European Commission Issues 8th Report on Drug Patent Settlements

Last week, the European Commission (EC) issued its 8th report on drug patent settlements, covering the 2016 calendar year. The EC began compiling these reports after a pharmaceutical industry inquiry in 2009 deemed it important to monitor such settlements to assess how they impact the market entry of generics.

While patent settlements are generally considered an acceptable way to end legal disagreements, “Of particular interest are settlements that may lead to a delay of generic entry in return for a value transfer (eg, a payment) by the originator company to the generic company,” says the EC. Value transfers may be monetary, but they may also take other forms, including distribution or licensing agreements. Other potentially problematic agreements may contain restrictions beyond the geographic, period, or exclusionary scope of the patent in question, or agreements that include settlements on a patent that the holder knows does not meet patentability criteria.

In total, 57 originator and 50 generic companies replied to the EC’s request for copies of patent settlement agreements, and the EC says that this number is a representative sample of the industry. In total, there were 107 settlements reported for 2016. Nineteen (33%) of the originator manufacturers and 14 (28%) of the generic makers concluded a settlement agreement in 2016. These numbers compare with 40% and 30% of originator and generic companies making such a settlement in 2015, and 35% and 21%, respectively, reaching a settlement in 2014.

Of the 2016 settlements, 27% were categorized by the EC as being without limitation to generic market entry. A further 62% were categorized as limiting generic market entry, but without a transfer of value from the originator to the generic company. Notably, the majority of these settlements were signed in the context of legislation in Portugal that allows for increased arbitration proceedings between originator product sponsors and marketing authorization applicants. Finally, 11% were categorized as limiting generic market entry and showing a transfer of value.

“As with the former seven exercises,” write the report’s authors, “the results of the [8th] monitoring exercise show that the Commission's announcement that it would continue scrutinizing [value-transfer] settlements in the future has not hindered companies from settling their patent disputes.” In fact, the report states, the number of settlements that limit generic entry and involve a transfer of value have stabilized at a low level; in the period from January 2000 to June 2008, these types of settlements represented 22% of all agreements reported.