Patent settlement and licence agreements
We analyse the recent high profile withdrawal of an application to the ACCC for authorisation of a patent litigation settlement agreement between Juno and Celgene and its implications for parties looking to resolve patent litigation in Australia.
In December 2021, Juno Pharmaceuticals Pty Ltd (Juno), Celgene Corporation and Celgene Pty Ltd (collectively, Celgene), and Natco Pharma Ltd (Natco) (Applicants) applied for authorisation from the Australian Competition and Consumer Commission (ACCC). The application sought authorisation of some of the operative provisions of a settlement and licence agreement that was made to resolve patent infringement and revocation proceedings between Natco and Juno on the one hand and Celgene on the other. The proceedings related to Celgene’s patents relating to the compounds lenalidomide and pomalidomide, and their use in the treatment of certain cancers.
This is the first time that the ACCC has been asked to authorise aspects of a patent litigation settlement and licence agreement. In a draft determination issued in March 2022, the ACCC denied the application for authorisation. The draft determination highlights the importance of providing sufficient information to enable the ACCC to undertake public consultation on the application. It is particularly notable for the position taken by the ACCC on the competitive effect of an agreement between an originator and a generic medicine supplier, which allowed generic entry before patent expiry.
Although the draft determination was not final, the Applicants withdrew the application for authorisation shortly before a final determination was due. The litigation has since been discontinued. It appears the parties have reached an alternative settlement arrangement.
Celgene supplies Revlimid (lenalidomide) and Pomalyst (pomalidomide) for the treatment of certain cancers and holds a number of patents relating to those substances and methods of treatment. Celgene’s compound patent for lenalidomide expired on 23 July 2022, and its method of treatment patents for lenalidomide will expire in 2023 and 2027. Celgene’s patents for pomalidomide will expire in 2023.
In November 2020, Juno and Natco commenced proceedings against Celgene to revoke certain claims of the Celgene patents in order to 'clear the way' for the future launch of generic lenalidomide and pomalidomide products. Celgene cross-claimed for threatened infringement, seeking injunctions. If the cross-claim were successful, Juno and Natco would be prevented from marketing generic lenalidomide and pomalidomide products until after the expiry of Celgene’s patents, at least for certain methods of treatment.
The parties entered into a settlement and licence agreement to resolve the litigation. Under this agreement, Celgene granted a non-exclusive licence to Natco to manufacture lenalidomide and pomalidomide products, and to Juno to import, keep, use or dispose of Natco’s lenalidomide and pomalidomide products. The launch dates of this licence agreement were not disclosed but were earlier than the expiry of Celgene’s patents and earlier than the likely launch date if Natco and Juno had continued and been successful in the litigation. That is, Natco and Juno could enter the market with generic lenalidomide and pomalidomide products earlier and with more certainty than would otherwise have been the case.
Former section 51(3) of the Competition and Consumer Act 2010 (Cth) (CCA) previously provided a broad exemption to the prohibitions against substantially lessening competition and engaging in cartel conduct contained in Part IV of the CCA for certain conduct related to intellectual property rights.
Although there was a degree of uncertainty in relation to the application of this exception, it was likely to have applied to arrangements such as the settlement and licence agreement between the Applicants.
However, section 51(3) of the CCA was repealed in 2019. There is now no specific exception that applies to conduct involving intellectual rights leading to a risk that settlement and licence agreements may contravene the prohibitions in Part IV of the CCA. To manage this risk, parties to settlement and licence agreements that may result in a substantial lessening of competition or cartel conduct may apply to the ACCC for authorisation, which may be granted by the ACCC under section 88 of the CCA.
Importantly in the present case, the ACCC may authorise the conduct if it is satisfied that:
- the conduct would not have the effect, or be likely to have an effect, of substantially lessening competition; or
- the conduct would result, or be likely to result, in a benefit to the public and that benefit to the public would outweigh the detriment that would result, or be likely to result, from the conduct.
The authorisation process is a public process that includes public consultation. The application made for authorisation is published on the ACCC’s website, and the public is given an opportunity to comment on the potential competitive effects of, and public benefits and detriments that may result from, the conduct that is proposed to be authorised.
The draft determination
The ACCC summarised the public benefits claimed by the Applicants in their authorisation application as follows:
- early launch of generic lenalidomide and pomalidomide products leading to increased competition in the relevant markets and resulting in:
- price reductions under the Commonwealth’s Pharmaceutical Benefits Scheme (PBS), with resultant cost savings to the Commonwealth; and
- greater supply security of pharmaceutical items for the treatment of certain blood cancers; and
- facilitating the orderly and expeditious settlement of the patent revocation proceedings brought by Juno and Natco, and the infringement cross-claim brought by Celgene, with the resultant benefit in minimising the burden on scarce judicial resources.
Against these claimed public benefits, the Applicants submitted that there were no public detriments.
While this may sound like a strong theoretical case for authorisation to be granted, the ACCC nonetheless made a draft determination to deny the authorisation. This was because the ACCC uses a counterfactual test when considering the potential competitive effects of, and public benefits and detriments that may result from, the proposed conduct. That is, the ACCC considers the likely future with the proposed conduct the subject of the application (the factual) and the likely future in which that conduct does not occur (the counterfactual).
The ACCC’s application of this test was hampered in this application by the claims of confidentiality made over what would occur with and without the authorisation and the limited substantiating evidence provided. The ACCC commented that:
it has received submissions on a confidential basis from the Applicants on the potential counterfactual scenarios. However, to date, the ACCC has received no evidence to substantiate these submissions
and that it:
recognises it is exceptional and unusual for the full details of the relevant counterfactual to be unable to be made public, to allow interested third parties to make fully-informed submissions on it … and it has compromised the ACCC’s ability to test the Applicants’ submissions, which in turn has influenced the ACCC’s conclusions in assessing the application under the public benefit test.
Given this lack of information available to the ACCC to substantiate and publicly test the counterfactual, the ACCC was evidently sceptical about the Applicants’ claimed public benefits. In particular, the ACCC concluded that:
- the PBS cost savings are uncertain 'in the absence of sufficient information'
- there were unlikely to be a cost savings for patients given the high costs of lenalidomide and pomalidomide products
- the Commonwealth Government could claim compensation if the patent proceedings were recommenced and Juno/Natco was successful
- the ACCC did not have 'sufficient evidence to be satisfied' that the entry of Juno/Natco is likely to improve patient access to lenalidomide and pomalidomide products
- that the addition of supply from Juno/Natco did not necessarily result in increased supply security for lenalidomide and pomalidomide products in circumstances where 'the ACCC does not have evidence of any supply issues in the past', and
- it was possible for the patent litigation to be discon'tinued without the proposed conduct and without further litigation given the impending expiry of the Celgene patents, which meant that the ACCC was unable to be satisfied that the claimed litigation cost savings would arise “based on the information currently available”.
The ACCC was similarly affected by a deficit of information when considering public detriments, given the limited arguments and evidence received in submissions from interested parties. Nonetheless, the ACCC identified possible concerns that the proposed conduct conferred on Juno/Natco a first mover advantage, provided Celgene with greater certainty as to the timing of Juno/Natco’s entry and may deter other generic entry, and sought submissions from interested parties on these issues.
The parties could perhaps be forgiven for limiting the amount of confidential information provided to the ACCC in their application for authorisation. There is a strong argument that a non-exclusive licence agreement to allow a competitor to market a generic brand before patent expiry necessarily increases competition, and is necessarily for the benefit of the public. The first generic listing triggers a 25% statutory reduction to the reimbursed price for all brands of a given medicine, together with further reductions under the price disclosure regime. Once the first generic brand has been listed, the prospects of the originator restraining additional generic brands also reduce, given the change to the status quo.
Outcome and next steps
The Applicants withdrew their application for authorisation on 29 July 2022 after the closure of submissions on the ACCC’s draft determination, but before the ACCC’s final determination was made. The litigation was subsequently discontinued on 8 September 2022. To date, Revlimid remains the only lenalidomide brand listed on the PBS, but two additional pomalidomide brands were recently listed, including Juno’s product. It can be inferred that the parties reached alternative settlement terms.
- Settlement and licence agreements, even if non-exclusive, may give rise to competition concerns under Part IV of the CCA given the removal of the intellectual property rights exemption under former section 51(3) of the CCA. Competition concerns may arise where the conduct substantially lessens competition or amounts to a cartel.
- The consequences of contravening Part IV of the CCA are significant. The ACCC may bring civil and (in some cases) criminal proceedings in relation to alleged breaches. Parties to any patent proceedings should carefully manage the competition law risks from any settlement and licence agreements that are proposed or entered into to resolve those proceedings.
- One way to manage these competition law risks is by seeking authorisation from the ACCC for the proposed conduct. However, the ACCC’s authorisation process is public. Applicants seeking authorisation should be prepared to make information about the likely future scenarios with or without the conduct for which authorisation is sought available to the public for the ACCC to be able to assess whether the public benefits outweigh the detriments and to provide evidence establishing the public benefits or lack of detriments.
- It remains to be seen whether the ACCC will take a heightened interest in patent settlement agreements following this experience, as has been the case in other jurisdictions and as recommended by the Productivity Commission in 2016. Given that settlement provides generic companies with a means to enter the market earlier than otherwise and at reduced risk, and the inherent increase in competition by having a second player in the market, parties should not lightly be deterred from reaching appropriate settlement arrangements.
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