On 18 October 2023, the General Court issued its judgment in case T-74/21, Teva Pharmaceuticals and Cephalon v. Commission. In this judgment, the General Court upheld the Commission decision against Teva and Cephalon, finding that the patent settlement agreement between them restricted competition by object and by effect (T-74/21).
In 2005, Cephalon Inc. (“Cephalon”) and Teva Pharmaceuticals (“Teva”) (together, the “Parties”) entered into a patent settlement agreement with a view to solve patent infringement proceedings filed by Cephalon against Teva. With these proceedings Cephalon attempted to block Teva from commercialising its generic modafinil products by claiming that this would infringe the different modafinil-related patents that it held in the US and in the EEA.
Modafinil is a wake-promoting agent used for the treatment of certain sleep disorders. It has been commercialised by Cephalon under different brand names (Provigil, Vigil, Modasomil).
The settlement agreement: two restrictive clauses and a package of commercial transactions
In the agreement, Teva committed not to enter the modafinil market independently (“non-compete clause”) and not to challenge Cephalon’s modafinil patent rights (“non-challenge clause”).
The agreement also provided for:
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Teva to license its modafinil-related intellectual property rights to Cephalon;
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Cephalon to license to Teva the use of its Parkinson disease-related data;
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Teva to supply Cephalon with modafinil;
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Teva to become distributor of Cephalon’s modafinil products in the UK;
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Cephalon to grant Teva a non-exclusive right to market generic modafinil products as of 2011-2012;
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Cephalon to pay Teva 5.5 million EUR for avoided litigation costs.
Proceedings
In 2020, the European Commission (“Commission”) adopted an infringement decision for participation in a settlement agreement in exchange for a reverse payment (“pay-for-delay agreement”). According to the Commission decision, because of the agreement, Teva’s entry on the modafinil market was delayed in exchange of significant value transfers from Cephalon, in the form of the package of commercial transactions included in the agreement.
According to the Commission, the conclusion of that agreement amounted to an infringement, by object and by effect, of article 101 TFEU. By way of consequence, it imposed fines of 30 million EUR on each one of the Parties.
Teva and Cephalon (who was acquired by Teva in 2011) appealed the Commission’s decision before the General Court (“GC”) in 2021 (case T-74/21). Four pleas were put forward by the Parties. Of main interest were the pleas contesting the existence of an infringement by object (first plea) and by effect (second plea) of article 101 TFEU.
The GC’s findings
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Was there a ‘by object’ infringement?
The GC started by confirming that, in order to assess whether a patent settlement agreement amounts to a ‘by object’ infringement, a two-part test must be applied (specified in case C‑307/18, Generics (UK)):
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does the transfer of value provided for in the agreement have any explanation other than the commercial interest of the parties not to engage in competition on the merits?
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does the agreement entail pro-competitive effects capable of giving rise to a reasonable doubt that it causes a sufficient degree of harm to competition?
With respect to the first part of the test, the GC specified that a transfer of value may take various forms, such as a direct or indirect payment incorporated into business transactions between the Parties. Such business transactions may indeed provide the generic manufacturer with benefits which it would not have obtained under normal market conditions. In that regard, the GC underlined that, under normal market conditions, it is unusual for the consideration for a transaction to consist of non-compete and non-challenge commitments.
According to the GC, the Commission therefore correctly assessed that the commercial transactions covered by the agreement, regarded as a package and individually, would not have been concluded, on equally favourable terms, absent the non-compete and non-challenge clauses. This assessment does not amount to a counterfactual analysis (which is only carried out when assessing ‘by effect’ infringements).
The GC then examined and confirmed that the sole purpose of each of the commercial transactions included in the agreement was to serve as a transfer of value from Cephalon to Teva in compensation for the non-compete and non-challenge clauses. Taken together, the GC considered that the package of transactions was sufficient to induce Teva to accept these clauses, without it being necessary to assess the individual net value of each transaction.
As to the second part of the test, the GC rejected the Parties’ claim that the settlement agreement included provisions allowing for Teva’s unchallenged early entry on the modafinil market, as Cephalon would grant it a non-exclusive right to market as of 2011. On the contrary, the GC considered that Teva was Cephalon’s most advanced potential competitor on the modafinil market and, as such, had concrete possibilities to enter that market well before 2012 as an independent entrant. By allowing only for Teva’s delayed, controlled and limited entry on the market, these provisions in the agreement were thus not sufficient to give rise to a reasonable doubt that the overall agreement caused a sufficient degree of harm to competition.
The GC therefore confirmed the Commission’s assessment that the agreement between the Parties amounted to a ‘by object’ infringement of article 101 TFEU.
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Was there a ‘by effect’ infringement?
According to the GC, it was sufficient for the Commission to conclude that the agreement entailed potential restrictive effects on competition and that it did not have to establish the actual effects of the agreement. As Teva was a potential competitor on the modafinil market, it was sufficient to establish that the agreement had eliminated potential competition on that market.
The GC also confirmed that restrictive effects must be established by relying on the counterfactual scenario that would have prevailed in the absence of the settlement agreement. In the case at hand, that scenario would have been the one of a continued patent litigation, with Teva having a reasonable chance of success. Given that that scenario allowed for more (potential) competition than the one in which the settlement agreement was signed, the existence of a ‘by effect’ infringement could be established.
Conclusion and next steps
As the GC also rejected the other two pleas of the Parties, the Commission decision was upheld altogether. The Parties may still appeal the judgment to the Court of justice.
Interestingly, the Commission has opened several other antitrust investigations into practices involving patents. One of these also involves Teva and relates to an alleged misuse of patent procedures which could amount to an abuse of dominance (case AT.40588).
For further information about this case and/or for general legal advice relating to European and Belgian competition law, please contact Pierre de Bandt or Tatiana Ghysels