SPC pharma matter spotlights pay-for-delay agreements

SPC pharma matter spotlights pay-for-delay agreements

The Supreme People’s Court (SPC) has identified relevant factors from an Anti-Monopoly Law perspective when assessing pay-for-delay settlement agreements, which arose when a drug patent holder pleaded to withdraw its patent infringement claims before the court.

On reviewing the application, the SPC found a settlement agreement for another legal proceeding which, in the court’s view, appeared to be a “pay-for-delay” agreement.

The SPC noted that pay-for-delay agreements may be anti-competitive and a competition law violation.

The most important factor of the antitrust assessment was the possibility of the patent concerned being declared invalid without signing the “pay-for-delay” agreements – taking into account, for instance, whether the compensation under such agreements exceeds a reasonable amount.

The court also identified the theories of harm involving such agreements, where the patent holder could substantially extend its exclusive position and delay or exclude market entry.

The SPC held that a prima facie review would be sufficient in such a non-antitrust lawsuit, and determined that there was no necessity or urgency to consider in-depth the grounds on which the drug patent concerned had expired – nor was there sufficient evidence in the case to do so.

Pay-for-delay settlement agreements were identified as a potential antitrust enforcement target in China’s 2014 national IP strategy, but there has been no further guidance or relevant decisional practice until this case. To date, The China competition authority has yet to initiate such an investigation.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com