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As part of that monitoring exercise, the Commission sought information earlier this year on settlement agreements entered into between 1 June 2008 and 31 December 2009.  It received 93 agreements to review and it recently released its first report on its findings. 

The Commission divided the agreements it reviewed into two main types:

• agreements that didn’t restrict generic entry (A)
• agreements that did restrict generic entry (B).

It further divided those agreements that did restrict generic entry into agreements that did not involve value transfer to the generic (B.I) and agreements that did involve value transfer to the generic (B.II).  The B.II settlement agreements are the type of most concern to the Commission because generics are being incentivised to stay out of the market which might reduce competition.

Of the 93 settlement agreements surveyed, 53 were type A and did not restrict the generic from entering a market.   The remaining 40 agreements surveyed were type B and did place restrictions on the generic entering the market.

Of the type B agreements, most (31) did not involve any value transfer from the originator in consideration for that restriction and were therefore B.I.  In these cases it seems the generic was simply prepared for whatever reason to stay out of the market until the originator’s patent had expired.

This leaves 9 agreements which did restrict market entry by the generic and did transfer value to the generic (B.II).  The Commission noted that the value transferred under these agreements was not always by way of a direct payment and the values involved were relatively small.   It was also at pains to stress that these 9 agreements were not the subject of any finding either express or implied.  Rather, they would need to be assessed on a case by case basis if the Commission felt any further investigation was warranted.

So what does this tell us?

• The number of patent settlements continues to trend up.  This might be a result of decreasing appetite for expensive opposition and litigation proceedings or it might be because more proceedings have been brought over recent years.  We have certainly seen evidence of increasing settlement agreements across a number of sectors, not just pharmaceuticals.
• Whereas the Commission was concerned at the number of settlement agreements that may breach competition laws a few years ago, it seems the number that are actually causing concern may be reducing.  The report suggests this may be because companies and their advisors are becoming more aware of competition law issues in the tech transfer space.  A cynic might suggest it could also be because the agreements provided to the Commission for review were not an accurate sample of market activity, but there is no evidence to suggest this is the case. 
• Companies involved in patent oppositions and litigation in the EU and other international jurisdictions still need to be vigilant to ensure the deals they enter into pass muster under applicable competition law.  The Commission states that it expects to continue this monitoring process “for at least another year”.  This need for vigilance also applies in the local New Zealand and Australian markets but the jurisprudence is far more developed internationally and the European Commission is particularly active in this space. 

While reverse patent settlement agreements remain topical, competition law also comes into play regularly in relation to other common tech transfer provisions.  These include no challenge clauses, assignments of improvements developed by licensees, manufacturers and distributors, territorial and market divisions and product tying.  Exporters and licensors in all parts of the world need to keep across international developments in these areas.

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  Mark Hargreaves

  Partner