Generics (UK) Ltd v European Commission.
Date: 2021-03-25
In that regard, it should be recalled at the outset that, if the conduct of undertakings is to be subject to the prohibition in principle laid down in Article 101(1) TFEU, that conduct must not only reveal the existence of coordination between them – in other words, an agreement between undertakings, a decision by an association of undertakings or a concerted practice – but that coordination must also have a negative and appreciable effect on competition within the internal market (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 31).
The latter requirement means, with respect to horizontal cooperation agreements entered into by undertakings that operate at the same level of the production or distribution chain, that the coordination involves undertakings who are in competition with each other, if not in reality, then at least potentially (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 32).
In order to assess whether an undertaking that is not present in a market is a potential competitor of one or more other undertakings that are already present in that market, it must be determined whether there are real and concrete possibilities of the former joining that market and competing with one or more of the latter (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 36 and the case-law cited).
In the case of agreements such as the agreements at issue, the effect of which is temporarily to keep several undertakings outside a market, it must be determined, having regard to the structure of the market and the economic and legal context within which it operates,  whether there would have existed, in the absence of those agreements, real and concrete possibilities for those  undertakings to enter that market and compete with the undertakings established in that market (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 37 and 39).
Specifically, with regard to such agreements occurring in the context of the opening of the market, for a medicine containing an active ingredient that has recently entered the public domain, to the manufacturers of generic medicines, it should be established, by taking due account of the regulatory constraints that are characteristic of the medicine sector and of the intellectual property rights and, in particular, the patents held by the manufacturers of originator medicines relating to one or more processes for the manufacture of an active ingredient that is in the public domain (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraphs 40 and 41), whether the manufacturer of generic medicines has in fact a firm intention and an inherent ability to enter the market, and does not meet barriers to entry that are insurmountable (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 58).
In order to do so, it is necessary to assess, first, whether, at the time when those agreements were concluded, that manufacturer had taken sufficient preparatory steps to enable it to enter the market concerned within such a period of time as would impose competitive pressure on the manufacturer of originator medicines.  Second, it must be determined that the market entry of such a manufacturer of generic medicines does not meet barriers to entry that are insurmountable (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 43 and 45).  Furthermore, a finding of potential competition between a manufacturer of generic medicines and a manufacturer of originator medicines can be confirmed by additional factors, such as the conclusion of an agreement between them at a time when the former was not present on the market concerned (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 54 to 56).
Specifically, with regard to the assessment of whether there are barriers to entry into the market concerned which are insurmountable, the Court has held that the existence of a patent which protects the manufacturing process of an active ingredient that is in the public domain cannot, as such, be regarded as such an insurmountable barrier, regardless of the presumption of validity attached to that patent, since that presumption sheds no light, for the purposes of applying Articles 101 and 102 TFEU, on the outcome of any dispute in relation to the validity of that patent (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 46 to 51).
Consequently, the existence of such a patent does not, as such, mean that a manufacturer of generic medicines who has in fact a firm intention and an inherent ability to enter the market, and who, by the steps taken, shows a readiness to challenge the validity of that patent and to take the risk, upon entering the market, of being subject to infringement proceedings brought by the patent holder, cannot be characterised as a ‘potential competitor’ of the manufacturer of originator medicines concerned (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 46).
As to the remainder, with regard to the characterisation of a concerted practice as a ‘restriction by object’ within the meaning of Article 101(1) TFEU, the Court of Justice has held previously, as the General Court pointed out in paragraphs 133 to 137 of the judgment under appeal, that the concept of restriction of competition ‘by object’ must be interpreted strictly and can be applied only to some agreements between undertakings which reveal, in themselves and having regard to the content of their provisions, their objectives, and the economic and legal context of which they form part, a sufficient degree of harm to competition for the view to be taken that it is not necessary to assess their effects, since some forms of coordination between undertakings can be regarded, by their very nature, as being harmful to the proper functioning of normal competition (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 67 and the case-law cited).
With regard to similar settlement agreements that cover disputes over a process patent for the manufacture of an active ingredient that is in the public domain which have been concluded between a manufacturer of originator medicines and several manufacturers of generic medicines and have the effect of delaying the market entry of generic medicines in exchange for monetary or non-monetary transfers of value from the former to the latter, the Court has held that such agreements cannot be considered to be ‘restrictions by object’ in all cases for the purpose of Article 101(1) TFEU (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 84 and 85).
However, such characterisation as a ‘restriction by object’ must be adopted when it is plain from the examination of the settlement agreement concerned that the transfers of value provided for by it cannot have any explanation other than the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits, since agreements whereby competitors deliberately substitute practical cooperation between them for the risks of competition can clearly be characterised as ‘restrictions by object’ (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraphs 83 and 87).
For the purpose of that examination, it is appropriate to assess on a case-by-case basis whether the net gain of the transfers of value from the manufacturer of originator medicines to the manufacturer of generic medicines was sufficiently significant actually to act as an incentive to the latter to refrain from entering the market concerned and, consequently, not to compete on the merits with the manufacturer of originator medicines; however, there is no requirement that the net gain should necessarily be greater than the profits which that manufacturer of generic medicines would have made if it had been successful in the patent proceedings (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 93 and 94).
While the conclusion by the holder of a patent with a party allegedly infringing that patent of a settlement agreement that does not exceed the scope and duration of remaining validity of the patent does constitute an expression of the intellectual property right of its holder, which permits that holder, inter alia, to oppose any infringement, the fact remains that that patent does not permit its holder to enter into contracts that are contrary to Article 101 TFEU (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 97).
In order for a given agreement to be characterised as a ‘restriction by object’, all that matters are the specific characteristics of that agreement (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C 307/18, EU:C:2020:52, paragraphs 84 and 85) from which any particular harmfulness of that agreement for competition can be inferred, where necessary as a result of a detailed analysis of that agreement, its objectives and the economic and legal context of which it forms part, which is borne out by paragraph 21 of the judgment of 26 November 2015, Maxima Latvija (C‑345/14, EU:C:2015:784).
In that regard, as is apparent from paragraph 60 of  the judgment delivered today in Case C‑591/16 P, Lundbeck v Commission, much like the assessment of whether the parties to a settlement agreement, such as the agreements at issue, are potential competitors, (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 50), an assessment of the strength of the process patents at issue or of the prospects of success of one or other of the parties to the settlement agreement concerned is not relevant for the purpose of characterisation as a ‘restriction by object’, provided that it has been established that it is the prospect of the transfer of value by the manufacturer of originator medicines which induced the manufacturer of generic medicines to refrain from entering the market (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 89), which the General Court did establish, inter alia, in paragraphs 174, 176 and 177 of the judgment under appeal.
When deciding whether to characterise the agreements at issue as ‘restrictions by object’, it is also important to note that, contrary to what is argued by GUK, the General Court was entitled to take into account how the parties perceived their position with regard to patents and their chances of success in the event of litigation at the time they concluded the agreements at issue, as it did in paragraph 214 of the judgment under appeal, in accordance with both the principle that evidence may be freely adduced under EU law (judgment of 27 April 2017, FSL and Others v Commission, C‑469/15 P, EU:C:2017:308, paragraph 38 and the case-law cited) and also with paragraph 26 of the judgment of 25 February 1986, Windsurfing International v Commission (193/83, EU:C:1986:75), as is apparent from paragraph 250 of the judgment under appeal.
Taking into account the uncertainty as to the outcome of patent dispute proceedings, there is no requirement that the transfers of value should necessarily be greater than the profits which the manufacturer of generic medicines concerned would have made if it had ultimately been successful in those proceedings.  All that matters is that those transfers of value are shown to be sufficiently beneficial to encourage that manufacturer of generic medicines to refrain from entering the market concerned and not to compete on the merits with the manufacturer of originator medicines concerned (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 94).
In that respect, it must be recalled, first, that, in the context of an appeal, the purpose of review by the Court of Justice is, inter alia, to consider whether the General Court addressed, to the requisite legal standard, all the arguments raised by the appellant and, second, that the plea alleging that the General Court failed to rule on arguments relied on at first instance amounts essentially to relying on a breach of the obligation to state reasons which derives from Article 36 of the Statute of the Court of Justice of the European Union, applicable to the General Court by virtue of the first paragraph of Article 53 of that statute, and from Article 117 of the Rules of Procedure of the General Court (judgment of 15 October 2020, Deza v Commission, C‑813/18 P, not published, EU:C:2020:832, paragraph 57 and the case-law cited).
In that context, the Court of Justice does not require the General Court to provide an account which follows exhaustively and one by one all the arguments put forward by the parties to the case and the General Court’s reasoning may therefore be implicit, on condition that it enables the persons concerned to know why the General Court has not upheld their arguments and provides the Court of Justice with sufficient material for it to exercise its power of review (judgment of 26 May 2016, Rose Vision v Commission, C‑224/15 P, EU:C:2016:358, paragraph 25 and the case-law cited).
In so doing, the General Court not only fulfilled its duty to state reasons by providing an intelligible and relevant response to the arguments developed by GUK in the context of its action for annulment which seek to establish the favourable effects of the agreements at issue for Merck (GUK), but also reached the standard of review required of it in the context of the assessment of whether the evidence is sufficiently cogent, such evidence having to be put forward by undertakings relying on the exemption under Article 101(3) TFEU, with due regard, moreover, to the Court of Justice’s case-law (judgment of 6 October 2009, GlaxoSmithKline Services and Others v Commission and Others, C‑501/06 P, C‑513/06 P, C‑515/06 P and C‑519/06 P, EU:C:2009:610, paragraphs 82, 83 and 92 to 95).
As to the second argument put forward in the first part of the present ground, alleging a contradiction in the reasoning in paragraphs 212 and 351 of the judgment under appeal, it should be noted that, as is the case with regard to the assessment as to whether the parties to agreements such as the agreements at issue are potential competitors and the assessment of their potential or actual effects on competition where they are not characterised as ‘restrictions by object’ (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 50 and 119), although it is not for the competition authorities or the national courts to assess the strength of the patent concerned or the likelihood that litigation between the patent owner and a manufacturer of generic medicines may lead to a finding that the patent is valid and has been infringed in order to determine whether agreements such as the agreements at issue fall within the characterisation of ‘restrictions by object’ – which is what the General Court found, in essence, in paragraph 212 of the judgment under appeal – the fact remains that those authorities and courts cannot disregard all questions relating to patent law which might influence how such agreements are to be characterised.
In paragraph 351 of the judgment under appeal, the General Court did not in any way assess Lundbeck’s prospects of success in its infringement actions against Merck (GUK) in the event that it made an ‘at-risk’ market entry, but merely noted that there was no certainty as to the chances of success of those actions, which is a factor capable of influencing the characterisation of the agreements at issue (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 98).
As regards the first part of the fifth ground of appeal, alleging that the General Court’s exercise of its power of judicial review was ultra vires, it should be recalled that the EU Courts cannot, in the context of the review of legality referred to in Article 263 TFEU, substitute their own reasoning for that of the author of the contested act and that, although Article 261 TFEU and Article 31 of Regulation No 1/2003 empower the EU Courts, in addition to a mere review of the legality of the penalty, to substitute their own assessment in relation to the determination of the amount of that penalty for that of the Commission, the scope of that unlimited jurisdiction is strictly limited to determining the amount of the fine, which means that the General Court is precluded from altering the constituent elements of the infringement lawfully determined by the Commission in the decision under examination by the General Court (see, to that effect, judgment of 21 January 2016, Galp Energía España and Others v Commission, C‑603/13 P, EU:C:2016:38, paragraphs 73 to 77).
However, it cannot be inferred from the above that, on that basis alone, it substituted the reasoning of the decision at issue, which is not, in fact, open to it in the context of a judicial review of that decision (see, to that effect, judgment of 18 January 2017, Toshiba v Commission,  C‑623/15 P, not published, EU:C:2017:21, paragraph 43).
In relation to the question whether an infringement has been committed intentionally or negligently and is, therefore, liable to be punished by a fine in accordance with the first subparagraph of Article 23(2) of Regulation No 1/2003, it is settled case-law that that condition is satisfied where the undertaking concerned cannot be unaware of the anticompetitive nature of its conduct, whether or not it is aware that it is infringing the competition rules of the Treaty (judgment of 18 June 2013, Schenker & Co. and Others, C‑681/11, EU:C:2013:404, paragraph 37 and the case-law cited).
It follows that the penalty for conduct covered, inter alia, by Article 101(1) TFEU does not in any way presuppose that the undertakings concerned intended to infringe those competition rules. All that matters is whether, objectively, they could determine that their conduct was anticompetitive, including by seeking legal advice where necessary (see, to that effect, judgment of 28 June 2005, Dansk Rørindustri and Others v Commission, C‑189/02 P, C‑202/02 P, C‑205/02 P to C‑208/02 P and C‑213/02 P, EU:C:2005:408, paragraph 219).