Source: EURLEX
Language: en
Format: md

Case T‑74/21

Teva Pharmaceutical Industries Ltd  
and  
Cephalon Inc.

v

European Commission

Judgment of the General Court (Third Chamber, Extended Composition), 18 October 2023

(Competition – Agreements, decisions and concerted practices – Modafinil market – Decision finding an infringement of Article 101 TFEU – Patent dispute settlement agreement – Restriction of competition by object – Characterisation – Restriction of competition by effect – Conditions for exemption under Article 101(3) TFEU – Fines)

1. Agreements, decisions and concerted practices – Adverse effect on competition – Amicable agreement on patents – Agreement concluded between an originator company and a generic medicine undertaking – Agreement containing non-compete clauses and clauses prohibiting patent challenges in favour of the originator company – Consideration consisting in transfers of value – Characterisation of a restriction by object – Criteria – Assessment of whether transfers of value act as an incentive to accepting the non-compete and non-challenge clauses – Taking account of the net gain from all the transfers of value made

   (Art. 101(1) TFEU)

   (see paragraphs 37-56, 162-165)
2. Agreements, decisions and concerted practices – Adverse effect on competition – Amicable agreement on patents – Agreement concluded between an originator company and a generic medicine undertaking – Agreement containing non-compete clauses and clauses prohibiting patent challenges in favour of the originator company – Consideration consisting in transfers of value – Compensation for the litigation costs of the generic company – Transfer of value justified – Condition – Payments corresponding in fact to compensation for the costs of or disruption caused by the litigation between the parties – Condition not satisfied

   (Art. 101(1) TFEU)

   (see paragraphs 150-161)
3. Agreements, decisions and concerted practices – Adverse effect on competition – Amicable agreement on patents – Agreement concluded between an originator company and a generic medicine undertaking – Agreement containing non-compete clauses and clauses prohibiting patent challenges in favour of the originator company – Consideration consisting in transfers of value – Characterisation of a restriction by object – Condition – No pro-competitive effects that are demonstrated, relevant and specifically related to the agreement concerned and sufficiently significant – Condition satisfied

   (Art. 101(1) TFEU)

   (see paragraphs 167-191)
4. Agreements, decisions and concerted practices – Adverse effect on competition – Amicable agreement on patents – Agreement concluded between an originator company and a generic medicine undertaking – Agreement containing non-compete clauses and clauses prohibiting patent challenges in favour of the originator company – Consideration consisting in transfers of value – Characterisation of a restriction by object – Originator company that might obtain the restrictions in question by court decision under patent law – Irrelevant

   (Art. 101(1) TFEU)

   (see paragraph 204)
5. Agreements, decisions and concerted practices – Adverse effect on competition – Criteria for assessment – Distinction between by-object and by-effect restrictions – Restriction by effect – Examination of the operation of competition in the absence of the agreement at issue – Taking account of actual and potential competition – Patent dispute settlement agreement between an originator company and a generic undertaking – Requirement for the Commission to establish the possible competitive situation on the markets concerned without the settlement agreement

   (Art. 101(1) TFEU)

   (see paragraphs 220-255)
6. Agreements, decisions and concerted practices – Prohibition – Exemption – Conditions – Improvement of the production or distribution of goods or contribution to technical or economic progress – Condition not satisfied

   (Art. 101(1) and (3) TFEU; Council Regulation No 1/2003, Art. 2)

   (see paragraphs 262-273)
7. EU law – General principles of law – Legal certainty – Principle that penalties must have a proper legal basis – Commission decision finding an infringement of the competition rules and imposing a fine – Foreseeability of the infringing nature of the penalised conduct – Patent dispute settlement agreement between an originator company and a generic undertaking – Agreement containing non-compete clauses and clauses prohibiting patent challenges in favour of the originator company – Undertakings that could not have been unaware of the problematic nature of the agreement from a competition law perspective

   (see paragraphs 280-287)
8. Competition – Fines – Amount – Determination – Determination of the basic amount – Methodology established by the Guidelines not applied – Whether the Commission is obliged to abide by its previous decision-making practice – No obligation – Infringement of the principles of legal certainty and the protection of legitimate expectations – None

   (Art. 101(1) TFEU; Council Regulation No 1/2003, Art. 23(2); Commission Notice 2006/C 210/02, point 37)

   (see paragraphs 295-305)

Résumé

In 1993, Cephalon, a United States biopharmaceutical company, obtained exclusive rights to the active pharmaceutical ingredient modafinil, sold for the treatment of certain sleep disorders in several countries in the European Economic Area (EEA).

The various national compound patents held by Cephalon for modafinil in the EEA expired at the latest in 2003. However, Cephalon still owned particle size secondary patents and other modafinil-related patents with an expiry date in 2015 in the EEA.

In 2002, Cephalon initiated patent infringement proceedings in the United States against Teva Pharmaceutical Industries Ltd (‘Teva’) and three other generic companies, with a view to preventing them from marketing their generic modafinil products in the United States. Since Teva launched its generic product in the United Kingdom in June 2005, Cephalon also initiated patent court proceedings in the United Kingdom. In turn, Teva filed a counterclaim for revocation.

At the end of 2005, Cephalon and Teva concluded a settlement agreement to end immediately their modafinil litigation in the United States and in the United Kingdom (‘the settlement agreement’). Under that agreement, Teva committed not to enter the market independently and not to compete with Cephalon in the modafinil market (‘the non-compete clause’) and also not to challenge its modafinil patent rights (‘the non-challenge clause’) (together, ‘the restrictive clauses’).

The settlement agreement also provided for a package of commercial transactions relating to, inter alia, the granting of a non-exclusive licence from Teva to Cephalon in respect of its intellectual property rights for modafinil, the supply of modafinil by Teva to Cephalon and the distribution by Teva of Cephalon’s products in the United Kingdom. The payments and royalties involved in the various transactions involved significant transfers of value to Teva. Moreover, the settlement agreement granted a non-exclusive licence to Teva to launch its generic modafinil product, including in the EEA, from 2012 at the latest.

Having found that the settlement agreement infringed the prohibition on agreements, decisions and concerted practices under Article 101 TFEU and Article 53 of the EEA Agreement, the Commission imposed fines on Cephalon and Teva amounting to EUR 30480000 and EUR 30000000, respectively. (
[1](#t-ECR_62021TJ0074_RES_EN_01-E0001)
)

Cephalon and Teva brought an action for annulment against that decision, which is dismissed by the Third Chamber (Extended Composition) of the General Court. In that context, the Court clarifies the recent case-law on patent disputes settlement agreements under EU competition law.

Findings of the Court

In support of their action, the applicants criticised the Commission, inter alia, for committing an error of law and of fact in characterising the settlement agreement as a ‘restriction of competition by object’ for the purposes of Article 101(1) TFEU.

In that respect, the Court recalls, first of all, that it follows from the judgment of the Court in Generics (UK) (
[2](#t-ECR_62021TJ0074_RES_EN_01-E0002)
) that a patent dispute settlement agreement containing clauses restrictive of competition as well as commercial transactions constitutes a restriction by object where the transfers of value stemming from the commercial transactions provided for between the holder of the patent at issue and the party allegedly infringing the patent cannot have any explanation other than their commercial interest not to engage in competition on the merits. It is therefore, without any error in law that the Commission, in the contested decision, examined whether the commercial transactions contained in the settlement agreement would have been concluded without the restrictive clauses in order to ascertain whether they constituted an incentive for Teva to refrain from competing with Cephalon on the merits.

Furthermore, the linking of a business deal concluded between an originator company and a generic company with a settlement agreement containing, as in the present case, non-compete and non-challenge clauses, gives rise to the concern that that complex contractual arrangement, through a transfer of value provided for in the business deal, seeks to induce the generic company to accept those restrictive clauses. In that context, the question whether such a transaction would also have been concluded under normal market conditions forms part of the assessment which the Commission must carry out under Article 101 TFEU. To that end, it must assess whether the net gain from the transfers of value from the originator manufacturer to the generic manufacturer was sufficiently large actually to act as an incentive for the generic manufacturer not to compete on the merits with the originator manufacturer.

In the light of the foregoing, the Court, next, rejects the applicants’ complaints challenging the Commission’s conclusion that the sole purpose of the various commercial transactions provided for in the settlement agreement was, in fact, to serve as a transfer of value from Cephalon to Teva in consideration for Teva’s commitment not to enter independently the markets for generic medicines and not to compete with Cephalon on modafinil.

In that regard, the Court finds that the Commission established, in the contested decision, that each of the business transactions provided for in the settlement agreement had no other purpose than to increase the level of the overall transfer of value to Teva in order to induce it to agree to the restrictive clauses. In addition, the Commission was right to find that the package of commercial transactions was sufficient to induce Teva to accept the non-compete and non-challenge commitments. Indeed, it is apparent from the course of the negotiations, as analysed by the Commission in the contested decision on the basis of the evidence, that both Cephalon and Teva sought to find a combination of transactions representing a certain overall value that was sufficiently beneficial for Teva to accept the restrictive clauses.

The Court rejects, last, Cephalon’s and Teva’s complaints referring to the judgment of the Court in Generics (UK), according to which the pro-competitive effects that the settlement agreement entail precluded its characterisation as a restriction of competition by object.

In that respect, the Court rejects, first, the argument that the settlement agreement accelerated Teva’s independent market entry compared to the situation in which it would not win in the patent court proceedings in the United Kingdom. On that issue, the Court observes that, in order to determine whether pro-competitive effects precluded a finding of a restriction by object, the Commission did not have to examine scenarios where one or other party is successful in a patent dispute.

Second, the Court notes that, although Teva had concrete possibilities of entering the modafinil market in 2005 as an independent entrant, the settlement agreement and Teva’s generic rights relating thereto did not provide for Teva’s entering that market until 2012. Accordingly, that agreement delayed Teva’s market entry by seven years, thus guaranteeing Cephalon that it would not face any competition from Teva during that period. Moreover, Teva’s planned entry into the modafinil market was not independent, in that it relied on a licence and subject to significant royalties. As a result, strong price competition between Teva and Cephalon was unlikely.

Since the other pleas raised by Cephalon and Teva have also proved to be unfounded, the Court dismisses the action in its entirety.

---

(
[1](#c-ECR_62021TJ0074_RES_EN_01-E0001)
) Commission Decision C(2020) 8153 final of 26 November 2020 relating to a proceeding under Article 101 TFEU and Article 53 of the EEA Agreement (Case AT.39686-CEPHALON) (‘the contested decision’).

(
[2](#c-ECR_62021TJ0074_RES_EN_01-E0002)
) Judgment of 30 January 2020, Generics (UK) and Others ([C-307/18](./../../../legal-content/EN/AUTO/?uri=ecli:ECLI%3AEU%3AC%3A2020%3A52&locale=en), [EU:C:2020:52](./../../../legal-content/EN/TXT/PDF/?uri=ecli:ECLI%3AEU%3AC%3A2020%3A52)).

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