The intricate interplay between intellectual property and competition law as exemplified by the Xalatan case

Enzo Marasà

Portolano Cavallo, Milan

emarasa@portolano.it

Elisa Stefanini

Portolano Cavallo, Milan

estefanini@portolano.it

Francesca Ellena

Portolano Cavallo, Milan

fellena@portolano.it

The interplay between intellectual property and competition law in a recent Italian judgement awarding damages to the SSN

The relationship between intellectual property (hereinafter, ‘IP law’) and competition law highlights a fundamental tension: while IP law grants exclusive rights to incentivise innovation, competition law seeks to avoid market abuse and ensure fair competition. This interplay often becomes critical when dominant companies use patent rights and sector regulations to block access to the market to their competitors (so-called ‘regulatory gaming’), leading to cases where the legitimate protection of IP rights is misused to obtain dominant position in the market (so-called ‘abuse of rights’).

The Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato or AGCM) has been particularly active in this field over the last decade, issuing several fines for abuse of dominance based on the concept of ‘abuse of rights’ or ‘misuse of regulation’, hitting on the unfair and exploitative tactics of dominant companies misusing patent regulation to maintain or strengthen their market power in breach of Article 102 of the Treaty on the Functioning of the European Union (TFEU).

One of the first and landmark cases across the EU which found an abuse of dominance by similar conduct was related to the management of Pfizer’s Xalatan patent lifecycle, decided by the AGCM on 11 January 2012 (with a fine of €10.6m) and confirmed by the Council of State (the Italian supreme administrative court) by judgement No. 201400116 of 16 January 2014.

What is less known is that recently the Italian Supreme Civil Court (Corte di Cassazione Civile), with judgement No 9 of 2 January 2024, for the first time awarded damages to the Italian national health service (Servizio Sanitario Nazionale or SSN) for the harm suffered because of that abuse. This is a significant development that is worth being analysed.

The Xalatan case: misuse of patent law to delay generic market entry

The judgement of the Italian Civil Supreme Court condemning Pfizer to pay damages to the SSN came after lengthy litigation between the company and AGCM.

The AGCM fined Pfizer for abusing its dominant position through misuse of patent law, causing an unjustified delay in the entry of generic products on the Italian market. Notably, the AGCM in its decision also estimated the damage caused to the SSN in terms of overall overcharges paid for Xalatan compared to the counterfactual scenario absent the conduct. Following the decision, the Ministry of Health and the Ministry of Economy and Finance filed a claim for civil damages before the Rome Tribunal (first instance) and sought to have Pfizer compensate for the higher reimbursements price borne by it during the period when generic companies were kept from marketing their products due to Pfizer’s abusive conduct.

While the Rome Tribunal rejected the SSN’s request for damages, the Court of Appeals of Rome overruled the first instance decision and awarded damages, by recognising Pfizer’s infringement and endorsing the amount of damages estimated by the AGCM in the decision. Consequently, Pfizer challenged the Court of Appeals’ judgement before the Civil Supreme Court on the grounds – among others – that the Court of Appeal wrongly relied on the estimate of the AGCM to quantify the damages and should have made its own autonomous investigation and examination of available evidence. Finally, the Supreme Court confirmed the judgement of the Court of Appeals by requiring Pfizer to compensate the SSN.

The conduct: Pfizer’s patent strategy

Pfizer owns and markets the product Xalatan, a medicine based on the active ingredient latanoprost. Xalatan is used to treat glaucoma, a common disease of the optic nerve. Xalatan was the most prescribed medicine for the treatment of glaucoma in the world. This blockbuster drug was made eligible for SSN reimbursement, which means that in certain circumstances a portion or the entire price of the drug is covered by the SSN. When only the originator’s product is on the market, the reimbursement price is usually higher, as the brand-name drug is typically more expensive than a generic and no alternative generic exists.

Xalatan was originally covered by a European patent registration owned by Pfizer (‘primary patent’) filed in 1989 and granted in 1994. The patent was scheduled to expire on 6 September  2009. However, in 1997, Pfizer required supplementary protection certificates (SPCs) for the primary patent in almost every EU country of validation, thereby securing protection of Pfizer’s proprietary rights until 17 July 2011. However, for unknown reasons (the company claimed it was a genuine oversight), Italy was not the subject of an SPC request. Therefore, Pfizer’s exclusive rights to Xalatan were scheduled to expire in Italy on the primary expiration date – 6 September 2009 – before they expired in the other countries where SPCs had been obtained.

Producers of generics had this patent expiration date fixed in their minds as they hoped to launch their products in Italy from 7 September 2009. However, it later emerged that in January 2009 Pfizer had obtained a divisional European patent from the European Patents Office (‘divisional patent’) to further protect certain latanoprost formulations (which resulted in Xalatan being covered again), and that the divisional patent had been validated in Italy only.

As a result, Pfizer, with a new patent in its portfolio, applied for and received (another) SPC for Italy. Pfizer also applied for a paediatric extension, which would have added an additional six months to the SPC expiration date. In this way, Pfizer obtained the protection of Xalatan until 17 July 2011. In July 2009 (after the divisional patent had been granted but before generic producers planned to place their generics on the market), Pfizer started to send warning letters to generic producers to discourage them from marketing their generic products, claiming that doing so would infringe the patent rights still covering Xalatan. It also started litigating against generic companies in civil courts (filing injunctions, seizures and counterclaims for infringement) and administrative courts (challenging inclusion in the Transparency List).

The intervention of the AGCM against Pfizer’s patent strategy

On 11 January 2012, the AGCM found that Pfizer had infringed Article 102 of TFEU by deliberately pursuing a patent strategy with the sole aim of prolonging Pfizer’s intellectual property rights to Xalatan and creating a competitive disadvantage for generic producers. The AGCM’s reasoning underpinning the finding of an abuse of dominance was based on the following items:

• Pfizer led the divisional patent 13 years after the primary patent and just as some competitors were entering the market.
• The divisional patent did not cover any new therapeutic use of Xalatan, and no product was launched on the market covered by the divisional patent.
• The divisional patent was only validated in Italy and the SPC was only requested for Italy and not for other countries where it could have been requested as well.
• A paediatric extension for a drug that treats a disease like glaucoma that predominantly affects the elderly raised red flags.

According to the AGCM, even though the overall conduct was compliant with patent law and sector regulation, in substance it was designed to block entry and push generics out of the Italian market, since Pfizer had no other plausible economic interest or strategic rationale for such a conduct. According to the AGCM, this caused a delay in the plans of generic producers to launch their products on the market because of the legal uncertainty surrounding the patent portfolio. The authority therefore stated that the contested conduct was detrimental to competition, and presumably to the SSN and taxpayers, because it delayed entry of a less expensive alternative drug.

The AGCM estimated the damage to the SSN to be in the region of €14m. The estimate was made not with a view to awarding damages (as the AGCM is not a forum for damages), but with a view to assessing the gravity of the infringement under competition law.

The AGCM decision was overruled by the first instance Administrative Court of Lazio (TAR Lazio), then upheld by the Supreme Administrative Court (Consiglio di Stato) as abuse of rights: ie, exploitation of rights to obtain an unfair advantage that goes beyond the intended objective of those rights. Significantly, the Supreme Administrative Court refuted Pfizer’s arguments by claiming that the final validity of the patent and the fact that the overall strategy was allowed by patent law were irrelevant when it came to ascertaining abuse of dominant position. Indeed, the Supreme Administrative Court stated that, in order to abuse a right, one must have that right in the first place.

The intervention of the Civil Supreme Court

Once the Supreme Administrative Court confirmed the fine, the Ministry of Health and the Ministry of Economy and Finance filed an action before the Rome Tribunal to recover damages suffered by the SSN due to having paid a higher reimbursement price for Xalatan during the months when the generic producer delayed its inclusion in the Transparency List and its market entry.

The SSN requested the amount of damages determined by the AGCM (approximately €14m). However, the first instance Tribunal dismissed the claim, stating the SSN failed to prove that the generic producer’s late entry into the market was caused by the abuse of dominant position (ie, a causal link between the abuse and the delay was insufficiently substantiated). According to the Tribunal, the AGCM decision was only evidence that a breach of competition law occurred, not that such breach caused a delay and thus certain damage (to the SSN). Indeed, according to the court, the value of the AGCM decision as ‘stronger evidence’ of competition infringement – which was temporally applicable to that infringement – was limited to the elements of the decision relevant to the finding of abuse and does not impact quantification of anti-competitive effects or harm, as those are not necessary for that finding (in line with the scope of the binding effect of national authorities’ decisions set out in Article 9 of Directive 2014/104/EU).

Consequently, the claimants appealed the first instance decision before the Court of Appeals of Rome, which overturned the lower court’s judgement and awarded damages.

The Court of Appeals of Rome held that, under Article 9 of Directive 2014/104/EU, an AGCM decision cannot per se establish a causal link between a breach of competition law and alleged damages; however, this principle does not prevent such a causal link from being proven by presumptions based on facts ascertained by the AGCM and gathered during its investigations. In particular, according to the court, indications of a causal link could be well-established on the basis of Pfizer’s dominant position, the anti-competitive effects substantiating Pfizer’s abuse of its dominant position, and other factual elements collected by the AGCM (eg, the fact that producers of generics usually enter the market quickly after obtaining marketing approval, but in this case they did not because Pfizer’s conduct created too much uncertainty about the consequences of entering the market).

Finally, the Court of Appeals held that the SSN did not necessarily have to prove that every package of the medication sold by the dominant firm during the delay period was reimbursed by the SSN. The court was satisfied with the data demonstrating the volume of sales during the delay period and with the AGCM’s estimate of how much the SSN would have saved on reimbursement (approximately €14m). The court equitably deducted 5 per cent of that amount to reflect the fact that some of the sales likely included packs that were not reimbursed by the SSN.

However, Pfizer challenged the Court of Appeals decision before the Supreme Court, by arguing, among other things, that there was no abuse of dominant position but only the pure enforcement of legitimate rights under patent law; there was no evidence of a causal link between the alleged abuse and the alleged damages; and the burden of proof was allocated erroneously. To this end, the appellant argued that the Court of Appeal only based its reasoning on the AGCM decision, which was not ‘stronger evidence’ to establish a causal link. Moreover, the court was satisfied with Xalatan’s sales volume as ascertained by the AGCM and did not require the SSN to prove that every package sold by Pfizer during the delay was reimbursed by the SSN. Finally, referring to the 5 per cent reduction applied by the Court of Appeals, it argued that the amount of damage could not be determined equitably, as there was no evidence of damages suffered in the first place.

Nonetheless, the Italian Supreme Court, in its final judgement upheld the damages awarded to the SSN in the same amount estimated by the AGCM.

First, the Supreme Court stated that Pfizer’s action constituted an abuse of its dominant position under competition law, irrespective of the subsequent confirmation of validity of the divisional patent. According to the Court, the abuse consisted in Pfizer’s overall patent strategy, which lacked any legitimate rationale to file the additional patent other than to delay generic competition.

Secondly, the Court determined that there was sufficient evidence of a causal link, endorsing the lower court finding that Pfizer’s legal threats to its competitors and patent strategy created uncertainty for generic manufacturers, leading to delayed market entry and higher costs for SSN. Also, it established that the Court of Appeals did not justify the finding of the causal link merely on that the AGCM decision was deemed ‘stronger evidence’ of the infringement, including of the causal link and quantification of damages. On the contrary, the Court of Appeals assessed the reliability and adequacy of various elements reported in the AGCM decision and collected during the investigation phase before it, to establish a rebuttable presumption of the causal link and of the damages, which the dominant company was not able to rebut. Based on that presumption, the Supreme Court found it ‘more likely than not’ that Pfizer was responsible for the delay, also considering that generic producers indisputably took into account the risk of patent infringement litigation when deciding to delay entry until the legal situation was clarified.

The Supreme Court also found no error in allocating the burden of proof: the Court of Appeals correctly appraised the value of single pieces of evidence and of the overall estimate of the harm reported by the AGCM by autonomously considering and assessing factual elements (eg, sales volume) as a foundation for a rebuttable presumption, which is entirely lawful.

Finally, the Supreme Court ruled that Pfizer misunderstood the reasoning of the Court of Appeals in that the latter did not apply equitable quantification in lieu of evidence; instead, it combined the evidence at hand to conclude with a margin of probability that some packages might not have been reimbursed.

Conclusions

Although many features of the Pfizer patent strategy are now outdated, as they have been addressed by legislation (eg, by requiring the filing of a divisional patent application on a strict timeline), this complex and protracted litigation demonstrated that the patent strategies of pharmaceutical companies must always comply with competition law, and that competition and IP professionals ought to work together to manage the patent lifecycle and establish litigation strategy to protect market exclusivity.

Competition authorities and courts have repeatedly emphasised that even lawful conducts under IP law may nonetheless constitute anti-competitive behaviours when the intent is to unfairly prolong market dominance. This judgement of the Civil Supreme Court has covered the last mile by confirming the award of damages to the SSN based on evidence collected and estimates made by the national competition authority during the investigation phase.