Patent settlement agreements are commercial agreements to settle patent-related disputes, e.g. questions of patent infringement or patent validity. They are concluded in the context of patent disputes, opposition procedures or litigation where no final adjudication has been handed down. Although the content of individual settlements will vary according to the circumstances of the case, the common aim of a settlement is to end the disagreement.

As in any other area of commercial disagreement, the parties concerned have a legitimate interest in finding a mutually acceptable compromise. In particular the parties may prefer to discontinue the dispute or litigation because it is too costly, time-consuming and/or risky as regards its outcome. Settlements are thus a generally accepted, legitimate way of ending private disagreements. They can also save courts and/or competent administrative bodies such as patent offices’ time and effort. Therefore, they can have some positive impact in the interest of society.

However, as pointed out in the Final Report of the European Commission sector inquiry (“Final Report”), some patent settlements in the pharmaceutical sector may prove to be problematic from a competition law perspective. Of particular interest are settlements that may lead to a delay of generic entry in return for a value transfer (e.g. a payment) by the originator company to the generic company. Other examples of possibly problematic agreements relate to settlements that contain restrictions beyond the exclusionary zone of the patent, meaning that they would reach beyond its geographic scope, its period of protection or its exclusionary scope. Such agreements would not appear to be directly related to the IP rights granted by the patents concerned. Furthermore, problematic agreements include settlement agreements on a patent which the patent holder knows does not meet the patentability criteria. An example of this is a situation where the patent was granted following the provision of incorrect, misleading or incomplete information. Ultimately, it may be the consumer who pays the price for a delay in market entry resulting from such agreements and therefore any benefits to society are more than outweighed by the negative effects of the agreement between potential competitors. In this context, obviously, an assessment of each individual case would be necessary.

A generic company’s ability to enter the market can be limited in several ways. The most straightforward limitation occurs when the settlement agreement contains a clause explicitly stating that the generic company will refrain from challenging the validity of the originator company’s patent(s) (“non-challenge clause”) and/or refrains from entering the market until the patent(s) have expired (“non-compete clause”). A licence granted by the originator company allowing market presence of the generic company is also categorised as limiting generic entry, because the generic company cannot enter the market with its own product or it cannot set the conditions for the commercialisation of its product freely. Accordingly, the generic company’s entry is at least partly controlled by the originator company through the terms of the licence agreement. Note though, that an exception applies in case of royalty free licenses that allow generic companies to immediately launch their own product without any further constraints, i.e. concerning quantities, composition, pricing or other marketing conditions of their product. Hence, such license agreements are not viewed as limiting generic entry.

The same logic applies to patent settlement agreements in which the parties agree that the generic company will be a distributor of the originator product concerned or if the generic company will source its supplies of the active pharmaceutical ingredient (API) from the originator company.

Furthermore, agreements providing for an early entry of a generic medicine will be seen as limiting generic entry where entry is not immediate. It should be noted that the list of potential limitations is not exhaustive. Also, the value transfer from the originator company to the generic company can take different forms. The most clear-cut form of value transfer is a direct monetary transfer (e.g. payment of a lump sum) from the originator company.

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