From unlawful means to counterfactuals, and from disclosure of medical devices pricing to hospital passes, please find below the other developments in healthcare that caught our eye this summer.
UK Health Service suffers loss in claim against Servier
The UK National Health Service (NHS) suffered a defeat in the UK Supreme Court (UKSC) in July in its long-running claim against Les Laboratoires Servier in relation to the drug Perindopril. This is a case at the cutting-edge of competition law and IP law.
For the purposes of this overview, it’s important to remember that the NHS effectively has three claims against Servier relating to Perindopril: (i) a claim based on the ‘pay-for-delay’ agreements entered into by Servier with a number of generic competitors which after the European Commission’s pay-for-delay case effectively became a follow-on claim; (ii) a stand-alone competition law claim based on abuse of dominance in relation to misleading or dishonest misrepresentations made to the European Patent Office (EPO) by Servier; and (iii) an action in tort for unlawful means in relation to those misleading or dishonest misrepresentations to the EPO and subsequently in defence of the relevant patent.
The case at the UKSC is only about this third action and the UKSC’s judgment does not mean game over for the NHS’s claim of £220m in damages itself: claims (i) and (ii) are not affected by it.
The NHS’s third claim related to representations Servier made to the EPO when obtaining a further patent for the alpha crystalline form of Perindopril salt in 2004, as well as to representations made when defending the patent in subsequent proceedings in the High Court. That further patent was held to be invalid by an English judge in 2007 in a judgment upheld by the Court of Appeal a year later. The unlawful means claim alleged that Servier’s representations in obtaining and defending this ultimately invalid patent were untrue: the alpha form of Perindopril salt was not novel and/or not obvious and servants and agents acting for Servier either knew or were reckless as to these matters.
Servier applied to the High Court to have this claim struck out, on the basis that the NHS had not met the test for the unlawful means tort to apply.
Applying the OBG v Allen judgment of the House of Lords, Mr Justice Peter Roth, sitting as a High Court judge, held that the unlawful means tort was confined narrowly in that case, and he rejected the NHS’s claim that a broad interpretation was appropriate. The Court of Appeal upheld Roth J’s judgment, which prompted an appeal by the NHS to the UKSC. The question before the UKSC was whether or not it is a necessary element of the unlawful means tort that the unlawful means (here the alleged misleading representations to the EPO and High Court) should have affected the third party’s freedom to deal with the claimant. The third party in this case are the EPO and the English Courts, and the claimant the NHS. It was common ground that those third parties did not have dealings with the NHS. Therefore, if it was necessary that Servier’s alleged misrepresentations affected the third parties’ freedom to deal with the NHS then the NHS’s unlawful means claim would fail.
In short, the UKSC found that it was indeed a necessary element of the unlawful means tort that the unlawful means should have affected the third party’s freedom to deal with the claimant, thus upholding the Court of Appeal and Roth J’s judgments.
The upshot is that misleading claims in a patent application and the subsequent defence of that application do not give a third party like the NHS a cause for action under the unlawful means tort. The question that remains unanswered however, is whether Servier’s representations to the EPO constitute an abuse of dominance under UK and/or EU competition law.
This will depend on the outcome of the CJEU case in relation to Servier’s infringements of Article 102 TFEU and the High Court’s appreciation of the facts. Although it is now clear that misleading representations made to a patent office, undesirable as they may be, do not give rise to an unlawful means claim for the NHS, dominant firms are held to a heightened standard (referred to as the ‘special responsibility’). Indeed, this special responsibility may deprive a dominant firm of the right to adopt a course of conduct that would be unobjectionable if adopted by a non-dominant firm. As the AstraZeneca judgment tells us, whether or not misleading representations made to the authorities are an abuse of dominance will depend on whether they constitute competition on the merits.
Progress in the Pregabalin case
There was also a development in another interesting damages case in the UK, Dr Reddy’s Laboratories and Others v Warner-Lambert/Pfizer, which is not based on competition infringements but on cross-undertakings in damages given by Warner-Lambert/Pfizer (hereafter ‘Pfizer’) in the context of injunctions and contractual undertakings relating to entry by other generic suppliers. In July, Mr Justice Zacaroli of the High Court gave his judgment on preliminary issues, the most interesting one being what the correct counterfactual should be for the various cross-undertakings.
The claims against Pfizer relate to Pregabalin, a derivative of Isobutylgaba, and specifically the second patent Pfizer obtained for the use of pregabalin for the treatment of pain, for which the period of exclusivity was still running when its first patent (for the treatment of seizure disorders, notably epilepsy) expired.
After expiry of the first patent, generic suppliers geared up to enter the market and Pfizer initiated a number of partly successful injunctive actions against that entry. For example, although it was unsuccessful in its action to stop Actavis from selling the product under a ‘skinny-label’ marketing authorisation (i.e. one that only indicated the off-patent treatment of epilepsy), it did obtain an order requiring the NHS to distribute guidance to doctors telling them that when they prescribe pregabalin for pain, they should specify Pfizer’s brand name Lyrica on the prescription and refrain from using the generic name of the product.
Pfizer subsequently lost the substantive case against Actavis in important parts. However, it appealed that judgment and in the context of the appeal obtained interlocutory injunctions against or contractual undertakings from other generic suppliers planning to launch pregabalin under a ‘full-label’ or ‘intermediate label’ marketing authorisation. Full-label authorisations were indicated not just for epilepsy but also for pain, the indication to which the second patent applied. Intermediate-label authorisations were indicated for the treatment of epilepsy and central neuropathic pain, but not peripheral neuropathic pain.
In the context of the various injunctions and contractual undertakings, Pfizer had given cross-undertakings in damages, essentially undertaking that if the court later found that the order or contractual undertaking caused loss to the relevant generic supplier or the NHS and decided that the relevant supplier or the NHS should be compensated for that loss, Pfizer would pay. Most of the claims Pfizer made in relation to its second patent were ultimately held to be invalid, such that the generic suppliers and the NHS all filed claims for compensation under the cross-undertakings.
In relation to those claims, Zacaroli J had to establish what the appropriate counterfactual should be.
As is well-known, a counterfactual analysis involves assessing the circumstances that would have existed had the event with respect to which compensation is sought not occurred. In the case of a cross-undertaking with respect to an order: the circumstances that would have existed had the order not been made. However, the complicating factor in this case was of course that Pfizer had sought injunctions and made threats in relation to not just one generic entrant, but in response to several planned product launches by different generic suppliers and under different types of marketing authorisation. Therefore, the question for the judge was whether when he was assessing the circumstances that would have existed had an order with respect to one party not been made, those circumstances should or should not include an order made with respect to another party.
This is of course highly relevant with respect to prescription drugs, which – in a publicly funded system as exists in the UK – tend to involve markets in which demand does not increase if prices fall. Whether or not one generic supplier’s counterfactual includes restrictions on the other generic suppliers (meaning the first generic supplier would in the counterfactual capture a significantly higher part of the total demand for the drug) makes a big difference.
In his judgment, Zacaroli J recognised this market dynamic: “[b]ecause the market is a finite one, the answer to [the question as to what loss a claimant suffered as a result of the relevant order] depends upon the market share that would have been obtained by each other Generic that would have participated in the market”. He therefore held that “it is appropriate to assume as a matter of law, in assessing the counterfactual for each Inquiry Claim, that none of the orders, undertakings or Threats were made”.
Although not explicitly referred to in the judgment, the judge thereby echoed the EU Court of Justice in MasterCard, which emphasised that a counterfactual must be realistic. Indeed, if the judge had worked in one claim on the assumption that only the order with respect to that particular claimant had not been made, thus assuming that the entire part of the market that would have switched to the generic version of pregabalin was available to that particular claimant, and if the judge then subsequently applied the same approach to each other claim, this would “result in Pfizer being required to pay more in aggregate by way of compensation to all Inquiry Claimants than the total loss that could possibly have been caused in any single counterfactual world”.
Medical devices companies avoid disclosure of volume and pricing data in the Netherlands
A number of hospitals in the Netherlands, supported by medical devices manufacturers, were partly successful in their attempt to avoid having to disclose information relating to the supply of implants to hospitals. The request for disclosure came from investigative journalist Ilona Dahl, who is investigating the cost of medical devices supplied to hospitals and was made under the Dutch freedom of information act (Wet openbaarheid van bestuur).
Although the court held that the hospitals had not sufficiently reasoned their refusal to disclose information relating to the names of products supplied to the hospitals, it did uphold the hospitals’ decision to withhold volume and pricing data from disclosure. In particular, the court held that the volume and pricing data was information that fell into two different categories of information that can be withheld from disclosure, namely ‘business and manufacturing data that was disclosed to the Government in confidence’ and ‘information in relation to which the public interest of disclosure does not outweigh the need to avoid disproportionate enrichment of or damage to a person or company’.
In a subsequent article by Dahl, a number of Dutch academics have criticised the judgment, noting that more transparency around prices does not automatically lead to competition problems (and may in fact give rise to more competition) and that the pricing information requested was to a large extent historic in nature. They also pointed out that the high level of alignment between hospitals and manufacturers in this case was notable (with the hospitals essentially protecting the manufacturers’ information), particularly given that more transparency might well be in the interest of Dutch hospitals who are publicly funded institutions that are expected to compete with each other at a number of levels.
It is not yet clear if any party has appealed the judgment or if the hospitals will try to give further reasons for why even information relating to the names of products supplied to the hospitals should be withheld.
A hospital pass over Covid-19 tests
In early August, UK Health Secretary Sajid Javid wrote to the CMA asking it to conduct a rapid high-level review of the market for PCR travel tests, also urging the CMA to take action to prevent exploitation where it could under its existing powers. By the end of the month the CMA had sent an open letter to the industry threatening legal action if breaches of consumer law were to persist, but it was still criticised by its former Chair Andrew Tyrie, who said the CMA had been too slow in its reaction to the PCR tests issue and that it was wrong to have closed its Covid-19 Taskforce.
At the beginning of September, the CMA announced that it had launched a consumer law investigation into Expert Medicals, one of the largest suppliers of PCR tests in the UK over the summer, after complaints that it failed to provide tests and results in a timely manner or at all; failed to respond to customer complaints; and refused to issue refunds when due. The CMA has also written to a further 19 providers telling them to improve their pricing information.
Then, on 10 September, the CMA issued its advice to Mr Javid, recommending that more stringent rules are introduced in relation to the provision of PCR tests, as “competition alone will not deliver the right outcomes for consumers from the PCR testing market”. Mr Javid responded a day later saying that there would be tough new penalties for companies that fail to follow the law, including fixed fines of up to £10,000. He would review the CMA’s advice and respond to it shortly.
The FT published an interesting article on Amazon’s development of services for hospitals and consumers. Meanwhile, change was afoot at Google, which in June moved 130 staff from healthcare initiatives to its Fitbit and Search divisions. In August, Insider published an internal Google memo that indicated that the company was shutting down Google Health. According to reports, its health initiatives will now sit within existing Google divisions. This did not affect separate initiatives like Alphabet’s Verily and the healthcare products being developed at Google Cloud.
In competition law, the UK Government issued two consultations this summer, one to update the competition and consumer regime generally, and one proposing a new set of ex ante rules for digital markets. Interesting development for competition lawyers is that the Government is consulting on changing section 2(3) of the Competition Act 1998, under which it is currently required that an agreement is implemented in the UK for the UK cartel prohibition to apply to it. This would under the proposals be replaced by the ‘qualified effects test’ applied under EU law.
With respect to medical devices, the UK Medicines and Healthcare products Regulatory Agency (MHRA) has issued a consultation on 16 September inviting views on possible changes to the regulatory framework for medical devices in the UK. The MHRA separately published a work programme on software and AI as a medical device to provide a regulatory framework that provides protection for patients and public, but also make sure that the UK is the home of responsible innovation for medical device software.