Arrow Group ApS and Arrow Generics Ltd v European Commission.
Date: 2021-03-25
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 (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).
When the agreements at issue, such as those issue in the present case, have the effect of temporarily keeping a number of 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).
As regards more particularly such agreements arising in the context of the opening of a market, of a medicine containing an active ingredient that has recently entered the public domain, to the manufacturers of generic medicines, it must be determined, taking due account of the regulatory constraints that are characteristic of the medicine sector and the intellectual property rights and, in particular, the patents held by the manufacturers of originator medicines relating to one or more processes of manufacturing 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 that market entry 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 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, the 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 even though the manufacturer of generic medicines 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).
As regards, in particular, the assessment of whether there are insurmountable barriers to entry on the market concerned, the Court has stated 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, notwithstanding the presumption of validity attached to that patent, since it sheds no light, for the purposes of the application of Articles 101 and 102 TFEU, on the outcome of any dispute relating 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 cannot, 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 the originator medicines concerned (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 46).
Apart from the fact that it does not follow either expressly or even implicitly from paragraph 132 of the judgment under appeal, to which the appellants refer, that they would have been required to provide such a demonstration, it must be recalled that, as regards agreements such as the agreements at issue, it is not for the Commission to carry out a review of the strength of the patent in question or of the probability of a dispute between the holder of that patent and a manufacturer of generic medicines being brought to an end with a finding that that patent is valid and has been infringed (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 50).
While it is true that the matter of whether, on the one hand, a manufacturer of originator medicines who is the holder of a patent which protects the manufacturing process of an active ingredient that is in the public domain and, on the other, a manufacturer of generic medicines preparing to enter the market of the medicine containing that active ingredient are potential competitors of each other is to be made by reference to the time when the agreement between them was concluded (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 43), it cannot be inferred in particular, as the appellants maintain, that the events and conduct of the parties to that agreement which predated the conclusion of that agreement must not be taken into account. On the contrary, and as is apparent from the case-law referred to in paragraphs 42 and 43 of the present judgment, such events and conduct, for example the steps to obtain an MA or to modify an existing MA, are decisive for the purposes of that assessment, in that they contribute to establishing the firm intention and the inherent ability of the manufacturer of generic medicines to enter the market.
As the Court held in the judgment delivered on today’s date in Case C‑591/16 P, Lundbeck v Commission (paragraph 74), while the matter of whether two undertakings operating at the same level of the production chain are potential competitors must be assessed in the light of the objective factors identified in paragraph 43 of the present judgment, that matter can nevertheless be confirmed by additional factors (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 54), including factors which are subjective in nature (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 42), so long as those are not decisive for the purposes of the assessment conducted, as the General Court noted, in essence, in paragraph 88 of the judgment under appeal.
Accordingly, the General Court did not fail to fulfil its obligation to state reasons since the statement of reasons of the judgment under appeal enables the appellants to know why it has not upheld their arguments and provides the Court of Justice with sufficient material for it to exercise its power of review (judgment of 5 July 2011, Edwin v OHIM, C‑263/09 P, EU:C:2011:452, paragraph 64 and the case-law cited).
Even if, by the fourth part of the first ground of appeal, the appellants criticise the General Court’s interpretation of the Paroxetine judgment, it must be recalled that, as regards the General Court’s interpretation of national case-law, the Court of Justice has jurisdiction, on appeal, only to determine whether that case-law was distorted, and the distortion must be obvious from the documents on its file (see, to that effect, judgments of 21 December 2016, Commission v Hansestadt Lübeck, C‑524/14 P, EU:C:2016:971, paragraph 20, and of 5 July 2011, Edwin v OHIM, C‑263/09 P, EU:C:2011:452, paragraph 53). However, the appellants have neither alleged nor, a fortiori, established such distortion.
Under the first part of the second ground of appeal, the appellants complain that the General Court disregarded the fact that an agreement which is merely capable of restricting competition is not a ‘restriction by object’ where it has not been established that the restriction at issue reveals a sufficient degree of harm to competition, as is apparent from paragraph 69 of the judgment of 11 September 2014, CB v Commission (C‑67/13 P, EU:C:2014:2204). In that respect, the appellants state that whilst there was a chance that they could have had Lundbeck’s UK crystallisation patent declared invalid, there was also a reasonable chance that they would have failed to do so. Therefore, they argue that the agreements at issue solely may have had the potential to restrict competition, which is not sufficient to characterise them as a ‘restriction by object’, having regard to the harm threshold required in paragraph 57 of that judgment and the requirement in paragraph 58 of the same judgment that the concept of ‘restriction by object’ be interpreted restrictively.
As the General Court stated in essence in paragraphs 215 to 219 of the judgment under appeal, the concept of restriction of competition ‘by object’ must be interpreted strictly and can be applied only to certain 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).
As regards similar dispute settlement agreements relating to a process patent for the manufacture of an active ingredient that is in the public domain concluded between a manufacturer of originator medicines and a number of manufacturers of generic medicine and which had the effect of delaying the entry of generic medicines on the market in return for monetary or non-monetary transfers of value from the former to the latter, the Court has held that such agreements cannot in all cases be regarded as ‘restrictions by object’ within the meaning 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, characterisation as a ‘restriction by object’ must be adopted where it is plain from the analysis of the settlement agreement concerned that the transfers of value provided for by that settlement agreement 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, in so far as agreements by which competitors deliberately substitute practical cooperation between them for the risks of competition clearly can 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 purposes of that analysis, it is necessary, in each individual case, to assess whether the net gain from the transfers of value by the manufacturer of originator medicines to the manufacturer of generic medicines was sufficiently large to act as an incentive to the manufacturer of generic medicines to refrain from entering the market concerned and, therefore, not to compete on the merits with the manufacturer of originator medicines, without it being necessary for that net gain necessarily to be greater than the profits which the 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).
It follows from the foregoing that the characterisation of agreements such as the agreements at issue as a ‘restriction by object’ presupposes, as is also apparent from paragraph 131 of the judgment delivered on today’s date in Case C‑591/16 P, Lundbeck v Commission, an assessment of the specific characteristics of those agreements, which must be used to infer the potential harmfulness of that agreement for competition, where necessary as a result of a detailed analysis of those agreements, their objectives and the economic and legal context, in the context of which the amount of the transfers of value is of particular importance (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others,  C‑307/18, EU:C:2020:52, paragraph 89).
In that regard, while it is true that the Court of Justice has acknowledged that the manufacturer of generic medicines may receive from the manufacturer of the originator medicine sums that correspond in fact to compensation for the costs of or disruption caused by the litigation between them, such as when the manufacturer of the generic medicines discharges undertakings, particularly financial, given by the patent holder to him or her, such as a cross-undertaking in damages (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 86), it must be stated that, in the present case, apart from the fact that the appellants did not rely on that justification in support of their action for annulment and in particular within the fourth part of their third plea in law, it is common ground that, at the time when the agreements at issue were concluded, Lundbeck had provided no undertaking of that type.
Finally, in so far as, under the third part of their second ground of appeal, the appellants criticise the General Court for having accepted that the Commission could establish the anticompetitive object of the agreements at issue without having to carry out an examination of the ‘counterfactual scenario’, it must be stated, as is also apparent from paragraph 139 of the judgment of today’s date in Case C‑591/16 P, Lundbeck v Commission, that that examination enables the effects of a concerted practice with regard to Article 101 TFEU to be assessed when the analysis of that practice does not reveal a sufficient degree of harm to competition to enable it to be characterised as a ‘restriction by object’ (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraphs 115 and 118 and the case-law cited).
Consequently, as the Court held in the judgment of today’s date in Case C‑591/16 P, Lundbeck v Commission  (paragraph 140), and so as not to disregard the clear distinction between the concepts of ‘restriction by object’ and ‘restriction by effect’ arising from the wording itself of Article 101(1) TFEU (judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 63), an examination of the ‘counterfactual scenario’, the purpose of which is to make apparent the effects of a given concerted practice, cannot be required in order to characterise a concerted practice as a ‘restriction by object’.
As regards the first part of the third ground of appeal, and as the General Court correctly pointed out in paragraph 371 of the judgment under appeal, an undertaking may be punished for conduct falling within the scope of Article 101(1) TFEU where that undertaking could not have been unaware of the anticompetitive nature of its conduct, whether or not it was aware that it was infringing the competition rules of the Treaty (see, to that effect, judgment of 18 June 2013, Schenker & Co. and Others, C‑681/11, EU:C:2013:404, paragraph 37).
It follows that the fact that that undertaking has characterised wrongly in law its conduct upon which the finding of the infringement is based cannot have the effect of exempting it from imposition of a fine in so far as it could not be unaware of the anticompetitive nature of that conduct (judgment of 18 June 2013, Schenker & Co. and Others, C‑681/11, EU:C:2013:404, paragraph 38).