Patents and competition: new evidence on abuses in the pharmaceutical sector

Patents and competition: new evidence on abuses in the pharmaceutical sector

Professor Correa is the Director of the Center for Interdisciplinary Studies of Industrial Property Law and Economics, University of Buenos Aires and is a member of IP Osgoode's International Advisory Council

The objective of the patent system is to promote innovation. There is growing evidence, however, about the strategic use of patents as a tool to restrict legitimate competition. A paradigmatic case can be found in the pharmaceutical industry. While there is a drastic decline in the development of new chemical entities to address health needs, particularly in developing countries, there is a proliferation of patents on minor variants or derivatives of known pharmaceutical products, such as salts, esters, polymorphs, isomers, metabolites,  as well as on second indications of those products. These ‘evergreening' patents are often aggressively used to delay or block generic competition thereby reducing access to medicines at affordable prices.

The proliferation of patents on minor or trivial developments is the result of deliberate strategies by pharmaceutical companies, shortcomings in the evaluation of patent applications, and the relaxation of the standards of patentability (particularly with regard to inventive step) applied to grant a patent.

Competition law can be an important instrument to remedy the abusive use of patents. One outstanding example was the decision that condemned Bristol Myers Squibb's decade-long pattern of alleged anticompetitive acts. The US Federal Trade Commission determined that ‘Bristol avoided competition by abusing federal regulations in order to block generic entry; deceived the U.S. Patent and Trademark Office to obtain unwarranted patent protection; paid a would-be generic rival over $70 million not to bring any competing products to market; and filed baseless patent infringement lawsuits to deter entry by generics' (US Federal Trade Commission, 2003, In Europe, an illustrative case was the fine applied in 2005 by the European Commission to the Anglo-Swedish pharmaceutical company Astra Zeneca, which was found to have given misleading information to several national patent offices in order to gain extended patent protection for the anti-ulcer drug omeprazol.

A recent report by the European Commission provides in a report released in November 2008 new and robust evidence on these practices (Pharmaceutical Sector Inquiry. Preliminary Report , DG Competition Staff Working Paper, available at Among other findings, the report observed that ‘originator companies have designed and implemented strategies (a "tool-box" of instruments) aimed at ensuring continued revenue streams for their medicines. Although there may be other reasons for delays to generic entry, the successful implementation of these strategies may have the effect of delaying or blocking such entry. The strategies observed include filing for up to 1,300 patents EU-wide in relation to a single medicine (so-called "patent clusters"), engaging in disputes with generic companies leading to nearly 700 cases of reported patent litigation, concluding settlement agreements with generic companies which may delay generic entry and intervening in national procedures for the approval of generic medicines. The additional costs caused by delays to generic entry can be very significant for the public health budgets and ultimately the consumer'. The report also found that ‘originator companies develop and practise defensive patenting strategies primarily in order to block the development of new competing products. This can lead to obstacles to innovation, in form of higher costs for competing pharmaceutical companies (e.g. for royalties), or in delays'.

This report is a welcomed contribution. It sheds light on practices that affect both developed and developing countries. In the latter, however, competition laws are generally weak or poorly implemented, if they exist at all. Applying the high standards of intellectual property protection required by the TRIPS Agreement makes it imperative for those countries to establish or strengthen such laws. Courts must also be conscious about the possible use of patents to unduly restrict competition, and be extremely cautious when deciding preliminary or permanent injunctions in patent litigation.