ACCC proposes to deny authorisation for patent settlement 5 min read
The ACCC proposes to deny authorisation for a patent litigation settlement between Celgene and two generic drug companies. The decision demonstrates a hardening of the ACCC’s views against patent settlements that seek to place restrictions on market participants.
Key takeaways
- The Australian Competition and Consumer Commission (the ACCC) proposes to deny authorisation for a patent litigation settlement between Celgene and two generic drug companies.
- With the repeal of section 51(3) of the Competition and Consumer Act 2010 (Cth) (the CCA), the ACCC is taking a wide view of what could amount to anti-competitive conduct in circumstances that would previously have gone unremarked.
- Patent settlements should be considered carefully and competition issues should be front of mind when seeking to resolve disputes.
Background
Celgene Corporation markets the drugs Revlimid and Pomalyst (with active ingredients lenalidomide and pomalidomide, respectively), which are used to treat certain cancers. Celgene owns patents covering these drugs and/or methods of treatment using these drugs. The Celgene patents directed to lenalidomide are due to expire over the course of 2022, 2023 and 2027, while the Celgene patents directed to Pomalyst are due to expire in 2023.
In late 2020, Juno Pharmaceuticals and Natco Pharma instituted patent proceedings against Celgene, seeking to revoke certain claims of the Celgene patents in order to clear the way for the future launch of their generic lenalidomide and pomalidomide products. Celgene subsequently cross-claimed against Juno/Natco for threatened infringement.
To avoid a lengthy and complex legal dispute, the parties subsequently entered into a settlement agreement that would, among other things:
- end the patent proceedings;
- enable Juno/Natco to bring to market their generic products from a specified launch date for each drug;
- see Juno/Natco agree not to export the generic products; and
- see Juno/Natco agree not to challenge the validity of the Celgene patents.
The agreement is subject to a condition precedent that the ACCC grants authorisation, to shield the parties from potential prosecution under the provisions in the CCA that prohibit cartel conduct. Authorisation is an optional process, through which the parties must satisfy the ACCC that the proposed conduct results in public benefits that would outweigh any public detriments flowing from the loss of competition.
In their authorisation application, the parties submitted that the settlement has ‘clear and substantial public benefits’, in view of the fact that without Juno/Natco being successful in the patent proceedings, they would have to wait until the expiry of all the Celgene patents before launching their generic products, or launch at risk of litigation. The benefits included:
- early entry for generic products and consequent cost savings to the Federal Government;
- greater supply security; and
- litigation cost savings for the parties.
For example, the parties argued that early entry by Juno/Natco would trigger the automatic 25% statutory price reduction under the Pharmaceutical Benefits Scheme (PBS) that occurs upon first generic entry, resulting in costs savings to the Federal Government.
ACCC's concerns
However, the ACCC recently issued a draft determination proposing to deny authorisation. The draft decision seems partly driven by a lack of evidence of the public benefits of the settlement, and ability for the ACCC to consult with potentially interested or affected parties due to the extent of confidential information included in the application.
As to the submission regarding PBS savings, the ACCC said it did not have sufficient evidence as to their significance. Further, it said the potential for any PBS savings needs to be balanced against the potential for the Federal Government to seek damages against Celgene under the usual undertaking as to damages (which is given by a party as a condition for securing an interlocutory injunction). It appears to us that the right to sue for damages is not equal to an imminent cost savings, particularly since it would involve further proceedings.
The ACCC also expressed concern about the level of ‘control and certainty’ over the timing of generic entry the settlement would provide Celgene. However, it is unclear why this raises a particular concern, given the fact that such control and certainty also arise where any patent licence is granted outside a settlement context.
Further, the ACCC considers the settlement is likely to result in public detriment by reducing competitive tension in relation to generic entry. This is because it views the possibility of ‘at risk’ entry by a generic manufacturer, and any subsequent response to entry, to be a key driver of competition in this market. The ACCC said:
…The settlement and licence agreement replaces some of the competitive tension among generic manufacturers of lenalidomide and pomalidomide which are looking to enter the market, by seeking to establish Juno/Natco as the first generic to market. It also affects Celgene’s response to generic entry by removing elements of commercial risk, which, in the absence of the settlement and licence agreement, might generate a more competitive response from Celgene to competitive actions of generic manufacturers. There is a risk that affecting the structure of the relevant markets in this way will result in a public detriment.
The parties and other interested stakeholders have been given the opportunity to address the ACCC’s concerns. Its final decision is expected in May/June 2022.
Implications
This is the first time the ACCC has considered a patent litigation settlement since the repeal of s51(3) of the CCA, which previously provided some exemptions from certain prohibitions of anti-competitive conduct for conditional IP licensing or assignment of IP rights. One of the motives for the repeal was perceived concerns, as reported by the Productivity Commission in its inquiry into IP arrangements, about inadequate ACCC oversight of supposed anti-competitive behaviour in the pharmaceutical and biotechnology sectors, which may have been, in part, attributable to the exemption.
The draft determination demonstrates a hardening of the ACCC’s views against patent settlements that seek to place restrictions on market participants. While regulators around the world have previously expressed concerns about patent settlements that involve ‘pay-for-delay’ – whereby patentees pay generic manufacturers to keep their products off the market before patent expiry – this is not a classic case of that kind.
In light of the draft determination, IP owners should carefully consider any patent settlements and competition issues should be front of mind when seeking to resolve disputes.