Pay for Delay Agreements: Antitrust Watch Intensifies

Date01 July 2018
Published date01 July 2018
Subject MatterArticles
Pay for Delay Agreements:
Antitrust Watch Intensifies
Twinkle Chawla1
Ruchi Verma1
The pharmaceutical sector has constantly endeavoured to balance its dual objec-
tives of promoting state-of-art innovation and achieving affordable healthcare
for all. The contrasting aims are also germane to the inevitable conflict between
the competition law and the patent law with respect to this sector. Reverse pay-
ment settlement is one such concept that lies at the cross-section of these two
legislations and strangely offers an uncanny mechanism where extreme partisans
(i.e., innovator and generics) become comrades, thereby prodding genuine con-
cerns and exposing legal vulnerabilities of such agreements.
Against this backdrop, this article seeks to examine the growing undercur-
rent re reverse payment settlement agreements from a competition law per-
spective. In an attempt to harmonize the conflicting policy objectives, it will study
the interplay between patent law and competition law by placing reliance on the
approach followed by other jurisdictions. Further, this article will also assess
whether reverse payment settlement agreements fall within the statutory con-
struct of the Competition Act, 2002 and whether the Competition Commission
of India (“CCI”) can assert its jurisdiction over such agreements. An attempt is
also made to outline the approach which the CCI could adopt, bearing in mind
the importance of ensuring exclusivity as an incentive for innovation.
Reverse payment settlement, Patent, Originators, Generics, Actavis, Competition Act
The evolution of human kind clearly evidences that progress has been made only
when there was incentive attached to it. Premised precisely on this principle, patents
emerged, whereby an innovator was granted the exclusive right to exploit the fruits of
his/her labour, in exchange for the disclosure of the same to society. At the other end
of the spectrum, antitrust laws have emerged to promote fair competition in markets.
Journal of National
Law University Delhi
5(1) 22–39
2018 National Law
University Delhi
SAGE Publications
DOI: 10.1177/2277401718787952
1 Associate, Cyril Amarchand Mangaldas.
Corresponding author:
Ruchi Verma, Associate, Cyril Amarchand Mangaldas.
Chawla and Verma 23
As such, with intellectual property rights focussing on exclusivity and competition
law on engendering competition, their intersection, at times, becomes dichotomous.
However, this does not mean that these policies are irreconcilable, since intellectual
property protection, in principle, does not confer the right to exert restrictive or
monopoly power in a market or society on the right-holder. Rather, such cross-
sections only raise interesting moot points and showcase that an absolute assertion
of intellectual property rights can have competition law ramifications. This sentiment
was also expressed by the Raghavan Committee prior to enactment of the Competition
Act, 2002 (‘Competition Act’), which noted that:
All forms of Intellectual Property have the potential to raise Competition Policy/Law
problems … The former endangers competition while the latter engenders competition.
There is a need to appreciate the distinction between the existence of a right and its exercise.
During the exercise of a right, if any anti-competitive trade practice or conduct is visible
to the detriment of consumer interest or public interest, it ought to be assailed under the
Competition Policy/Law.1
Therefore, it has long been recognised that the antitrust authorities have the right
to deal with the anti-competitive components of intellectual property rights. However,
like all delicate and sensitive issues, striking the right balance is key. The concept of
‘pay-for-delay’ agreements is one of such overlaps between intellectual property
rights and competition policy.
Pay for delay agreements, more formally known as reverse payment settle-
ments, are agreements whereby the patent holder pays off a new entrant to delay
the latter’s entry in the market, typically until the expiry of the patent. More than
any other industrial sector, such arrangements have been witnessed mostly in the
pharmaceutical sector. One of the reasons for the incidence of such agreements in
the pharmaceutical sector is the latter’s unique market structure. Since the phar-
maceutical sector is constantly mired in the simultaneous effort to promote inno-
vation and achieve affordable healthcare for all; the pharmaceutical market is
marked by the presence of the innovator, i.e., the player who holds a patent over
the formulation and is the first mover in the market; and the generic manufactur-
ers, who provide the same formulation albeit at lower prices.
Reverse payment settlement agreements occur in the pharmaceutical sector where
the innovator makes a significant payment to the generic company for delaying the
market entry of low priced generic drugs in the market, until the patent expires, in most
cases. Consequently, such agreements can cause immense consumer injury by
denying access to low priced drugs. The concerns are exacerbated as the pharma-
ceutical sector is not only highly sensitive where the safety of patient is paramount
but is also characterised by a structure where the ultimate consumer, i.e., patient, is
not the decision maker and the market is resultantly, not price sensitive. Accordingly,
antitrust authorities in mature jurisdictions have taken cognizance of the antitrust
ramifications of such agreements.
1 Report of the High Level Committee on Competition Policy and Law-(2000)‘’
competition_policy_law_svs_raghavan_committee.pdf> para. 5.1.7 and 5.1.8 (‘Raghavan Committee

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