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Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition
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Imperfect European Patent Enforcement System on the Assessment of Reverse Payment Settlements - Romano Subiotto – June 2014 OECD discussion on Generic pharmaceuticals and competition

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This presentation by Romano Subiotto was made during a roundtable discussion on generic pharmaceuticals and competition held at the 121th meeting of the OECD Competition Committee on 18 June 2014. …

This presentation by Romano Subiotto was made during a roundtable discussion on generic pharmaceuticals and competition held at the 121th meeting of the OECD Competition Committee on 18 June 2014. Find out more at http://www.oecd.org/daf/competition/generic-pharmaceuticals-competition.htm

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  • 1. © 2014 Cleary Gottlieb Steen & Hamilton LLP. All rights reserved. Throughout this presentation, “Cleary Gottlieb” and the “firm” refer to Cleary Gottlieb Steen & Hamilton LLP and its affiliated entities in certain jurisdictions, and the term “offices” includes offices of those affiliated entities. Romano Subiotto QC Partner, Cleary Gottlieb Steen & Hamilton LLP, Brussels and London The Implications Of The Imperfect European Patent Enforcement System On The Assessment Of Reverse Payment Settlements OECD – Roundtable on “Generic Pharmaceuticals II”, June 18, 2014
  • 2.  Settlements of patent disputes between originators and generics that contemplate a value transfer from the originator to the generic (a/k/a pay-for- delay)  EU Commission’s assessment based on two key criteria: • Does the settlement restrict generic entry? • Does the settlement foresee a value transfer from the originator to the generic?  In Lundbeck the EU Commission found that reverse payment settlements = restrictions of competition by object  In Actavis the U.S. Supreme Court held that reverse payment settlements subject to rule of reason Reverse Payment Settlements 2
  • 3.  Three key factors potentially leading to a hold-up of an originator company that create incentives to make reverse payments to generics even if the originator’s patent position is strong: • Ex ante enforcement. Limited availability of effective preliminary injunction preventing the sale of infringing products • Ex post enforcement. Partial compensation for the harm caused by an infringing entry if the originator ultimately wins in litigation • No unified patent judiciary. Absence of a unified patent judiciary leads to enforcement efforts scattered across all EU countries where the originator’s patent rights are infringed The Imperfect European Patent Enforcement System 3
  • 4.  Considerable hurdles and delays in obtaining preliminary injunctions  Preliminary injunctions may not be available if: • The patent infringement case is complex (e.g., the Netherlands) • The patent is challenged in contradictory proceedings – EPO oppositions, or nullity actions (e.g., Germany) • Abusive or delaying tactics by defendants Limited Availability Of Effective Preliminary Injunctions 4
  • 5.  Difficulties with ex ante enforcement would not matter if an originator could protect itself through damages awards (ex post enforcement)  Yet, an originator is rarely fully compensated for the harm caused by infringing entry, even if the generic infringes the originator’s patent: • Actual financial loss not fully compensated: Prevalence of reasonable royalty rates as a yardstick for damages • Loss caused by irreversible regulatory price cuts • Losing party not fully liable for litigation costs • Judgment-proof problem: generic companies may avoid payments of awarded damages due to low capitalization or liquidation Insufficient Compensation 5
  • 6. “Invisible” Value Transfer 6 Originator’s Actual Total Loss Loss Compensated by Generic Uncompensated Loss “Invisible” Value Transfer  Difference between originator’s actual loss and partial compensation obtained from the generic = an “invisible” value transfer from the originator to the infringing generic  This “invisible” value transfer means the generic does not fully internalize the harm resulting from its infringing entry and may therefore have a distorted incentive to enter the market even if it believes its products infringe valid patents  To prevent the invisible value transfer, the originator may need to make a “visible” value transfer to the generic company in the form of a settlement payment
  • 7. To Enter, Or Not To Enter Effective Patent Enforcement System Originator fully (100%) compensated for its losses due to infringing entry Generic’s profit/loss from entry: - €5.5M (€20M - €30M * 100% * 85%) 7 • 85%: probability of the generic’s product to be found infringing • €20 million: the generic’s expected profit from sales • €30 million: expected total loss incurred by the originator Flawed Patent Enforcement System Originator partially (e.g., 70%) compensated for its losses due to infringing entry Generic’s profit/loss from entry: + €2.15M (€20M - €30M * 70% * 85%)
  • 8.  The assessment of patent settlements must take into consideration the functioning of the patent enforcement system  Reverse payments may be explained by the imperfect patent enforcement system and the need to counterbalance the generic’s incentive to enter even if its products are likely to infringe (i.e., the originator pays not to be unlawfully harmed)  Because the “invisible” value transfer (the originator’s under-compensation) and the “visible” reverse payment are strongly correlated, and both flow in the same direction (i.e., from the originator to the generic), the direction of the payment is neither conclusive nor indicative as to the existence of a restriction of competition  Reverse payments have no general probative value as regard the strength or weakness of the originator’s patent  No presumption of a restriction of competition can be attached to the existence of a reverse payment Implications For The Competitive Assessment 8
  • 9.  The existence or the size of a reverse payment cannot be the main legal standard to assess patent settlements  Legal uncertainty: difficult to draw the line between pro-competitive and anti-competitive payments  As long as the restrictions in the settlement are within the exclusionary scope of a valid patent, the settlement achieves the same result that the patent holder could have obtained by enforcing its patent in court were the patent enforcement system efficient Conclusion 9
  • 10. www.clearygottlieb.com NEW YORK WASHINGTON PARIS BRUSSELS LONDON MOSCOW FRANKFURT COLOGNE ROME MILAN HONG KONG BEIJING BUENOS AIRES SÃO PAULO ABU DHABI SEOUL

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