In today’s decision in Generics (UK) v. Competition and Markets Authority [C-307/18, here], the Court of Justice of the European Union (CJEU) ruled that pay-for-delay agreements may violate Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). Under a pay-for-delay agreement, the holder of a pharmaceutical patent pays generics to stay off the market or delay their entry on the market. The decision is significant because it is the first time the CJEU addresses this issue.
The judgment follows very closey the Opinion of Advocate-General (AG) Kokott, which was only handed down last week [here]. [Says Merpel: perhaps the Court is clearing its docket of important UK referrals before some Brits “celebrate” Brexit Day tomorrow…]

Case background
The case concerns an antidepressant medicine, paroxetine, developed by GlaxoSmithKline (GSK) and protected under various patents. Between 2001 and 2003, GSK entered into agreements with three generics companies. In short, the agreements: (i) put in place distribution arrangements whereby the generics companies would resell GSK-produced paroxetine; (ii) provided for various payments of GSK to the generics companies; and (iii) precluded the generics companies from making, importing or supplying paroxetine in the UK.

In December 2003, another generics company obtained a marketing authorization (MA) for paroxetine in the UK and successfully defended itself against a patent infringement suit brought by GSK. Consequently, the three generics companies terminated their agreements with GSK. The independent market entry of these generics companies had a significant impact on prices: by December 2005, average prices of paroxetine had fallen by around 74%.

Comment by Katfriend Gaëlle Béquet

Any mention of pay-for-delay makes this Kat think of his old friend Gaëlle Béquet, with whom he spent many cheerful evenings when they were both young associates before the Amsterdam patent bar. Gaëlle specializes in competition law and has kindly agreed to share some thoughts on today’s decision by the CJEU.

Play around, but don't kill the competition (Meme Credit: Makeameme.org)

Over to Gaëlle:

The scenario of Generics (UK)is familiar to that in Servier and Lundbeck, heard by the General Court (GC) and Johnson&Johnson a European Commission decision: an originator trying to protect its market position for a blockbuster from generic entry. The CJEU followed the line previously set by the European Commission, the GC and the AG. The decision therefore comes as no surprise for readers following developments in this area.

Originator and generic are potential competitors

The CJEU reiterated that the prohibition to restrict competition pursuant to article 101 TFEU with respect to horizontal cooperation only applies to competitors or potential competitors (§32). Whether a generic, which is not yet on the market, must be considered as potential competition for an originator, depends on its real and concrete possibilities to enter the market, absent the settlement agreements (§37).

Such possibilities require that the generic has taken the necessary preparatory steps to enter the market (e.g. MA, stock of generics,patent litigation), and that there are no insurmountable barriers to entry (§44-45). In line with the AG’s Opinion, the CJEU considered that patents are no such insurmountable barrier because of the uncertainty around the validity of patents and the possibility for a generic to launch-at-risk (§46-51). Unsurprisingly given the overall approach, the CJEU also held that the fact that an interim injunction had been granted does not preclude potential competition (§53).

Taken at face value, there are quite a number of commonly recognized entry barriers present in this case: the medicines sector is characterized by strong entry barriers and is strictly regulated. Also, a launch “at risk” of a generic competing against a blockbuster could lead to a huge exposure of the generic if the patent turns out to be valid and infringed. It follows from established case law that regulatory barriers, access to infrastructures and IP rights can create a so-called “blocking position” on the market (Guidelines Technology Transfer §32-33).

Nevertheless, the CJEU ruled that a competitive relationship was present in this case. The reason for the decision is relatively intuitive: if market players feel the need to conclude an agreement to keep one of them out of a specific market, this is a strong indication that a competitive relationship exists between them (§55). In other words, in a pay-for-delay case, the competition law assessment of the agreements almost precedes the question whether the parties to the agreement are competitors. The CJEU (and before it the GC and AG) seemed to be reasoning to the goal that it wished to achieve.

The CJEU’s considerations around potential competition show that patent-related matters remain a source of constant struggles for competition law. On the one hand, patents are presumed to be valid, creating entry barriers; on the other hand, there is a constant uncertainty regarding the outcome of validity proceedings, which limits the relevance of patent validity as a factor when applying competition law. The economic and legal context around patents makes it difficult to establish whether they are capable of restricting competition that would otherwise have existed – a phenomenon known from cases involving Standard Essential Patents (SEPs).

Agreements that have the object or effect to restrict competition

Also in line with the AG, the CJEU considered that pay-for-delay agreements may have the object to restrict competition (as opposed to agreements having the effect of restricting competition). Qualifying an agreement of restriction by objectreleases a competition authority of the obligation to prove that competition is in fact distorted by the agreement. Hence, the agreement is considered to be harmful to competition by its very nature.

Although the AG condemned the present agreements, the CJEU nuanced the nature of the agreements, stating that they cannot be regarded as agreements bringing to an end entirely fictitious disputes, or designed with the sole aim of disguising a market-sharing or market-exclusion agreement (§76).

The fact that a settlement involves transfers of value (pecuniary or non-pecuniary) by the originator to the generic (a so-called reverse payment) is not sufficient ground to classify it as a “restriction by object”, since those transfers of value may prove to be justified, e.g. to compensate the litigation costs (§85-86). This reverse payment, however, is to be qualified as a restriction by object when it cannot have any explanation other than the commercial interest of both originator and generic (§87).

If the agreement has pro-competitive effects for consumers, those may be taken into account, provided that those are sufficiently significant, so that they justify a reasonable doubt as to whether the settlement agreement harmed competition (§107). A slight reduction in the price of the medicine is in any case no such pro-competitive effect (§109).

A settlement that may not be qualified as a restriction by object may still be a restriction by effect and, therefore, prohibited. This however requires a more thorough analysis of the effects of the agreement for the competition. The CJEU mentioned that the likelihood of success in the validity proceedings, i.e. the validity of the patent in general, is not relevant for this assessment (§121).

Abuse of dominance

After Servier, this is the second EU case where abuse of dominance by the originator was established by the relevant competition authority, next to infringement of the cartel prohibition. In Servier, the GC annulled the Commission decision with respect to the finding of abuse of dominance because the Commission had failed to establish the existence of a dominant position. To that end, the Commission in its assessment of dominance had not sufficiently considered the competitive pressure exerted by other molecules for the treatment of the same disease. The UK Competition Authority seems to have taken this competitive pressure into account and now requests guidance on the concept of the abuse itself.

The CJEU unsurprisingly considered that a dominant undertaking, entering an agreement restricting article 101 TFEU, may at the same time abuse its dominant position. The cumulative effects that restrict competition arising from the conclusion of the various agreements with the different generics may be considered to have a foreclosure effect on the market, ultimately harming consumers.

Take-away message

The take-away message from this decision may be summarized as follows:

• If a generic has taken any preparatory steps to enter the market, it is likely to be considered a potential competitor of the originator. Roughly said, the existence of a horizontal (settlement) agreement between originator and generic already shows potential competition.

• If there is a reverse payment from originator to generic, that has no explanation other than the commercial interest of both parties, it is very likely to be anticompetitive, also when there are certain pro-competitive effects. 

For interested readers, the GC's Servier and Lundbeck decisions provide additional interesting insights on this topic in relation to what should be considered as a value transfer and when licensing and distribution agreements may be considered anticompetitive. For Kats and readers proficient in Dutch, my case notes on the Serviercase can be found hereand here.

Kat friend Rachel Platts provides IPKat readers with a summary of the recent conference on Artificial Intelligence: Challenges for Intellectual Property Law.

On 17 and 18 October 2019, the Academy of European Law (ERA) hosted a conference in Brussels on "Artificial Intelligence: Challenges for Intellectual Property Law". The conference focused on how Artificial Intelligence is, or will impact, on various aspects of IP law.

Day 1, Session 1: Artificial Intelligence at the crossroads

The first presentation, by Robert Kroplewski (solicitor and member of a high-level group of experts on artificial intelligence), discussed the conceptual view of AI and the requirements of the inputs and outputs of such a system. The key take home point from this discussion was the need for AI to be lawful, ethical and trustworthy, all of which will largely stem from the data which are input into the AI system itself. Further discussed was whether there is IP ownership of the data used as the input.

Alain Strowel (Lawyer and Professor of IP and Media Law, Catholic University of Louvain and University Saint-Louis) further discussed the input and output of AI systems, with a focus on the output. What protection is granted to the content generated by an AI system, such as authorship and ownership?

The answer to this question was considered in relation to s178 CDPA--

‘computer generated’ in relation to a work, means that the work is generated by a computer in circumstances such that there is no human involvement’.

The effect on authorship is then considered under s9(3) CDPA--

‘the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken.’

The critical question here is, does AI have human involvement to be granted authorship under UK copyright law? After all, the data which are input into the AI system is usually done so by a human. Strowel was keen to express that he was not in favour of the extension of copyright to cover AI generated works, as it would create too many rights which would ultimately hinder human creativity and innovation.

Cornelia Kutterer (Senior Director, Legal Affairs, Microsoft) discussed AI from an industry perspective and noted some challenges that Microsoft has encountered. The main challenge appeared to be ethics, namely how to make sure that the decisions generated by AI were ethical and fair. Since AI is dependent on the data supplied, if there is discrimination or bias in the data, then AI decisions and outputs may also contain the same discrimination or bias.

Session 2: Protecting Artificial Intelligence through industrial property law

This session, presented by Doris Thums from the European Patent Office, focused on the patentability of AI inventions. Thums raised issues that pose challenges to the patentability of AI inventions, such as obviousness (it may be difficult to define the skilled person). It was suggested that the skilled person can be part of a team, so an AI program could be one of these persons. Further, when considering inventions created by AI, at present the human is not completely removed from the inventive process, such as the inputting data, setting parameters, or combining the results.

In considering whether the EPC and the EPO are equipped to handle the changes which AI and AI-generated inventions may bring, Thums was optimistic. She noted that existing legal norms and their interpretation are adaptable and case law reflects this. The results of case law has a direct impact on practice manuals and examination methods.

Also included in this session was brief input from Taliah Walklett from Nokia (who was quick to dispel common belief that Nokia were no longer around, they simply no longer make mobile phones anymore!), providing an industry perspective on patentability issues. In Walklett’s experience, since AI inventions continue to have a reasonable degree of human input, ownership issues have not arisen in practice. Further, challenges were currently being faced in searching the prior art and how to future-proof patents are being filed now.

After lunch, Vincent Cassiers (Lecturer, UC Louvain) discussed trade secrets in relation to AI under EU law. Discussion centered on the Trade Secrets Directive and how this has impacted on AI inventions, concluding that trying to control the input of AI and the algorithms seemed impractical in the face of the pace of the evolving technology. Instead, the focus should be on an obligation to explain how the processing works and how the decision is taken by the AI to allow transparency.

Session 3: Protecting Artificial Intelligence under EU copyright law

Gerald Spindler (Professor of Civil, Commercial, Business, Multimedia and Telecommunications Law, Göttingen) provided an interesting presentation on copyright law for AI generated creative works. As touched on previously, a key aspect is authorship. Whether copyright can be attributed to an AI generated work will depend on the amount of input from an author/artist in addition to the data input as AI programs are only as good as the data they are trained on.

The level of training which an AI is trained on is a legal ‘grey-zone’. For example, the Rembrandt-project (details here) where an AI program was trained on 346 Rembrandt paintings created an entirely ‘new’ Rembrandt painting. Thus, given the training data was all Rembrandt paintings, was the AI generated work authored by Rembrandt, or the AI?

Session 4: The increasing use of blockchain technologies in the intellectual property world

The last presentation of the day was given by Pascal Asselot (Co-founder and Managing Director of IPwe.com), who focused mainly on the uses of blockchain technology in various IP contexts. The speaker centered on how blockchain would be beneficial in keeping the records systems for trade marks and patents up to date, especially when there have been changes in details or ownership and the information takes a while to filter through the systems. The implication was, with blockchain, this would be automatic.

Day 2, Session 1: Algorithms, predictive decisions and intellectual property law

The second day kicked off with a thought-provoking talk from Florence G’sell (Professor of Private Law, University of Lorraine) on what kind of legal decisions should be delegated to AI; should we have "AI judges" for relatively simple matters? What safeguards should be put in place to ensure that the decisions are ethical and fair?

The concept of algocracy, where decisions are made by AI, machines and code rather than humans, was discussed and whether such decisions would impede human freedom. Algocracy is already filtering into the legal system, for example in Estonia there is a ‘robot judge’ used for small claims decisions.

The next session, by Lee Curtis (partner at HGF Limited), discussed the predictive behaviours of AI when considered in a trade mark context. The key issue raised focused on how AI can affect the purchasing decision for consumers. A brief history of how consumers have chosen products was provided, starting with the 1920’s shop assistants to current predictive shopping models, such as Amazon, which predict what items the consumer wants and provides the information upfront.

The discussion moved on to whether trade mark law was ready for the impact of AI, having regard to core concepts such as ‘imperfect recollection’, ‘phonetic, conceptual and visual comparison’ and ‘confusion’, all of which are very much human behaviours.

Session 2: The use of big data in Artificial Intelligence: between innovation, intellectual property protection and competition law

The last session of the conference was presented by Matthias Leistner (Professor for Civil Law and IP with Information and IT Law at Ludwig Maximilian University of Munich) and Virginie Fossoul (Legal and Policy Officer, European Commission), and discussed the impact of big data and improving access to the data without infringing IP rights.

Leistner commented on whether there would be sufficient creativity in data processed by algorithms (and thus AI programs), such that copyright could apply. Attention was directed to possible limitations and exceptions for copyright protection in light of the Text and Data Mining Directive.

Fossoul commented on the fact that the link between IP and data is not always clear cut or obvious, but that there is a need for IP policy and data policy which is coherent between all countries and member states. At the moment, there is no need for new IP rights specifically in relation to data.

Picture on upper left by Scientus and is licensed under BSDU.

Picture on left courtesy of Rachel Platts.

Picture on lower left by ITU Pictures and is licensed under the Creative Commons Attribution 2.0 Generic license.

Yesterday the IPKat attended the first of the UCL / Howrey LLP Competition Law & Intellectual Property Lecture Series, entitled 'The Role of Economic Analysis in Intellectual Property Law: Implications for Competition Law'. In the hotseat were Professor Bruno van Pottelsberghe de la Potterie (Université Libre de Bruxelles, former Chief Economist of the European Patent Office) and Professor Michael Meurer (Boston University School of Law) with Trevor Soames (Howrey) and Professor Damien Geradin (Tilburg University & Howrey) providing commentary.

The big underlying question was whether antitrust law should be regulating IP, or whether IP needs to 'get its own house in order'. Both speakers identified points where IP should be sorting itself out, though there was no indication of how competition law might step in to help with the process.

Both speakers pointed to major systemic problems with the patent systems in Europe and the US. Prof van Pottelsberghe pointed to the fragmentation of the European patent system, and the costs involved in obtaining a patent before the EPO. Moreover, in the US, it appears to be easier to get a patent (raising possible quality concerns regarding examination). All this makes it more attractive to apply for a US patent, than to use the EPO route initially. At the same time, although the value of patents are going up, the number of filings and the number of claims per application are going up. Also, applicants are finding ways to play the system to maximize the strategic benefits from their patents, filing divisionals being a favourite.

According to Prof Meurer, the US patent system doesn't seem to be doing too much better. He argued that, except for in the chemical and pharma industry, patents appears to be imposing greater costs on businesses than they confer benefits, meaning that they effectively act as a form of tax on business. He compared patents to tangible property and identified notice as a big difference. One seldom accidentally builds on other people's land because one checks the rights out before starting building. This is a far more difficult exercise with patent law, thanks to 'fuzzy' claims in previous patents, the difficulty of accessing information, the facts that patents aren't 'possessed' in the way that tangible property is and the search costs involved in verifying that one is not infringing other people's patents. In many industries, there's just too much prior art to make a search cost-effective, and in the US, the willfulness doctrine (which leads to treble damages) means that it's better to just not know about previous inventions.

The IPKat says that it all makes for a sorry tale. He takes a crumb of comfort from the fact that the speakers appeared to be condemning the patent system, rather than patent law itself. The Kat wonders who's in the best position to sort out such structural failures. He suspects it's not IP lawyers alone. He also notes that attempts to sort out some of the problems (take the European patent as a way of solving fragmentation) are scuppered not by IP-related concerns, but rather greater political concerns, such as language. On the wider issue of the IP/competition law interface, the Kat wonders how much of a role there is for competition law to play. Of course there will always be individual cases of abusive behaviour involving IP, but equally well, there are cases of abusive behaviour involving tangible property and other resources. In general, IP law is alert to the needs of the market, competitors and consumers, and has in-built limits that kick in at a point where antitrust wouldn't even get involves because the effect is limited to individual actors rather than the market as a whole.