Pay-for-delay agreements

Pay-for-delay agreements are agreements by which an originator laboratory pays consideration to a generic manufacturer for delaying the entry of its product onto the market. They most often occur on the amicable settlement of a patent dispute. In practice, the patentee buys exclusivity time.

The structure of pay-for-delay agreements

First, a dispute opposes the originator and the generic company over the validity or infringement of a patent. Second, the parties settle. The generic company undertakes not to launch its product before an agreed date. In exchange, it receives a payment, a licence on advantageous terms or a distribution contract. The transfer of value thus flows from the patentee to the challenger, which reverses the ordinary logic of a settlement.

Characterisation under competition law

The Court of Justice of the European Union clarified the framework in the Generics judgment of 30 January 2020 and the Lundbeck judgment of 25 March 2021. Such an agreement constitutes a restriction of competition by object where the transfer of value has no plausible explanation other than the common interest in not competing. Not every settlement is prohibited, however. An agreement that simply reflects the respective strength of the positions in the dispute, without a significant payment, remains lawful. The analysis therefore bears on the nature and amount of the consideration.

The sanctions incurred

The European Commission and national competition authorities have imposed substantial fines on parties to pay-for-delay agreements. Competitors and injured purchasers may likewise seek compensation before the civil courts. The agreement itself may finally be annulled.

The consequences for patent practice

Settlement remains the normal outcome of many pharmaceutical patent disputes. It must however be drafted with caution. The firm advises on the drafting of settlement agreements and litigates pharmaceutical patent disputes, including evergreening strategies. See our page pharmaceutical patents and the case law of the Court of Justice.