non-exclusive licence to market generic modafinil during the last three years before the expiry of the litigated secondary patents (i.e. from 2012 onwards). In return, Teva would have had to pay Cephalon royalties ranging from 10 % to 20 % of its net profits from the sale of generic modafinil. This licensing agreement was never implemented due to the merger of Teva and Cephalon. The Decision shows that this arrangement actually further delayed Teva’s independent entry and softened price competition between Cephalon and Teva, whilst at the same time it raised barriers to entry for other potential generic competitors.

| (10) | The Decision concludes that the Settlement Agreement amounts to an infringement of Article 101 TFEU and Article 53 of the EEA Agreement as a restriction by object that concerns all but a two Member States (Estonia and Malta) and signatory countries of the EEA. The infringement lasted from 2005 to 2011, when Teva acquired Cephalon. |
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(10)

The Decision concludes that the Settlement Agreement amounts to an infringement of Article 101 TFEU and Article 53 of the EEA Agreement as a restriction by object that concerns all but a two Member States (Estonia and Malta) and signatory countries of the EEA. The infringement lasted from 2005 to 2011, when Teva acquired Cephalon.

Settlement Agreement as a restriction by effect

| (11) | For six EU Member States where the vast majority (over 80 %) of modafinil sales in the EEA occurred, the Decision establishes that the Settlement Agreement also constituted a restriction of competition by effect under Article 101 TFEU. These are France, Germany, the Netherlands, Spain, Sweden and the United Kingdom. The Decision establishes that Cephalon had market power on all of the markets concerned, that Teva was its most advanced competitive threat and that no other generic manufacturer exerted competitive pressure on Cephalon at the time of the Settlement Agreement. |
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(11)

For six EU Member States where the vast majority (over 80 %) of modafinil sales in the EEA occurred, the Decision establishes that the Settlement Agreement also constituted a restriction of competition by effect under Article 101 TFEU. These are France, Germany, the Netherlands, Spain, Sweden and the United Kingdom. The Decision establishes that Cephalon had market power on all of the markets concerned, that Teva was its most advanced competitive threat and that no other generic manufacturer exerted competitive pressure on Cephalon at the time of the Settlement Agreement.

| (12) | The impact of the restrictions imposed on Teva under the Settlement Agreement is compared to the counterfactual scenario of no Settlement Agreement. Absent the Settlement Agreement, Teva would have been likely to continue trying to enter and compete with Cephalon on the modafinil markets. The Decision therefore concludes that the Settlement Agreement eliminated Teva as a potential competitor and preserved Cephalon’s market power. It allowed Cephalon to maintain its significant rents (and the resulting prices) to the detriment of patients and health systems and deterred all other generic challengers from entering the market. |
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(12)

The impact of the restrictions imposed on Teva under the Settlement Agreement is compared to the counterfactual scenario of no Settlement Agreement. Absent the Settlement Agreement, Teva would have been likely to continue trying to enter and compete with Cephalon on the modafinil markets. The Decision therefore concludes that the Settlement Agreement eliminated Teva as a potential competitor and preserved Cephalon’s market power. It allowed Cephalon to maintain its significant rents (and the resulting prices) to the detriment of patients and health systems and deterred all other generic challengers from entering the market.

Fines

| (13) | The Commission imposed a fine of EUR 30 480 000 on Cephalon. The fine was calculated in accordance with the general methodology of the Commission’s 2006 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003. |
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(13)

The Commission imposed a fine of EUR 30 480 000 on Cephalon. The fine was calculated in accordance with the general methodology of the Commission’s 2006 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003.

| (14) | The Commission imposed a fine of EUR 30 000 000 on Teva. This fine was established as a fixed amount in application of point 37 of the Guidelines on fines, because Teva had agreed not to sell generic modafinil and therefore did not have any relevant sales. In establishing the fine, in particular, the Commission took into account that for both Teva and Cephalon the gravity and duration of the infringement are the same as well as the fact that the revenues and profits of an originator company (such as Cephalon) protected by an anticompetitive pay-for-delay agreement are typically higher than the revenues and the profits foregone by a potential generic entrant (such as Teva). The Commission also took into account Teva’s size and negotiating strength. |
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(14)

The Commission imposed a fine of EUR 30 000 000 on Teva. This fine was established as a fixed amount in application of point 37 of the Guidelines on fines, because Teva had agreed not to sell generic modafinil and therefore did not have any relevant sales. In establishing the fine, in particular, the Commission took into account that for both Teva and Cephalon the gravity and duration of the infringement are the same as well as the fact that the revenues and profits of an originator company (such as Cephalon) protected by an anticompetitive pay-for-delay agreement are typically higher than the revenues and the profits foregone by a potential generic entrant (such as Teva). The Commission also took into account Teva’s size and negotiating strength.

| (15) | The Commission also ordered the undertakings concerned to refrain from repeating any act or conduct have the same or similar object or effect. |
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(15)

The Commission also ordered the undertakings concerned to refrain from repeating any act or conduct have the same or similar object or effect.

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(1)  OJ L 1, 4.1.2003, p. 1. Regulation as amended by Regulation (EC) No 411/2004 (OJ L 68, 6.3.2004, p. 1).

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