Red Flag or Red Herring? Reverse Payments and the Settlement of Pharmaceutical Patent Litigation

"On 16 January 2008, EU Competition Commissioner Neelie Kroes launched a sectoral inquiry into certain competitive practices within the pharmaceutical industry, punctuated by immediate dawn raids at the European offices of leading pharmaceutical companies. Troubled by the recent reduction in new drugs reaching the market and the apparently “delayed” entry of some generic pharmaceuticals, the Commission is including in its investigation AstraZeneca, GlaxoSmithKline, Johnson & Johnson, Merck, Pfizer and Sanofi-Aventis. One major source of unease for the Commission is the question of patent settlement agreements, which sometimes contain so-called “reverse payments” from a patentee to a generic manufacturer, arguably amounting to an anti-competitive agreement in contravention of Article 81(1)(c) of the EC Treaty, which specifically prohibits agreements designed to “share markets and sources of supply”."