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EU Commission Clarifies the Application of EU Competition Law to “Pay for Delay” Imposing Substantial Fines on Pharma Companies, Teva and Cephalon

27th November 2020

In its latest “pay for delay” decision the EU Commission sends out a very clear signal that the form of the payment received from a patent holder and made to a potential generic entrant does not matter. Unlawful “pay for delay” agreements do not only exist where there is a cash payment. What matters is that value is being transferred by whatever means from a patent holder to a potential generic entrant with the aim of delaying entry into the market of a cheaper generic drug.

On 26 November 2020, the European Commission announced that it has fined Teva Pharmaceutical Industries Ltd and its subsidiary Cephalon Inc a total of EUR60.5 million for entering into an unlawful patent settlement, in breach of Article 101 of the TFEU. Prior to Cephalon becoming a subsidiary of Teva, the EU Commission found that Teva had agreed to delay for several years the market entry of a cheaper generic version of Cephalon’s drug for sleep disorders, modafinil, after Cephalon’s main patents had expired.

In exchange, for entering into this agreement Teva received a substantial transfer of value from Cephalon, through a series of cash payments and other of commercial side-deals, including a distribution agreement, the acquisition of a licence on certain Teva modafinil patents by Cephalon, purchases of raw materials from Teva, and the granting by Cephalon of access to clinical data that were highly valuable to Teva for a different medicine.

None of the package of commercial side-deals received by Teva would have been concluded in the absence of the patent settlement agreement, either not at all or at least not at the terms that the companies agreed to. The infringement lasted, for almost all EU member states and EEA countries, from December 2005 to October 2011, when Teva acquired Cephalon and they became part of the same group.

This is the latest of four “pay-for-delay” decisions that the Commission has adopted. The significance of the present decision is that unlike previous cases payment for the delay in this case was made not just as cash payments but using a more sophisticated mixture of cash payments and a package of seemingly standard commercial deals.

The EU Commission commented upon the publication of the decision that while generally patent settlements can be legitimate, the settlement agreement between Teva and Cephalon in this case was not. Teva committed to stay out of the modafinil markets, not because it was convinced of the strength of Cephalon’s patents, but because of the substantial value transferred to it by Cephalon. The value transfer was mainly embedded in a number of commercial side-deals, which Teva would not have achieved without committing to staying out of the market.