On 23 June 2023, the Provincial Court of Madrid ruled for the first time in Spain on the question of which generic company should pay compensation for the price reduction of a reference product following a declaration of infringement of the patent rights protecting it. The ruling was issued by the 32nd Section specializing in intellectual property and competition law and is not yet final, as an appeal in cassation has been lodged with the Supreme Court.
The Judgment has deserved special attention from the sector. For this reason, we will now comment on certain aspects in order to understand what we believe to be the exceptional circumstances in which it was handed down.
• Background to the case
The case originated in 2009, when two generic laboratories brought an action for the invalidity of three patents held by the company ELI LILLY, which protected the use of the product raloxifene for the treatment of various conditions related to osteoporosis. The action was brought before the commercial courts of Pamplona (Navarra) and the invalidity of the patents was primarily based on the lack of inventive step (Article 56 of the European Patent Convention).
ELI LILLY agreed to the declaration of invalidity of one of the patents and the proceedings continued with regard to the other two patents, which were a parent patent and a divisional patent with virtually identical content. The divisional patent, in the meantime, was declared invalid by the Opposition Division of the European Patent Office (“EPO”) in December 2009; nullity that was confirmed a few years later by the EPO Board of Appeal, in October 2012, which definitively revoked the patent.
In May 2011, one of the co-plaintiffs launched its generic raloxifene on the market, triggering the creation of what is known in Spain as a “homogeneous grouping“. This grouping included the reference product (marketed by ELI LILLY’s licensee in Spain, DAIICHI), another product that was marketed with the consent of the patent holder and the generic product. With the creation of the homogeneous grouping, certain obligations also came into force for healthcare providers, who had to dispense the medicine of the homogeneous grouping with the lowest price. This lowest-priced medicine was that of the generic laboratory until October 2011, when DAIICHI voluntarily lowered the price of the reference medicine to match that of the generic (“price reduction effect”).
ELI LILLY and DAIICHI attempted to prevent the marketing of the generic product in question by filing an application for injunctive relief, claiming infringement of the only remaining patent (the parent patent) with the same court that was hearing the invalidity case. This application was dismissed in July 2011, as the court held that the patent was prima facie invalid for lack of inventive step.
Subsequently, the second generic company launched its product on the market. This occurred in January 2012 and the product was added to the already established “homogeneous grouping” of raloxifene.
In the ordinary proceedings (on the merits), the Commercial Court of Pamplona invalidated the patent in July 2012 for lack of inventive step. However, following an appeal by the patent holder, the patent was declared valid at second instance, albeit on a procedural issue. This decision was upheld by the Supreme Court in October 2017.
• The infringement proceedings that followed the declaration of validity of the patent
Following the Appeal Judgment in Navarra, ELI LILLY and DAIICHI filed a patent infringement action, with a claim for damages, against the two generic laboratories that had brought the nullity action. The case was brought before the commercial courts of Madrid.
It is important to note that ELI LILLY and DAIICHI did not sue other generic laboratories that had entered the market later (as of July 2012) but when the patent was still in force. A priori, one reason for not doing so could be that these laboratories could try to invalidate the patent on the same grounds as those decided by the Provincial Court of Navarra, but without incurring in the procedural defect that had led to confirming the validity of the patent.
In these circumstances, the two laboratories were condemned for patent infringement and ordered to compensate the plaintiffs for the damages caused by the marketing of their generic medicines, both at first and second instance.
In this respect, it is noteworthy that the second instance judgment attributes liability for loss of profit, in its “price reduction effect” aspect, only to the first of the generic laboratories to launch its product.
However, it is important to note that the judgment attributes liability to this laboratory not so much because it was the first to launch the generic, but because it triggered administrative effects (the creation of the “homogeneous grouping”) that led the reference product to lower its price. On the other hand, when the second laboratory launched its product, it was directly included in the already established “homogeneous grouping” and did not cause additional damage to the reference product.
We believe that the judgment should be limited to the specific case at hand, as there are other scenarios that we believe have not been assessed. In particular, the judgment does not rule on the case where the voluntary price reduction of the reference product takes place when there is more than one generic product in the “homogeneous grouping”.Finally, it should be borne in mind that the ruling is part of an exceptional factual situation in which the exploitation of generic medicines had initially been considered lawful by the courts of Navarra, when they rejected the patent holder’s request for preliminary injunction on the grounds that the patent was considered invalid, and confirmed the nullity in the ordinary proceedings on the merits of the case. On the other hand, it is also unusual for there to be a time lag of up to 8 months between the first generic laboratory launching the product on the market and the second.