ACCC proposes to refuse approval of pharma patent settlement

By Michael Corrigan, Simon Ellis, Natalie Shoolman, John Collins and Kent Teague
31 Mar 2022
Parties seeking authorisation for a settlement agreement should expect that the ACCC will wish to fully test any claims of public benefit and potential public detriment and should balance the claims of confidentiality over the submitted material appropriately.

In the first decision of its kind in Australia, the ACCC proposes to deny a request for authorisation for a settlement and licence agreement reached between Celgene, generic pharmaceutical company Juno and its pharmaceutical manufacturer Natco, regarding their patent dispute in the Federal Court of Australia. Without authorisation, the agreement and related conduct is exposed to a possible breach of the Australian Competition and Consumer Act.

The draft determination raises questions and uncertainties as to whether parties, considering settlement of patent litigation, should seek approval of the settlement under the ACCC authorisation process.

Authorisation is an optional Australian process allowing parties to seek an exemption from competition laws, if the ACCC is satisfied the conduct is likely to be of public benefit.

In some matters, settlements of patent litigation can raise competition law concerns due to the concern the settlement may delay generic entry and/or involve "pay for delay". The ACCC did not directly raise these concerns in this decision but nonetheless declined to find public benefit in the proposed settlement.

In a message that may have wider consequences for other patent settlement agreements, the ACCC considered that the settlement in this case would be likely to result in a public detriment by reducing competitive tension in relation to generic entry in the supply of the drugs.

The ACCC considered there was a competitive downside because the settlement would provide Celgene with greater control and certainty over the timing of generic entry by the generic suppliers, and also would confer on Juno/Natco a first mover advantage which might deter other generic entry for these drugs.

In this case due to the lack of information received from interested parties on the competitive implications of the settlement and licence agreement, and the broad claims for confidentiality made by the parties, the ACCC could not test the public benefits claims adequately through public consultation.

As this is a draft decision, the applicant parties have an opportunity now to address these concerns before the ACCC makes a final decision.

The Juno and Natco proceedings against Celgene

On 9 November 2020, Juno and Natco commenced "clear the way" proceedings in the Federal Court of Australia against Celgene, claiming that Celgene's compound patent relating to Revlimid was invalid and should therefore be revoked. Shortly after, Celgene filed a cross-claim against both Juno and Natco claiming that they had threatened to infringe Celgene's patents.

On 27 October 2021, the parties sought to discontinue parts of both the primary invalidity claim (insofar as it related to the invalidity of the compound patent) and Celgene's infringement cross-claim (insofar as it related to the compound patent and alleged breaches of the Australian Consumer Law). The remaining claims in the litigation, which related to method of treatment patents covering both lenalidomide and pomalidomide, have been stayed, but not discontinued.

Following the discontinuation of parts of the Federal Court proceeding, the parties approached the ACCC, seeking authorisation for the settlement and licence agreement they had reached. The agreement permits Juno and Natco to supply generic versions of lenalidomide and pomalidomide from undisclosed specified launch dates, in exchange for them dropping their patent revocation claims. This was claimed to mean the generics could enter the Australian market before the relevant patents had expired, a major win for Juno and Natco.

ACCC fails to find the net public benefit; considers public detriments

On 23 March 2022, the ACCC published its draft determination proposing to deny authorisation on the basis that it was not satisfied the proposed settlement and licence agreement would result in a net public benefit and instead, considered the proposal may result in a public detriment.

We have previously considered competition law issues likely to be raised by the ACCC and the Courts when applying competition law to pharma patent settlements in Australia here.

In their application for authorisation, Celgene, Juno and Natco submitted that the agreement would avoid costly litigation, result in price reductions and cost benefits to the Australian Government Benefits Scheme and ensure the security of supply of the relevant drugs.

However, the ACCC expressed concern about the limited evidence provided to support the claimed public benefits and the extent to which the applicants claimed confidentiality over their application and supporting evidence, limiting the ACCC’s ability to test those claims. Authorisation is a public process and requires the ACCC to consult widely whether the claimed benefits are likely to arise from the conduct in question. In this case, the ACCC wanted more evidence about the claimed cost savings to the Australian Government, as well as evidence of any previous supply issues and future changes to patient population.

In particular, with respect to claimed cost savings to the Australian Government, the ACCC was not satisfied that the settlement agreement would result in the claimed PBS price reductions (possibly because of terms contingent upon other patents relating to the drugs).

The ACCC also considered that, absent the settlement, had Celgene tried to enforce its patents through the litigation but ultimately been unsuccessful, it may be possible for the Australian Government to recover damages from Celgene for the lost benefit of any PBS price reductions if Celgene’s patent was held to be invalid, or the entry of generic brands did not infringe the patents. However, the Government has not been successful in previous claims for damages on this basis.

A new approach to dealing with patent settlement agreements?

This is the first decision on an application for authorisation of a patent settlement and occurs following the removal in 2017 of the limited IP licensing exemption that was available under the Competition and Consumer Act. There is no mandatory mechanism similar to the requirement in the US to file patent settlements with the FTC, and the novel approach of seeking authorisation of a proposed settlement that occurred here is voluntary. However, we expect that the ACCC would endorse such an approach in the future as it provides it with an ex ante opportunity to consider the effects of such an agreement.

The reason why parties might seek an exemption may reflect concerns that, by fixing the date on which generic entry may occur under a licence, the settlement agreement may contravene Australian cartel laws, on the hypothesis that the generic suppliers might otherwise launch earlier than the licence date, in the absence of the settlement.

ACCC Commissioner Stephen Ridgeway said that proposing to deny the authorisation does not prevent the parties from settling the proceedings but it means that “the applicants are not permitted to engage in cartel or other anti-competitive conduct under the agreement”.

The draft determination in this matter signals the ACCC’s continued concerns about the commercial strategies that drug manufacturers and distributors use in preparing for patent expiry for originator brands and reflects the importance that the ACCC places on protecting the market dynamics that facilitate the entry of multiple generic brands upon the expiry of the patent.

The draft determination also occurs in the context of the regulator’s long-standing concerns over “pay for delay” arrangements between originator drug manufacturers and generic manufacturers. It is not clear in this case whether the terms of the settlement and licence agreement contained pay for delay provisions, as none were referred to in the ACCC draft determination.

Take-outs if seeking authorisation to give effect to a patent settlement agreement

The issues are complicated and factually specific. The ACCC appears to be open to considering future authorisations in settling patent litigation but parties should be aware that to have any chance of being granted authorisation, the application will need to provide clear, detailed and convincing evidence of net public benefit and comprehensively address the competitive effects of the terms of the agreement. In particular, detailed consideration should be given to any claimed cost savings under the PBS to the Australian Government in the context of potential effects, with and without the agreement, and documentary evidence lodged as part of an application for authorisation.

The ACCC's approach might be surprising to overseas parties not used to providing that level of detail in other jurisdictions where submission of the agreement may be sufficient. Moving forward, parties seeking authorisation for a settlement agreement should expect that the ACCC will wish to fully test any claims of public benefit and potential public detriment and should balance the claims of confidentiality over the submitted material appropriately. Here, the claims for confidentiality severely limited the ability of the ACCC to test the claims and that was enough to deny authorisation.

The ACCC has invited submissions in relation to the draft determination by 6 April 2022, before making its final decision. Given the potential ripple effect this outcome is likely to have on other settlement negotiations and agreements reached between parties to patent litigation, we expect that strong submissions will likely be made in respect of this proposed determination.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.