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India – Pay For Delay Agreements On The CCI Radar.

12 September, 2014




In 2005, India revised its patent law to bring the same in line with its obligations under the Trade Related Intellectual Property Rights Agreement of the World Trade Organization (‘TRIPS’). The flourishing domestic generic pharmaceutical industry, better known as the “pharmacy of the poor world”, now had to wait for the patent to expire before it was able to introduce a generic(and therefore cheaper) variant of the patented drug into the market.

A patentee has the right to exploit its patent to the exclusion of all others, and where the patent is for a life-saving or widely used drug, the patentee stands to earn considerable revenue from sales of the drug. Given these significant earnings, patent holders are often willing to offer “settlements” to generic manufacturers instead of defending their patents through long-drawn and expensive patent infringement litigation. Such payments, made to a generic manufacturer during a patent infringement suit initiated by the patent holder, are often referred to as “reverse payment settlements”. Unlike typical litigation scenarios where settlements involve payments by a defendant to the plaintiff, reverse payment settlements are made the other way around, i.e., from the plaintiff (patentee alleging infringement of its patent) to the defendant (generic manufacturer accused of infringing the patent). Such reverse payment settlements in the pharmaceutical industry are increasingly being subject to antitrust scrutiny to investigate whether the purpose of the settlement is to delay the entry of a generic drug in the market (popularly referred to as “pay for delay”), which would otherwise have competed with, and been available at a fraction of the cost of the patented drug. It has been reported1 that the Competition Commission of India (‘CCI’) is presently investigating such payments for evidence of possible anti-competitive conduct.

Any agreement between competing pharmaceutical companies to delay the entry of a drug in a market may be scrutinized under the Competition Act, 2002 (‘Act’) and is presumed to cause an adverse effect on competition in India. If however, such an agreement is entered into during the life of the patent, the patentee may claim a limited right of defense under Section 3(5) of the Act, as long as the restriction is necessary to protect its intellectual property rights. The very purpose of an intellectual property right is to grant the inventor the ability to exclusively exploit a novel invention, and this could arguably include compensation paid to maintain the exclusivity of that right.

The possible exclusion of settlement agreements between pharmaceutical companies during the life of a valid patent from the purview of antitrust scrutiny is the subject of considerable debate globally and is likely to frame the discussions in India as well.

Lessons From The US Supreme Court Decision In Actavis

In the United States, the Federal Trade Commission (‘FTC’) has been prosecuting reverse payment settlements between patent holders and generic drug manufacturers as being anti-competitive for several years. But it was only in April 2013 that the US Supreme Court found a settlement between pharmaceutical companies anti-competitive, even though it was during the “scope of the patent”, i.e., the period of validity of the patent. In this case, Solvay Pharmaceuticals (‘Solvay’) initiated patent infringement litigation against two generic manufacturers, Actavis and Paddock, when they filed an application for a generic drug modeled after Solvay’s AndroGel. Actavis and Paddock argued that Solvay’s listed patent was invalid and as a result, their drugs did not infringe it. However, several months after the US Food and Drug Administration approved Actavis’ first-to-file generic product, the parties decided to settle. As per the terms of the settlement, Solvay paid an estimated USD 19 to 30m annually, for 9 years, to Actavis, and in return, Actavis agreed, (i) not to market its generic drug until only 65 months before Solvay’s patent expired (unless someone else marketed a generic sooner); and (ii) to promote Solvay’s AndroGel. Before the US Supreme Court, the parties argued that Solvay’s payment to Actavis was remuneration for services rendered by Actavis, whereas the FTC contended that the payments were to compensate the generic manufacturer for agreeing not to compete against Solvay’s patented product until 20152.

The US Supreme Court rejected the argument that a reverse payment during the term of a patent would be automatically shielded from antitrust scrutiny, absent patent fraud. It was held that while a patentee has the right to exclude others from infringing its patent, compensation to foreclose any possible challenge to that patent and keep competitive pricing at bay might have significant adverse effects on competition.


In holding so, the US Supreme Court strove to strike a balance between antitrust enforcement and the rights conferred by a patent, and held that, while there can be no dispute that a valid patent confers the patentee with the right to exclusive use, the genuineness of a “settlement” payment would need to be assessed for possible anti-competitive effects on a case-by-case basis. The factors to be examined when analyzing such settlement payments would include the quantum of settlement, its scale in relation to the patentee’s anticipated future litigation costs, its independence from other services for which it might represent payment, and the lack of any other convincing justification.

Experience Of The European Commission (‘EC’)

Following the US Supreme Court decision in the Actavis case, in June 2013, the EC imposed hefty fines on Lundbeck and four generic pharmaceutical companies, including Ranbaxy, for delaying the entry of generic medicines into the market3. The EC found that soon after Lundbeck’s primary patent over the Citalopram molecule expired, its remaining process patents could not prevent the manufacture of generic Citralopram. Lundbeck therefore entered into agreements with generic manufacturing companies to delay the launch of the generic drugs. The agreements included payment of significant lump sum amounts to the generic companies, purchase of the generic manufacturers’ stock for the sole purpose of “destroying” it, and the offer of guaranteed profits in distribution agreements running into several million euros4.

However, unlike in the Actavis case, where the patent in question continued to exist, Lundbeck’s main patent had expired, and the EC was simply required to show that the generic companies delayed the sale of generic Citralopram pursuant to the agreements5, and link such delay to the payments made to the aforementioned generic companies. The EC’s stand on reverse payment settlements during the pendency of a patent remains unexplored.

Future Of Reverse Payment Settlements In India?

The widely reported case of patent infringement brought by Swiss pharmaceutical company, Hoffman-La Roche (‘Roche’) against domestic manufacturer, Cipla, raises concerns about the possible conflict between antitrust law and intellectual property. The focus of the proceeding is the alleged infringement by Cipla of Roche’s patent on Erlotinib Hydrochloride Tablets (‘Tarceva’) by preparing to launch generic versions of Tarceva. Cipla filed a counter-suit arguing that Roche’s patent was invalid and as were the claims of infringement. In September 2012, a single judge bench of the Delhi High Court upheld the validity of Roche’s patent but found Cipla had not infringed it.6

On appeal, the division bench of the Delhi High Court, without considering the merits of the appeal, directed the parties to use mediation to reach an amicable settlement. Currently, settlement talks are underway, and the outcome remains unknown. If the parties were to reach a settlement that has the effect of incentivizing Cipla not to market its generic product (since Roche’s patent has been upheld by the Delhi High Court), it is debatable whether CCI would have the requisite jurisdiction to scrutinize the terms of a court-sanctioned settlement agreement without risking a possible challenge. Moreover, the principles laid down in the Actavis case may not apply squarely to this case since as a matter of law, Roche’s patent has been held to be valid, and therefore a settlement would arguably not be to “mitigate the risk of a challenge.”


The Roche-Cipla saga does not stand alone, and Merck has also initiated settlement talks, pending an ongoing litigation, with the Indian generic manufacturer, Glenmark, to settle its patent infringement suit involving the drug Januvia (Sitagliptin). This could raise similar concerns of jurisdictional overlap. While there is no clear answer on these issues thus far, it would be interesting to see if and how CCI reconciles the terms of a legally sanctioned mediation settlement with its powers to investigate potentially anti-competitive practices under the Act.



End Notes:


1 http://www.livemint.com/Companies/RVVDhRh7oTfpqlIphkb6jM/CCI-to-scan-drug-patent-settlements.html
2 FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013)


3 More recently, Laboratories Servier and five generic drug makers, including India’s Lupin, were fined more than USD 570m for allegedly delaying the availability of a generic blood pressure drug. In this case too, Laboratories Servier’s main patent had expired in 2003, leaving only secondary patents in place which would not have hindered the entry of generic versions of the drug.
4 http://www.ashurst.com/publication-item.aspx?id_Content=9338
5 Although the heart of Lundbeck’s case was that the patents covering the drug Celexa were still in force at the time the agreements were entered into and accordingly the agreements did not restrict competition in the market beyond the protection already offered by the rights conferred by the European Patent Office (EPO) by granting the patent; accessed at: http://www.pmlive.com/pharma_news/ec_fines_pharma_companies_146m_for_generic_celexa_delay_484658
6 F. Hoffmann-La Roche Ltd v. Cipla Ltd; CS (OS) No.89/2008 and C.C. 52/2008, decision dated 7 September 2012. The decision held that since Roche was marketing a particular manifestation of the compound (polymorph A and B) and Cipla sold another form (Polymorph B of Erlotinib Hydrochloride), Cipla did not infringe Roche’s patent.




For further information, please contact:


Zia Mody, AZB & Partners
[email protected]


Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]


Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]


Aditya Bhat, AZB & Partners 
[email protected]

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