Generics (UK) Ltd and Others v Competition and Markets Authority.
Date: 2020-01-30
31


Accordingly, 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 (see, to that effect, judgment of 13 December 2012, Expedia, C‑226/11, EU:C:2012:795, paragraphs 16 and 17).
32


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.
36


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 (see, to that effect, judgment of 28 February 1991, Delimitis, C‑234/89, EU:C:1991:91, paragraph 21).
37


Accordingly, when the agreement at issue is one which has the effect of temporarily keeping an undertaking outside a market, it must be determined whether there would have existed, in the absence of that agreement, real and concrete possibilities for that undertaking to enter that market and compete with the undertakings established in that market.
38


Such a criterion means that there can be no finding of a potential competitive relationship as an inference merely from the purely hypothetical possibility of such entry or even from the mere wish or desire of the manufacturer of generic medicines to enter the market. Conversely, there is no requirement that it must be demonstrated with certainty that that manufacturer will in fact enter the market concerned and, a fortiori, that it will be capable, thereafter, of retaining its place there.
39


The assessment of whether there is potential competition must be carried out having regard to the structure of the market and the economic and legal context within which it operates.
40


In that respect, first, as regards, as in the main proceedings, the pharmaceutical sector, the specific features of which with respect to the implementation of EU competition law have previously been noted by the Court (see, to that effect, judgment of 23 January 2018, F. Hoffmann-La Roche and Others, C‑179/16, EU:C:2018:25, paragraphs 65 and 80), and more particularly 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, the effects of which on prices have been emphasised by the referring court, due account must be taken of the regulatory constraints that are characteristic of the medicine sector. One of those constraints is Article 6 of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicines for human use (OJ 2001 L 311, p. 67), as amended by Regulation (EC) No 1394/2007 of the European Parliament and of the Council of 13 November 2007 (OJ 2007 L 324, p. 121, and corrigendum OJ 2009 L 87, p. 174), which provides that no medicine may be placed on the market of a Member State unless an MA has been issued by the competent authorities of that Member State or an authorisation has been granted in accordance with Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicines for human and veterinary use and establishing a European Medicines Agency (OJ 2004 L 136, p. 1), as amended by Regulation (EC) No 219/2009 of the European Parliament and of the Council of 11 March 2009 (OJ 2009 L 87, p. 109) (judgment of 23 January 2018, F. Hoffmann-La Roche and Others, C‑179/16, EU:C:2018:25, paragraph 53).
41


Second, full account must be taken of 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, rights which enjoy a high level of protection in the internal market under Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights (OJ 2004 L 157, p. 45, and corrigendum OJ 2004 L 195, p. 16) and Article 17(2) of the Charter of Fundamental Rights of the European Union (see, to that effect, judgment of 16 July 2015, Huawei Technologies, C‑170/13, EU:C:2015:477, paragraph 57).
42


Further, as the Advocate General stated in point 60 of her Opinion, the perception of the established operator is a factor that is relevant to the assessment of the existence of a competitive relationship between that party and an undertaking outside the market since, if the latter is perceived as a potential entrant to the market, it may, by reason merely that it exists, give rise to competitive pressure on the operator that is established in that market.
43


In the light of the foregoing, in order to assess whether, on the one hand, a manufacturer of originator medicines who is the holder of a process patent for 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 who have entered into an agreement such as those at issue in the main proceedings are potential competitors of each other, it is necessary to determine, first, whether, at the time when that agreement was concluded, the manufacturer concerned of generic medicines 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.
44


Those steps may include the measures taken by the particular manufacturer of generic medicines to put itself in a position to have, within that period, the required administrative authorisations for the marketing of a generic version of the medicine concerned and an adequate stock of that generic medicine either through its own production or through supply contracts concluded with third parties. Of equal relevance in that regard are all the legal steps actually undertaken by that manufacturer with a view to challenging, either as a principal issue or as an incidental question, the process patents held by a manufacturer of originator medicines, or, again, the range of marketing initiatives adopted by the manufacturer of generic medicines in order to market its medicine. Such steps permit the conclusion that a manufacturer of generic medicines has a firm intention and an inherent ability to enter the market of a medicine containing an active ingredient that is in the public domain, even when there are process patents held by the manufacturer of originator medicines.
45


Second, the referring court must determine that the market entry of such a manufacturer of generic medicines does not meet barriers to entry that are insurmountable.
46


In that regard, 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 an insurmountable barrier, and does not 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.
47


The arguments of the companies on whom the CMA imposed penalties in relation to (i) the presumption of validity attached to a process patent held by the manufacturer of originator medicines, (ii) the uncertain outcome of the dispute as to the validity of that patent, and (iii) the existence of injunctions granted by a national court, whereby the manufacturers of generic medicines are on an interim basis prohibited from selling the generic version of the originator medicine at issue, cannot undermine that finding.
48


As regards, in the first place, the argument that the validity of the patent concerned should be presumed, it is common ground that such a presumption is the automatic consequence of the registration of a patent and its subsequent issue to its holder. That factor therefore 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, something which, moreover, cannot ever be known as a result of the very conclusion of the agreement between the holder of the process patent and the manufacturer concerned of generic medicines.
49


If it were to be accepted that the presumption of validity of a process patent relating to an active ingredient that is in the public domain precludes the holder of that patent from being in a relationship of potential competition with any party that is allegedly infringing that patent on the market of the medicine containing that active ingredient, that would have the consequence, as regards agreements such as those at issue in the main proceedings, that Article 101 TFEU would be deprived of all meaning and that would be liable, thereby, to frustrate EU competition law (see, by analogy, judgment of 13 July 1966, Consten and Grundig v Commission, 56/64 and 58/64, EU:C:1966:41, p. 346).
50


Admittedly, as stated by the Advocate General in point 83 of her Opinion, that does not mean that the competition authority concerned must disregard any question relating to patent law that might influence the finding of the existence of such a competitive relationship. Any patents protecting an originator medicine or one of its manufacturing processes are indisputably part of the economic and legal context characterising the relationships of competition between the holders of those patents and the manufacturers of generic medicines. However, the assessment of the rights conferred by a patent, to be carried out by the competition authority, must not consist of a review of the strength of the patent or of the probability of a dispute between the patent holder and a manufacturer of generic medicines being brought to an end with a finding that the patent is valid and has been infringed. That assessment must rather concern the question whether, notwithstanding the existence of that patent, the manufacturer of generic medicines has real and concrete possibilities of entering the market at the relevant time.
51


To that effect, account must be taken of, inter alia, the following: that the uncertainty as to the validity of patents covering medicines is a fundamental characteristic of the pharmaceutical sector; that the presumption of validity of a patent for an originator medicine does not amount to a presumption that a generic version of that medicine properly placed on the market is illegal; that a patent does not guarantee protection against actions seeking to contest its validity; that such actions, and, in particular, the ‘at risk’ launch of a generic medicine, and the consequent court proceedings, commonly take place in the period before or immediately after the market entry of such a generic medicine; that, to obtain an MA for a generic medicine, there is no requirement to prove that that marketing does not infringe any originator medicine patent rights; and that, in the pharmaceutical sector, potential competition may be exerted before the expiry of a compound patent protecting an originator medicine, since the manufacturers of generic medicines want to be ready to enter the market as soon as that patent expires.
54


Third, the finding that a manufacturer of generic medicines has a firm intention and an inherent ability to enter the market of an active ingredient that is in the public domain, if not called into question by the existence of insurmountable barriers to such market entry, can be confirmed by additional factors.
55


In that regard, the Court has previously had occasion to acknowledge that the conclusion of an agreement between a number of undertakings, operating at the same level in the production chain, some of which had no presence in the market concerned, constitutes a strong indication that a competitive relationship existed between those undertakings (see, by analogy, judgment of 20 January 2016, Toshiba Corporation v Commission, C‑373/14 P, EU:C:2016:26, paragraphs 33 and 34).
56


A further such indication is the intention, made known by a manufacturer of originator medicines and acted upon, to make transfers of value to a manufacturer of generic medicines in exchange for the postponement of the latter’s market entry, even though the former claims that the latter is infringing one or more of its process patents. The greater the transfer of value, the stronger the indication.
58


In the light of the foregoing, the answer to Questions 1 and 2 is that Article 101(1) TFEU must be interpreted as meaning that a manufacturer of originator medicines who is the holder of a manufacturing process patent for an active ingredient that is in the public domain, on the one hand, and the manufacturers of generic medicines who are preparing to enter the market of the medicine containing that active ingredient, on the other, who are in dispute as to whether that patent is valid or whether the generic medicines concerned infringe that patent, are potential competitors, where it is established that 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, which it is for the referring court to assess.
63


It follows that that provision, as interpreted by the Court, makes a clear distinction between the concept of restriction by object and the concept of restriction by effect, evidence with regard to each of those concepts being subject to different rules.
64


Accordingly, as regards practices characterised as ‘restrictions by object’, there is no need to investigate their effects nor a fortiori to demonstrate their effects on competition in order to classify them as ‘restrictions of competition’, within the meaning of Article 101(1) TFEU, in so far as experience shows that such behaviour leads to falls in production and price increases, resulting in poor allocation of resources to the detriment, in particular, of consumers (judgment of 19 March 2015, Dole Food and Dole Fresh Fruit Europe v Commission, C‑286/13 P, EU:C:2015:184, paragraph 115 and the case-law cited).
67


It is clear from the Court’s case-law that the concept of restriction of competition ‘by object’ must be interpreted strictly and can be applied only to some concerted practices 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 (judgments of 26 November 2015, Maxima Latvija, C‑345/14, EU:C:2015:784, paragraph 20, and of 23 January 2018, F. Hoffmann-La Roche and Others, C‑179/16, EU:C:2018:25, paragraphs 78 and 79).
83


Further, the Court has also held that agreements whereby competitors deliberately substitute practical cooperation between them for the risks of competition can be characterised as ‘restrictions by object’ (see, to that effect, judgment of 20 November 2008, Beef Industry Development Society and Barry Brothers, C‑209/07, EU:C:2008:643, paragraph 34).
84


That said, it is indeed possible that a manufacturer of generic medicines finding itself in the situation envisaged by the referring court in Questions 3 to 5, after assessing its chances of success in the court proceedings between it and the manufacturer of the originator medicine concerned, may decide to abandon entry to the market concerned and, in that context, may conclude with the manufacturer of the originator medicine an agreement in settlement of those proceedings. Such an agreement cannot, however, be considered, in all cases, to be a ‘restriction by object’, within the meaning of Article 101(1) TFEU.
85


The fact that such an agreement involves transfers of value, either pecuniary or non-pecuniary, made by the manufacturer of the originator medicine to the manufacturer of generic medicines is not sufficient ground to classify it as a ‘restriction by object’, since those transfers of value may prove to be justified, that is, appropriate and strictly necessary having regard to the legitimate objectives of the parties to the agreement.
86


That may, in particular, be the case where the manufacturer of generic medicines receives 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, or that correspond to remuneration for the actual supply, immediate or subsequent, of goods or services to the manufacturer of the originator medicines. That may also be the case when the manufacturer of the generic medicines discharges undertakings, particularly financial, given by the patent holder to him, such as a cross-undertaking in damages.
87


However, such a characterisation as a ‘restriction by object’ must be adopted when it is plain from the analysis 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.
88


As stated by the Advocate General in point 114 of her Opinion, the conclusion of an agreement under which a competitor of the patent holder undertakes not to enter the market and to cease its challenge to the patent in exchange for payment of a substantial sum, the sole consideration for which is that undertaking, amounts precisely to ensuring protection for that patent holder against actions seeking the revocation of its patent and to establishing a presumption that the products which may be put on the market by its competitor are unlawful. Therefore, it cannot be maintained that entering into such an agreement falls within the exercise, by the patent holder, of its prerogatives stemming from the object of the patent. That is all the more the case when it is for public authorities and not private undertakings to ensure compliance with statutory requirements.
89


Accordingly, it cannot be asserted that the conclusion of such an agreement represents, on the part of the manufacturers of generic medicines, no more than their recognition of patent rights, presumed to be valid, of the holder of that patent. If the patent holder makes, in their favour, a significant transfer of value, the sole consideration for which is their undertaking not to enter the market and no longer to challenge the patent, that indicates, in the absence of any other plausible explanation, that it is not their perception of the patent’s strength, but the prospect of that transfer of value which has induced them to refrain from entering the market and challenging the patent.
93


Last, if that is not the case, it has to be determined whether that net gain is sufficiently large actually to act as an incentive to the manufacturer concerned of generic medicines to refrain from entering the market concerned.
94


In that regard, taking into account the uncertainty as to the outcome of those proceedings, there is no requirement that the transfers of value should necessarily be greater than the profits which the manufacturer of generic medicines would have made if it had been successful in the patent proceedings. All that matters is that those transfers of value are shown to be sufficiently beneficial to encourage the 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.
97


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 (see, to that effect, judgment of 31 October 1974, Centrafarm and de Peijper, 15/74, EU:C:1974:114, paragraph 9), the fact remains that, as also observed by the Advocate General in point 114 of her Opinion and as stated in paragraph 79 of the present judgment, that patent does not permit its holder to enter into contracts that are contrary to Article 101 TFEU.
98


Second, the fact that there is uncertainty as to the validity of the patent, whether that is due to the existence of a genuine dispute between the holder of that patent and the particular manufacturer of generic medicines, the existence of court proceedings prior to the conclusion of the settlement agreement at issue or, last, the granting of an interim injunction by a national court prohibiting the party allegedly infringing the patent from entering the market, in exchange for the holder of the patent concerned giving a cross‑undertaking in damages, is again of no relevance to the question of whether characterisation as a ‘restriction by object’ can be ruled out.
103


Last, and in response to Question 5, it must be observed that, where the parties to that agreement rely on its pro-competitive effects, those effects must, as elements of the context of that agreement, be duly taken into account for the purpose of its characterisation as a ‘restriction by object’, as recalled in paragraph 67 of the present judgment and in point 158 of the Opinion of the Advocate General, in so far as they are capable of calling into question the overall assessment of whether the concerted practice concerned revealed a sufficient degree of harm to competition and, consequently, of whether it should be characterised as a ‘restriction by object’.
106


Further, as again observed by the Advocate General in point 166 of her Opinion, the mere existence of such pro-competitive effects cannot as such preclude characterisation as a ‘restriction by object’.
107


If such effects are demonstrated, relevant and specifically related to the agreement concerned, those pro-competitive effects must be sufficiently significant, so that they justify a reasonable doubt as to whether the settlement agreement concerned caused a sufficient degree of harm to competition, and, therefore, as to its anticompetitive object.
115


As stated in paragraph 66 of the present judgment, in the event that analysis of the concerted practice concerned does not reveal a sufficient degree of harm to competition, it is then necessary to examine the effects of that practice and, in order to classify that practice as a ‘restriction of competition’ within the meaning of Article 101(1) TFEU, to identify the factors which establish that competition was, in fact, prevented, or restricted, to an appreciable extent.
118


In order to assess the effects of a concerted practice with regard to Article 101 TFEU, competition should be assessed within the actual context in which it would occur in the absence of the agreement in dispute (judgment of 11 September 2014, MasterCard and Others v Commission, C‑382/12 P, EU:C:2014:2201, paragraph 161).
119


It follows that, in a situation such as that at issue in the main proceedings, the establishment of the counter-factual does not involve, on the part of the referring court, any definitive finding in relation to the chances of success of the manufacturer of generic medicines in the patent proceedings or to the probability of the conclusion of a less restrictive agreement.