Legal experts have criticised the final report of the European Commission’s inquiry into pharma sector competition for failing to tell drugmakers whether the strategies they use to protect their patents are lawful or not.

The suggestion that the Commission will now increase scrutiny of the sector is likely to have “a chilling effect and could lead to real uncertainty over normal commercial practices the industry considers legitimate,” says Nicola Holmes, senior associate at international law firm Eversheds.

The Commission’s major concern appears to be settlement agreements between originator and generic companies, given that the first case to be opened on the back of the inquiry will examine such agreements between French major Servier and a number of generics makers, adds Ms Holmes. These include Krka, Lupin, Mylan’s Matrix subsidiary, Unichem’s Niche Generics unit and Teva.

Yesterday, the Commission announced that it was investigating the firms for suspected breaches of EU rules on restrictive business practices and abuse of a dominant position which may have hindered the market entry of generic versions of Servier’s cardiovascular drug perindopril. This probe does not form part of the sector enquiry, “but the knowledge acquired during the sector inquiry has allowed the Commission to draw conclusions on the areas where Commission action based on competition law could be appropriate and effective,” according to a statement.

Moreover, the opening of proceedings does not imply that the Commission has proof of the infringements but merely means that it will deal with the cases “as a matter or priority,” it adds.

The inquiry has focused on methods used by innovator companies to protect their products from generic competition, including patenting strategies, disputes and litigation and patent settlements with generics firms, but the question remains whether such strategies are unlawful. “The final report does not offer detailed or definitive guidance on this issue but instead points to broad areas which could raise competition concerns,” comments Suzanne Rab, counsel in the antitrust practice at law firm Hogan & Hartson in London.

The Commission expresses concern that originator companies who can more easily fund litigation than their generic competitors may be doing so for unlawful means; Ms Rab suggests that, if this is the case and a company is in a dominant position, such practices could be challenged as an abuse of market power.

Holistic approach needed
She is disappointed that the Commission does not appear to be planning guidelines on the practices under scrutiny, instead setting out its findings and proposing to pursue individual infringement cases separately while continuing with focused monitoring of the industry. “It would seem preferable for there to be a consolidated statement of the legal framework rather than to let the law develop ad hoc in decided cases. Without such an holistic approach, originator and generic companies, as well as national authorities, are likely to find that there remains a degree of legal uncertainty as to the permissible conduct at the intersection of intellectual property (IP) law and competition law," she says.

However, Gareth Williams, partner at IP firm Marks & Clerk, describes the final report as an “olive branch” to the industry which, he says, will be “breathing a sigh of relief at the decision to investigate individual abuses via the targeted application of competition law, rather than using the blunt instrument of wholesale patent reform which would undermine innovation.”

The investigations announced yesterday are unlikely to represent the start of a sweeping crackdown on the industry, Mr Williams suggests, adding: “all in all, the Commission is in a conciliatory mood, being far more thoughtful in how it allows the wrestling forces of innovation and competition to more peacefully co-exist.”