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UK Antitrust Watchdog Slaps $65 Million Fine On Pharma Companies In UK’s First Pay-For-Delay Case

Posted  February 16, 2016

A View from Constantine Cannon’s London Office

By Irene Fraile and Richard Pike

On 12 February 2016, the Competition and Markets Authority (“CMA”), UK’s competition regulator, fined a number of pharma companies for anti-competitive conduct and agreements in relation to the supply of paroxetine (an anti-depressant drug).

The anti-competitive conduct dates back to 2001, when pharmaceutical producers including Alpharma Limited (“Alpharma”) and Generics UK Limited (“GUK”) were preparing to launch their generic versions of paroxetine in the UK. At the time GlaxoSmithKline plc (“GSK”) held certain patents in relation to paroxetine and commercialised a branded version of the drug, Seroxat, which was a “blockbuster” product with annual sales over $130 million in the UK.

GSK commenced litigation proceedings against GUK and Alpharma for patent infringement. However, before the cases went to trial, GUK and Alpharma each entered into settlement agreements with GSK, which included terms prohibiting their independent entry into the UK paroxetine market in return for payments and other value transfers totalling over £50 million (c. $72 million).

According to the regulator, these “pay-for-delay” agreements potentially deprived the National Health Service of the significant price falls that generally result from generic competition, and ultimately harmed patients and taxpayers. The CMA has imposed fines totalling £44.99 million (approximately $65 Million) on the companies directly involved in the infringements (and, where relevant, on their parent companies or successors to these companies).

This case is interesting for a number of reasons. Whereas at a European level there have been a handful of cases so far, this is the first “pay-for-delay” decision in the UK. The agreements and conduct in this case were brought to the UK watchdog’s attention in 2010 by the European Commission, who since 2005 had been investigating claims GSK was trying to block market entry by a different generic manufacturer, Synthon, in relation to paroxetine. However, despite the fact that the European Commission closed that investigation in March 2012, the UK continued pursuing the case on its own. The complexity of the case forced the CMA to extend for more than one year the original case timetable.

The decision to fine the pharma companies is a bold move by the CMA as it and its predecessor, the Office of Fair Trading (“OFT”), have not taken many infringement decisions at all, even including cartels, and have a chequered record in seeking to establish less straightforward infringement cases. For example, although the OFT succeeded in establishing the illegality of so-called “cover-pricing” in the construction cases, it saw a lot of its fines being reduced on appeal. Other novel cases, including those relating to tobacco pricing and alleged supermarket hub-and-spoke arrangements, either failed entirely on appeal or did not result in any infringement decision in the first place.

Although we only have a press release so far, not any version of the decision itself, it is worth mentioning several points that emerge from the description of the legal basis for the fines:

First, although the CMA specifically says that the agreements were aimed at delaying entry onto the UK market, the GSK/GUK agreement (but not the GSK/Alpharma agreement) is said to infringe UK and/or EU antitrust rules. There is, thus, some suggestion that the infringement might have had an effect beyond the UK. This is interesting because it hints at the possibility that there may be overseas purchasers who have been harmed and who may have the right to seek compensation.

Second, in addition to the already mentioned unlawful agreements, GSK’s individual conduct was found to be in and of itself anti-competitive as an abuse of its dominant position. It is interesting that the CMA decided to add these charges despite the well-known complexities and difficulties involved in proving such infringements. This creates a possibility that the (inevitable) appeals could conceivably result in a position where the generic companies are cleared of any wrongdoing but there remains a fine imposed on GSK.

Third, the regulator found that the relevant agreements between the three companies breached competition law by object and/or In doing so, the CMA may have followed the European Commission’s “dual object-effect approach” in pay-for-delay cases, i.e., even though the conduct is found to be “by its very nature” anti-competitive (therefore not strictly having to show any actual or potential anti-competitive effects) the regulator also analyses effects to some, limited extent. In particular, the CMA took into account the fact that when independent generic entry eventually took place at the end of 2003, average paroxetine prices dropped by over 70% in 2 years.

Finally, the decision is interesting because it clarifies that, for the purposes of the UK antitrust assessment, the compensation that the generics producer receives in return for delaying its market entry can take several forms and is not limited to cash payments. In this case the compensation included, other than cash payments, the effective transfer from GSK of profit margins by means of agreements permitting the supply of limited volumes of product to the market in place of GSK. Recently, US courts have similarly held that settlements between drug originators and generics need not involve cash payments in order to be subject to antitrust scrutiny.

GSK is now considering its grounds for appeal. The pharma giant has stated that “GSK and the generics companies entered into these agreements at the time in order to settle costly, complex and uncertain patent disputes. The agreements allowed the generics companies to enter the market early with a paroxetine product and ultimately enabled a saving of over £15m to the NHS.”

GSK trades paroxetine in the U.S. under the name Paxil. Although no “pay-for-delay” case has been brought against the pharma company over Paxil, in 2012 GSK agreed to plead guilty to criminal charges and pay $3 billion in fines for promoting Paxil for unapproved uses.

Despite more and more pay-for-delay cases, such as the one at hand, being decided by competition authorities in Europe, the legal standard for this type of infringement under EU and UK antitrust law is still far from certain. Two cases currently under appeal before the EU courts will most likely shed some light on these issues.

Tagged in: Antitrust Enforcement, International Competition Issues,