Pharmaceutical Sector: EC Competition Rules ./. Patent Sy...

The Preliminary Report has just been published (PDF, caution: 426 pages appear to be a lot of stuff for a preliminary report). It confirms the decline of new chemical entities reaching the market and the delays of generic market entry and highlights some of the possible causes. However, it does not seek to identify wrongdoing by individual companies or to reach any conclusion as to whether certain practices described in the report infringe EC competition law. It aims at providing the Commission with a factual basis for deciding whether further action is needed.

In particular, the Prelimiary Report gives some grave statements on the patent system and its utilisation in the pahrmaceutical sector:

• The pharmaceutical sector is one of the main users of the existing patent system. The number of pharmaceutical-related patent applications before the European Patent Office (EPO) nearly doubled between 2000 and 2007. Contrary to what might be assumed, blockbuster medicines' patent portfolios show a steady rise in patent applications throughout the life cycle of a product. Occasionally they show an even steeper increase at the end of the protection period conferred by the first patent.
• Originator companies filed so-called “patent clusters” - a large number of EU-wide patents (in one case 1300) filed for a single medicine. Documents gathered in the course of the inquiry confirm that an important objective of this strategy is to delay or block the market entry of generic medicines. Certain patent filings occur very late in the life cycle of a medicine. Patent clusters can lead to uncertainty for generic competitors as to whether and when they can start to develop a generic medicine without infringing one of the many (new) patents, even though patent holders admit internally that some of these patents might not be strong. A second instrument used by originator companies appears to be filing "divisional patent" applications. Divisional patent applications are instruments allowing the applicant e.g. to split an initial (parent) application. Examination of divisional applications continues even if the parent application is withdrawn or revoked, which can add to the legal uncertainty for generic companies.
• There were also nearly 700 cases of reported patent litigation with generic companies, which on average lasted nearly three years. The generic companies ultimately won more than 60% of these cases.
• The preliminary findings of the inquiry also suggest that originator companies develop and practise defensive patenting strategies primarily in order to block the development of new competing products. This can lead to obstacles to innovation, in form of higher costs for competing pharmaceutical companies (e.g. for royalties), or in delays.
• The launch of second generation products is often carefully prepared from a patent point of view, in order to ensure that the first generation medicine is adequately protected until the switch takes place. It also requires new patent filings for the second generation product. Whilst it is generally accepted that innovation is often achieved in incremental steps, patents relating to second generation products are sometimes criticised as weak by other stakeholders who argue that they show only a marginal (if any) improvement or additional benefit to the patients.
• Originator companies also concluded more than 200 settlement agreements with generic companies in the EU, in which they agreed on the terms for ending an ongoing litigation or dispute. More than 10% of the settlements were so-called “reverse payment settlements” which limited the entry to the market of the generic medicines and provided for payments from the originator to the generic companies. These payments amounted in total to more than €200 million.
• Generic companies and originator companies are in agreement over the need for a single Community patent and the creation of a unified and specialised patent judiciary in Europe. A significant number of generic companies - and to some extent also originator companies - call upon the EPO to ensure that patents granted are of high quality and to effectively counter patent strategies that may result in unnecessary delays. The inquiry suggests that significant cost and efficiency improvements could be achieved by creating a Community patent and a unified patent judiciary (e.g. by avoiding the high number of essentially parallel court cases, divergent outcomes of cases and the costs associated with multiple national patents and national patent litigation).

The EU Commission / DG Comp is now soliciting the views and comments of interested stakeholders about the preliminary findings of the sector inquiry presented in the Preliminary Report. All stakeholders are invited to submit their comments on this report not later than

January 31, 2009.

All comments should be sent to the following e-mail address: COMPSECTOR- PHARMA@ec.europa.eu. The final report of the sector inquiry is expected in the spring of 2009.

Expect some upcoming discussions on the relationship of patent law, on the one hand, and competition law, on the other hand. With this factual basis at hand, what will the EU Commission be deciding next year concerning the question whether further action is needed?

Addendum:

I just noticed that the EPO has published a press release concerning the above-mentioned Preliminary Report:

"We note with satisfaction that the report does not call the patent system into question, but focuses on the way in which companies make use of patents in the pharmaceutical market. The EPO holds the view that a well-functioning patent system is vital for a sound competition environment", stated EPO President Alison Brimelow. "The Office welcomes the fact that the findings of the report help us to better understand the drivers for the behaviour of the actors in the patent system."

It looks as if Ms Brimelow had expected the worst but issued this comment breathing a sigh of relief.

(Foto: (C) by Curious Expeditions licensed under CC via Flickr)