AstraZeneca's ECJ Setback May Impact European IP Protection Strategies

The European Court of Justice sides with the European Commission: manipulating the patent and regulatory systems to block competitors gets AZ a slap on the wrist and serves as a warning to others.

A European Court of Justice decision to uphold sanctions against AstraZeneca creates a great deal of uncertainty for pharmaceutical companies by muddying the waters around protection of intellectual property rights. For the first time, the EU's highest court has ruled that manipulation of the patent system with the sole aim of blocking competition is illegal.

The General Court of the ECJ on July 1 endorsed the European Commission's decision against AstraZeneca for abusing its dominant position by manipulating both the patent system and regulatory procedures in order to block or delay the emergence of generic competition in the market for proton pump inhibitors. However, the court reduced the fine imposed on Astra Zeneca from €60 million to €52.5 million.

The court upheld the Commission's findings that AstraZeneca had made objectively misleading representations to patent offices in Germany, Belgium, Denmark, Norway, the Netherlands, and the United Kingdom in order to secure supplementary protection certificates for its anti-ulcer product, Losec (omeprazole), thereby extending its protection and delaying generic competition.

The second abuse concerned AstraZeneca's decision to stop marketing Losec capsules in Denmark, Norway and Sweden and instead to launch Losec multiple unit pellet system (MUPS) tablets. At the same time it submitted requests to deregister the marketing authorizations for Losec capsules in those countries, ensuring producers of generic omeprazole would not be able to gain expedited approval of generic versions of the drug; the abridged procedure for authorizing generics, at that time, required there be a current marketing authorization.

Generics firms could in theory pursue damages against AZ, but in each case it would be a matter of individual European member state law, which remains undeveloped in comparison with the U.S.

Although the Court accepted that AZ was justified under pharma regulatory rules in withdrawing the marketing authorization, it ruled that this did not make it legal as a matter of competition law. It supported the Commission's view that the illegality of abusive conduct is "unrelated to its compliance or non-compliance with other legal rules."

Incentivizing the EC to pounce

The case has essentially dealt with some of the serious issues that were raised in the context of the pharmaceutical sector enquiry, launched by the European Commission in January 2008.

"The Commission could be encouraged by the sweeping language used in the judgement to attack certain practices that were examined within the pharmaceutical sector enquiry," David Hull, head of EU competition practice at international law firm Covington & Burling, suggests.

The enquiry was a response to indications that competition in Europe's pharmaceutical markets was not functioning effectively. It examined whether agreements between pharmaceutical companies were blocking or leading to delays in market entry and whether companies may have created artificial barriers to entry through the misuse of patent rights, vexatious litigation or other means.

The enquiry has already led to uncertainty about strategies that are common within the pharmaceutical industry and which companies have been pursuing for years. In January this year, the Commission announced it would investigate Lundbeck for breaching competition rules by abusing its dominant position to restrict the entry of generics. The pharmaceutical industry is concerned that the AstraZeneca ruling will cause a domino effect, incentivizing the Commission to begin more investigations of this type.

Branded pharmaceutical companies have previously argued that their interpretation of the patent system and their conduct in relation to this was perfectly legal with regard to European law. "If you suggest to a company that you can have an IP right but you can't enforce it vigorously, then the right is worth much less, and the incentive to innovate that it is designed to promote is diluted," said Hull. "If a company gives false information, that is clearly a problem, but I view that more as a patent issue that is more appropriately sanctioned under the patent rules as opposed to a competition issue," he said.

With Dominance, Comes Responsibility?

The Court's decision could be interpreted as a warning that, once a company is dominant, it must tread carefully with regard to how it seeks to protect its IP rights. Meanwhile, competition lawyers suggest that pharmaceutical IP law is being made ad hoc and that the Commission should publish guidelines to replace the patchwork of rules that have arisen as a result of the case law.

"There is no disguising that this is a win for the Commission, but not quite the broad mandate for enforcement they had been hoping for," suggests Bill Batchelor, partner in Baker & Mckenzie's European & Competition Law Practice in Brussels.

Misleading the patent office is now firmly established as an abuse and patent practitioners should be aware that potentially even honest mistakes, if objectively judged misleading and not promptly corrected, could be penalized, he notes. At the same time, in relation to use of regulatory procedures, the Commission must prove that the exclusion of competitors is the "sole object" of company's conduct, a markedly harder test to satisfy than the Commission's formulation - advocated during its recent sector inquiry -- that it need only show this was the "primary" intent, Batchelor says.

- Faraz Kermani ([email protected])