The CJEU and the European Commission strengthen competition oversight in the pharmaceutical sector
In October 2025, the Court of Justice of the European Union (“CJEU”) upheld the General Court’s judgment (which in turn upheld the European Commission (“Commission”) decision) in Teva Pharmaceuticals Industries and Cephalon v European Commission (Case C-2/24 P), and confirmed that a patent settlement agreement between Teva and Cephalon was a restriction of competition under Article 101 TFEU. This decision comes only a year after the Commission’s decision in Teva Copaxone (AT.40588), where Teva was found to have abused its dominant position by misusing regulatory patent procedures before the European Patent Office (“EPO”).
These recent cases underscore the increasing overlap between competition law and other areas of regulation and demonstrate how various patent strategies can cross the line into anticompetitive conduct. Companies operating in sectors where intellectual property rights are paramount, such as pharmaceuticals, should scrutinise their IP strategies from a competition law perspective to ensure that they do not entail anticompetitive practices. This article examines the recent pharmaceutical cases to help companies identify and avoid competition law pitfalls in their IP protection strategies.
Pay-for-delay settlements: Teva and Cephalon v. Commission
The Teva and Cephalon case originates from the early 2000s, when Teva and Cephalon were two independent pharmaceutical companies (Teva acquired Cephalon in 2011). Cephalon was selling a medicinal product containing the active pharmaceutical ingredient modafinil, for which Cephalon’s various national compound patents expired in 2003. Cephalon still had some secondary patents and other modafinil-related patents that were expiring in 2015.
Teva launched its generic modafinil product in the UK in June 2005, which resulted in Cephalon initiating patent court proceedings against Teva based on its secondary patents. Prior to the interim injunction hearing, Teva agreed to stop selling its generic version of the modafinil product in exchange for Cephalon providing a bond in the event that Teva succeeded in the court proceedings. Later, Teva and Cephalon concluded a settlement agreement concerning the dispute.
In the settlement, Teva committed to not entering the market independently with a modafinil product before 2012 and to not challenge Cephalon’s modafinil patent rights. The settlement agreement included accompanying commercial terms, such as IP and data-access licences, modafinil supply and distribution contracts, and reimbursement rights for litigation costs. The Commission, and subsequently the EU Courts, found that the settlement agreement breached Article 101 TFEU, effectively constituting a market-sharing agreement between the parties that hindered Teva, as a potential competitor, from entering the market.
In essence, the settlement agreement was construed as a “pay-for-delay” settlement agreement, in which the originator company transfers value to the generic company in exchange for the generic company agreeing to delay its entry into the market and refrain from challenging the originator’s patents. This type of agreement creates a counterintuitive flow of money: instead of the alleged patent infringer (generic company) paying the patent holder (originator) to settle the dispute, the patent holder pays the alleged infringer to not enter the market and to not challenge the patents in question.
The Teva and Cephalon judgment is not the first time this type of pay-for-delay agreements have been considered a breach of competition law, and it builds on case law from the earlier landmark judgments Lundbeck v Commission (C‑591/16 P), Generics (UK) and Others (C-307/18) and Servier and Others v Commission (C-201/19 P).
Not all patent settlement agreements between competitors constitute a breach of competition law. The anticompetitive issue with the “pay-for-delay” agreements stem from the counterintuitive flow of value. The settlement was not based on Teva’s recognition of the validity of Cephalon’s patents, but the parties rather agreed on a transfer of value from Cephalon to Teva that acted as an incentive for Teva to refrain from entering the market. The sole explanation for such an agreement had to be that Cephalon and Teva agreed to not engage in competition on the merits, as there was no other commercially reasonable explanation for the agreed settlement.
A settlement where the transfers of value are fully justified in order to compensate for the costs of or disruption caused by the dispute, or by the need to provide remuneration for the actual and proven supply of goods or services from the manufacturer of generic medicines to the originator, does not breach competition law. To determine the commercial motivation for the settlement agreement, the agreement as a whole must be considered to determine whether the same commercial terms would have been offered as part of a “normal” transaction without exclusionary intent.
Going forward, potential competitors concluding settlement agreements must ensure that the commercial terms reflect the economic reality on the market and are justifiable from a commercial point of view. While concluding a settlement agreement to avoid litigation is a justifiable objective, commercially unjustifiable terms in the agreement could still lead to anticompetitive outcomes and possible competition law fines. For Teva and Cephalon, the pay-for-delay settlement resulted in a competition law fine totalling approx. EUR 60 million.
Abuse of dominance: Teva Copaxone
In a parallel development, the Commission also approached the conduct of an originator company aimed at prolonging the exclusivity period of its products and hindering generic products from entering the market as abuse of a dominant position. Teva’s patent strategies were the subject of a Commission investigation, where it found that Teva’s patent application and litigation strategy in relation to its blockbuster medicine Copaxone constituted an abuse of dominance.
When Teva’s basic patent for Copaxone was about to expire in 2015, Teva had begun filing multiple overlapping divisional patent applications to protect Copaxone’s position on the market. To enforce the divisional patents, Teva sent out warning letters invoking the divisional patents and requested preliminary injunctions before national courts. In turn, the generic manufacturers challenged the divisional patents before the EPO. When it seemed likely that the EPO might revoke a divisional patent or issue any reasoned decision to that regard, Teva withdrew that specific patent application. This conduct prolonged the legal uncertainty around the patents and shielded the remaining patents from damaging precedents, prolonging the resulting market exclusivity for Copaxone.
Teva’s patent strategy was technically permitted by EPO procedural rules and did not directly breach any patent legislation. However, the Commission held that Teva’s conduct went beyond legitimate competition on the merits, as the combined strategy of filings and withdrawals obstructed effective legal review and artificially prolonged market exclusivity. In addition, simultaneously with the patent strategy, Teva had also engaged in a disparagement campaign aimed at casting doubt over the safety and effectiveness of the generic products. The Commission found that this conduct, taken as a whole, significantly delayed the market entry of generic products, thus constituting abuse of dominance.
This decision serves as a reminder that conduct permitted by a legal framework could still be considered abusive under competition law. This follows from the “special responsibility” a dominant company has been considered to have, which prevents dominant companies from engaging in conduct that is permissible for non-dominant undertakings if it further restricts competition. In Teva’s case, this meant that a theoretically lawful patent strategy became abusive, as it deprived potential competitors of effective market access. The Commission imposed a EUR 462.6 million fine on Teva for the conduct.
Key takeaways for pharmaceutical companies
Competition authorities are demonstrating a clear interest in the pharmaceutical sector as well as a willingness to intervene decisively. The pharmaceutical sector’s unique characteristics — high barriers to entry, significant regulatory hurdles, and the critical public interest in affordable medicines — mean that competition authorities will likely continue to intensely scrutinise the conduct of the originator companies. If conduct by the pharmaceutical companies is increasingly found to be anticompetitive, it is also likely that a surge of regulatory complaints by generic manufacturers as well as competition damages claims further down the line would follow.
The key takeaway for pharmaceutical companies following the recent decisions discussed above is that patent tools — whether settlements, divisional applications or litigation — must be clearly anchored in the economic reality in the market and pursue legitimate objectives. When they become instruments for prolonging exclusivity or silence rivals, companies risk breaching competition law. We recommended that pharmaceutical companies identify legitimate business justifications for confrontational patent strategies and carefully assess such conduct from a competition law perspective in the future. Companies that proactively align their IP strategies with competition principles can avoid costly enforcement actions while still maintaining their legitimate exclusivity periods and protecting their investments.
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