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Singapore – Lessons To Learn From The European Commission For Payment For Delay Agreement.

13 January, 2014




On 10 December 2013, the European Commission (“EC”) announced that it has imposed fines totalling €16 million on US pharmaceutical company Johnson & Johnson (“J&J”) and Switzerland’s Novartis AG (“Novartis”) for entering into an anti-competitive agreement to delay the market entry of a generic version of the painkiller Fentanyl. Notably, this is the second time in the past six months that the EC has moved to clamp down on such “payment for delay” (“PFD”) schemes in the pharmaceutical industry. The EC is also reportedly “actively investigating” PFD agreements and likely to continue to come down hard on such schemes with more cases reportedly being investigated.


This update provides a brief overview on the issue, considers how PFD agreements will likely be treated under Singapore and other key ASEAN jurisdictions’ competition law regimes and serves to remind companies to be careful when entering into agreements with their competitors especially when it involves PFD arrangements.




Fentanyl is a painkiller produced and sold by J&J that is 100 times more potent than morphine. Applied as a patch to the skin, doctors generally prescribe Fentanyl to cancer patients to relieve them from severe pain.


In 2005, in view of the imminent end of J&J’s patent protection of Fentanyl depot patch in Netherlands, a Dutch subsidiary of Novartis prepared to sell its own generic version of the Fentanyl patch. The Dutch subsidiary obtained the necessary authorisation and even produced the packaging material but eventually delayed the launch of its generic product after it struck a deal with J&J in July 2005. Under the pretext of a “co-promotion agreement” between their Dutch subsidiaries, J&J made monthly payments to Novartis for as long as there was no generic on the Dutch market while Novartis did little or nothing to promote the drug.


Subsequently, EC investigations unveiled internal documents that stated that the aim of the deal was “not to have a depot generic on the market and in that way to keep the high current price”. In fact, J&J was paying Novartis to delay its entry into the generic Fentanyl depot patch market by sharing “a part of the cake” and the payments made to Novartis were in excess of the profits that Novartis expected to make from the generic product. The agreement lasted for 17 months and only ended in December 2006 because a third party was about to launch a generic version of the Fentanyl patch.


Following its investigations, the EC found the PFD agreement between the two companies to be anti-competitive by object and in violation of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”). Further, the EC also appeared to be moved by the public policy consideration that PFD agreements act against the interest of public healthcare. Consequently, the EC imposed fines of about €10.8 million and €5.5 million on J&J and Novartis respectively.


Other Recent Decisions In The EU And US


This is not the first case involving PFD arrangements that the EC prosecuted nor is this the largest fine that the EC has imposed on such agreements. In June 2013, the EC slapped fines totalling €145 million on five pharmaceutical companies, including €93 million on Lundbeck A/S (“Lundbeck”), a Danish company. These companies were involved in a PFD arrangement for Citalopram, Lundbeck’s bestselling antidepressant that is widely prescribed in the EU. However, unlike J&J and Novartis, the PFD scheme utilised by Lundbeck involved patent settlement agreements where Lundbeck paid the other pharmaceutical companies sums equivalent to what they would have earned had they entered the generics market.


Although the EC takes the view that patent settlements are generally legitimate, it found on the facts that Lundbeck’s patent settlements were anti-competitive by object and in violation of Article 101 of the TFEU. Internal documents uncovered by EC investigations refers to this group of companies as “a club” with “a pile of money” being shared amongst them. The EC was also persuaded to find the patent settlements as anti-competitive as the settlements appear to exceed the scope of the process patents held by Lundbeck and, in the words of the Director-General for Competition at the EC, “imposed obligations on generic producers that went beyond the rights of the holders of process patents”. Finally, like J&J and Novartis, the EC also considered PFD agreements to be against the interest of public healthcare.


In the US, the Supreme Court has gone further than the EC and ruled that PFD agreements may still be anti-competitive even if it is concluded within the scope of the patent. In June 2013, the US Supreme Court ruled against Solvay Pharmaceuticals Inc (“Solvay”) and Actavis Inc (“Actavis”), two companies involved in a PFD agreement. In that case, Actavis, in exchange for payment from Solvay, agreed that it would not bring its generic version of Solvay’s AndroGel to market until 65 months prior to Solvay’s patent expiration unless someone else marketed a generic first. In coming to this decision, the US Supreme Court rejected both the “scope of the patent” approach adopted by the 11th Circuit Court and the approach that PFD agreements are “per se illegal” by the Federal Trade Commission. Instead, the US Supreme Court adopted a “rule of reason” approach to determine on a case-by-case basis whether a PFD agreement is anti-competitive by focusing primarily on the size of the payment and whether it has a legitimate justification.


Payment For Delay Agreements In Singapore


Presently, no public case involving PFD agreements has come before the Competition Commission of Singapore (“CCS”) but this does not mean that PFD agreements would pass muster under Singapore’s competition law. Instead, it is clear that if any agreement, including a PFD agreement, is shown to be anti-competitive by object or effect then such agreements would attract the scrutiny and sanction of the CCS.


A typical PFD agreement which involves the original branded producer of a drug paying its generic counterpart to delay entering the market may infringe s 34 of the Competition Act. Specifically, s 34 prohibits agreements that by their object or effect appreciably prevent, restrict or distort competition in Singapore. Thus depending on how the PFD agreements are structured, such agreements may fall under s 34(2) and be prohibited if they either:


  • directly or indirectly fix purchase or selling prices or any trading conditions;
  • limit or control production, markets, technical development or investment; or
  • share markets.

Where a PFD agreement, like in the case of J&J and Novartis, exceeds or is outside the scope of a patent, it is likely that such an agreement will come under the scrutiny and sanction of the CCS for being an anti-competitive agreement that violates s 34 of the Competition Act. Nevertheless, it is still open for parties to argue that the PFD agreement brings about net economic benefits and should therefore be excluded from the s 34 prohibition.


However, some uncertainty remains over whether PFD agreements which are within the scope of a patent will be allowed. Guidance from the EC, which may be persuasive to the CCS, is limited as the EC has so far only ruled that PFD agreements that exceeded the scope of the patent are unacceptable and not vice versa. The EC decision in the Lundbeck case is also under appeal. The US Supreme Court, on the other hand, has ruled that even if a PFD agreement is within the scope of the patent, it can still be invalidated for being anti- competitive. However, it is worth bearing in mind that Singapore’s legislative framework on competition law is different from the US.


Notwithstanding the above, there are indications that the CCS will act against PFD agreements if they are anti-competitive by object but within the scope of the patent concerned. In a consultation paper issued by the Ministry of Trade and Industry in 2004 on competition law, it stated that “[w]here the exercise of the IPR [Intellectual Property Right] is anti-competitive, it would be subject to competition law”. The CCS Guidelines on the Section 34 Prohibition published in June 2007 also noted that “IPR agreements such as licensing agreements are not excluded from the section 34 prohibition”. The CCS Guidelines on the Treatment of Intellectual Property Rights published in June 2007 similarly affirmed this stance and prescribed the framework on how agreements involving IPR can be evaluated for its compliance with the Competition Act.


Payment For Delay In Key ASEAN Jurisdictions


Besides Singapore, other key Southeast Asian jurisdictions such as Indonesia, Malaysia, Thailand and Vietnam also have not had the occasion to deal with PFD agreements. However, as shown below, these jurisdictions are likely to also view such agreements as having some anti-competitive element even though it remains unclear as to how each jurisdiction would deal with PFD agreements that are within the scope of a patent.


In Indonesia, PFD agreements may be caught under Article 4 of Law 5/1999, Indonesia’s main competition law legislation. Specifically, PFD agreements will likely flout the Article 4(1) prohibition to “jointly control the production and or marketing of goods and or services which lead to monopolistic practices or unfair business competition”.


Even though Article 50(b) of Law 5/1999 exempts “agreements linked with the right over intellectual property” from the operation of the competition law, not all agreements related to IPR are exempted. Importantly, the Indonesian Business Competition Supervisory Commission (“KPPU”) had stated in its Guideline on the Exemption of Agreements in Association with Intellectual Property Rights (No. 2/2009) published in February 2009 that the exemption only applies if it does not cause monopolistic practices and unfair business competition to occur.


Further, it appears that the KPPU is concerned about competition issues in the healthcare sector and is likely to scrutinise PFD agreements if the chance arises. On 22 November 2013, Nawir Messi, Chairman of KPPU, visited the Minister of Health, Nafsiah Mboi, to address certain medical practices that may impact competition in the Indonesian healthcare sector. In 2010, following the amlodipine cartel case investigation involving Pfizer, KPPU also recommended the upper limit price of branded generic drugs to not be more than thrice the average price of the generic drugs containing the same active ingredient(s). KPPU is also currently investigating the potential anti-competitive effect resulting from the vertical integration between an Indonesian major pharmacy company and another Indonesian well-established maternity hospital network.


In Malaysia, PFD agreements are likely to also raise concerns under s 4 of the Competition Act 2010 as agreements having the object or effect of significantly preventing, restricting or distorting competition. Specifically, under s 4(2) of Malaysia’s Competition Act 2010, which is similar to Singapore’s Competition Act, there is a risk that a PFD agreement will be deemed as having the object of significantly preventing, restricting, or distorting competition if such agreements involve acts to:


  • fix, directly or indirectly, a purchase or selling price or any trading conditions;
  • share market or sources of supply; or
  • limit or control production, market outlets or technical development or investment.

PFD agreements will likely raise issues under Thailand and Vietnam’s competition laws as well. Thailand’s Trade Competition Act prohibits agreement for acts amounting to monopoly, reduction of competition or restriction of competition. Specifically, PFD agreements may be seen to violate s 27 of the Trade Competition Act which prohibits agreements that restrict the sale volume of goods or entered with a view to having market domination or control. Similarly, Article 8(6) of Vietnam’s Competition Law (No. 27/2004/QH11) specifically prohibits “agreements on preventing, restraining, disallowing other enterprises to enter the market or develop business”.


Concluding Words


Pharmaceutical and other companies that rely on patents to protect their economic interest against a competitor producing generics should be mindful of the associated anti- competitive risks, and carefully consider the repercussions and potential anti-competitive effects before entering into PFD agreements with their competitors. Even though some uncertainties remain on whether PFD agreements that are within the scope of a patent would be in violation of competition law, it is clear that such agreements would likely be struck down as anti-competitive when they are outside the scope of a patent.


Rajah & Tann


For further information, please contact:


Kala Anandarajah, Partner, Rajah & Tann

[email protected]


Dominique Lombardi, Partner, Rajah & Tann

[email protected]


Tanya Tang, Rajah & Tann

[email protected]

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