Spanish Appeal Court rejects unfair competition claims based on a patent application in ground-breaking ruling

Summary

On 20 January 2023, the Barcelona Appeal Court (specialised section for IP matters) lifted the PI against fingolimod generics issued by a first instance court in Barcelona (Commercial Court No 10).

The first instance court had declared that launching a generic before the grant of a patent was an act of unfair competition, because the generics would have to withdraw from the market as soon as the patent is granted. It considered that the decision to launch amounted to a breach of the general clause (bona fide clause) established in the Unfair Competition Act (any behaviour which is objectively contrary to good faith is deemed to be unfair).

In reversing this decision, the Barcelona Appeal Court maintained that unfair competition and patent infringement are different types of actions and are subject to different requirements. So, the unfair competition action cannot be based on the same arguments as a patent infringement action. Indeed, the claimant could not prove that launching before the granting of the patent was unfair, because there was an objective justification of launching, i.e., the will to compete because the generics companies thought that the patent was invalid. The Appeal Court also clarified that, when the generics companies believed that the patent is invalid, launching at risk is a legitimate business decision which cannot be declared disloyal per se. The patentee had to pay the costs of the first instance.

This decision means that a patentee cannot anticipate the protection of a future patent by relying on the Unfair Competition Act.

Patent

The claimant applied for a divisional dosage patent on fingolimod in 2015 with a priority of 2006. In December 2020, the EPO Examination Division rejected the application.

The Board of Appeals (BoA) in an ex parte hearing in February 2022 reversed this decision and determined the validity of the only claim filed by the applicant in November 2019. The grounds for the BoA’s decision were published in June 2022 and finally the patent was published in the Official Journal on 12 October 2022.

First instance court’s decision

A PI was granted ex parte by the Commercial Court of Barcelona No. 10 on 7 and 22 March 2022 against three generics companies. The PI was confirmed after an inter partes hearing and extended until 12 October 2022 (date of publication of the patent) by the same Court. (The extensions granted by the Court were also appealed and were also declared void by the Appeal Court.)

The first instance court’s decision was remarkable for two reasons:

1. It was the first time that a Spanish Court had granted a PI based on a patent application, because it was against the bona fide principle of the Unfair Competition Act.
2. It was also a decision issued by a court without jurisdiction to handle patent matters, but whose jurisdiction was for unfair competition matters. Once the patent was published, the first instance court considered that it would have no jurisdiction to grant a PI as it would belong to the first instance Patent Courts (the Commercial Courts with jurisdiction on patents as determined by the Law and a specific decision of the Council of Judges).

Appeal Court’s decision

No basis for an unfair competition action - no prima facie case

The rationale of the first instance decision was that the generics companies must wait until the patent was published and then attack the invalidity of the patent, following the pattern of other generics companies who had not launched. Through this reasoning, the generics were caught in a peculiar trap: they could not challenge the patent (because it was not granted and not validated in Spain) and the unfair competition court could not hear a case concerning the merits of the patent (which belonged to other courts). However the patentee (who could not invoke a non-granted patent) could obtain a PI before the patent was granted. In this paradoxical situation a patent applicant of the patent would be in a better situation than the owner of a granted patent, because Spanish courts admit the launch at risk and the discussion of the validity and infringement in a PI proceeding (in cases like fulvestrant, finasteride, rosuvastatin, etc.). It was the best world for patentees and the worst of the worlds for generics.

The Barcelona Appeal Court rejected this and considered that there was no obligation for generics to wait until a patent is published and then challenge it. A diligent competitor ,who thinks it has solid arguments to obtain the declaration of invalidity of a patent, can challenge its efficacy. They have two options:

• The first one, which is the less risky, is to file an invalidity action and wait for its result; and
• The second one is to wait for an infringement action to attack the patent via counterclaim or defence. Here the competitor assumes the risk that its invalidity action is dismissed, and it has to pay damages. However, this behaviour is not contrary to the bona fide principle, as the patent is granted salvo iure tertium (without prejudice of third-party rights). Besides that, Spanish patent courts favour the filing of Protective Letters by which the court is informed in advance of the invalidity or non-infringement arguments to avoid the risk of an ex parte PI.

The Appeal Court explains that it is not possible to discuss the validity or the infringement of the future patent in the framework of an unfair competition action. So, in this hypothetical unfair competition action the defendant does not have to prove that the patent is invalid or that the patent is not infringed, because the (future) patentee has not filed a patent infringement action and cannot oblige the defendant to prove the invalidity of non-alleged rights.

The crucial point, according to the judgment, is to decide if there are other elements different from the alleged invasion of a patent right (which cannot be discussed before the patent is granted). Even if the BoA had announced its decision (revoking the rejection of the Examination Decision) and that the Examination division would eventually grant the patent, the relevant fact is that the patentee did not own a patent right when it filed the unfair competition action.

No bad faith

The Appeal Court also rejected the argument that there was bad faith and that generics companies should have waited for the publication of the patent. The generics must show that there is a real business decision to market fingolimod and to challenge the efficacy of the patent. As there was this objective justification, there was no prima facie case and the PI was rejected.

The Appeal Court dismissed the allegation by the claimant (appellee) that there were two precedents (montelukast Barcelona Appeal Court 7 September 2014) and donepezil (Appeal Court Barcelona 5 January 2011) that supported their point of view. In those cases, the Barcelona Appeal Court granted an injunction based on unfair competition (of already granted patents, not applications). However, the facts of these decisions were different: the generics did not have an intention to launch (so there was no patent infringement), but did not withdraw their pricing approval, which triggered the reference price of the active principles concerned. (This is no longer the case in Spain, only products which are currently marketed can trigger the reference price system for a particular medicament.)

The Appeal Court considered the current case different as there was a legitimate interest in competing and launching the product, while in the donepezil and montelukast cases the generics did not have an intention to launch. This is explained in its judgment:

“In the donepezil and montelukast cases the generics companies did not have an objective justification, because they did not intend to launch before the expiration of the patent rights of the claimants. It is evident that the marketing of the generics companies in the interim period between expiration of data exclusivity rights and the publication of the patent grant will damage the patentee’s position, because the patentee has until this moment a monopolistic situation. It is also obvious -although not per se a requirement of the action- that the exploitation by the generics companies will produce benefits for them. But this is just the consequence of competition. Therefore, to see whether it is against bona fide, we have to look if there is an objective justification.”

In this case, there is an objective justification. The generics companies who think that the future patent is invalid are not obliged to wait until the patent is published, they can launch and face an infringement action once the patent is granted. The Unfair Competition Act cannot be used to preempt competition.

No analysis of other arguments

Consequently, the Appeal Court chose a simple argument to end the case and therefore send a clear message to competitors in the pharmaceutical market. There were other arguments which were not analysed by the judgment, because, according to Spanish Law, the Court does not have to exhaust all arguments pleaded by the parties.

Other European Courts have denied the PI for being premature (as it was considered a patent action with no title), or because of the filing of successive divisional applications will show no urgency in the case. Indeed, the patent application which was the object of the case was the grandchild of the first application (filed on 25 June 2007).

• The claim that covered the dosage of fingolimod was filed in 2012 and the grandparent patent was withdrawn in 2015.
• The mother divisional patent was filed on 27 September 2013, the relevant set of claims was filed in August 2014 and the mother patent was deemed to be withdrawn on 25 May 2016.
• The grandchild patent was filed on 16 July 2015 and the relevant set of claims was filed in 18 September 2019.

This strategy of filing divisional applications with the dosage claim and then abandoning or letting lapse the grandparent and parent divisional applications could show an intentional delay to get a patent at the EPO, as a patentee would normally be interested in obtaining protection as soon as possible.

In the case the patentee enjoyed market exclusivity until 22 March 2022, so the patentee did not rush to obtain protection for the dosage of fingolimod, which could have allowed its competitors to file oppositions or initiate invalidity proceedings in EPC member States.

This argument called “game of the divisional patents” was not analysed by the Appeal Court. Instead, the Court considered the case exclusively under the Unfair Competition Law and its golden rule (bona fide): whether launching a generic before the publication of the patent was an act of unfair competition. The Court solved the problem with a straight approach: the claimant exercised an unfair competition action, so any patent consideration was irrelevant and it dismissed the unfair competition action.

Urgency: refusal of the doctrine of communicating vessels

The Barcelona Appeal Court in its ruling has raised the bar as to the urgency requirement to grant a PI. In recent decisions, they decided that the urgency requirement was not automatic (Appeal Court of Barcelona insuline glargine case 15 September 2021, fulvestrant case 19 November 2020). However, in this case, the Court has refuted the allegation by the claimant that where there is a great urgency (because of the immediate price decrease that would affect fingolimod), this urgency “compensates” the potential doubts on the merits of the case (the prima facie case). This has been called the doctrine of “communicating vessels”.

The Appeal Court has completely rejected this argument and said “the invasion of the future exclusive right does not justify a preliminary injunction, no matter what damages can be caused to the patentee. Damages qualify the urgency of the case, but they are irrelevant for a prima facie case”.

Consequently, in future actions any claimant must clearly prove both its prima facie case and the urgency to get a PI.

Some teachings from this judgment - relationship with competition law

This judgment will probably mean an end to relying on unfair competition law to obtain PIs of patents that have not yet been granted. Unfair competition actions are intended to promote competition, not to extend monopolies beyond what the law establishes.

There have been other events concerning fingolimod in the Spanish market. On 10 October 2022, the Commercial Court No. 5 rejected an ex parte PI against three generic companies and summoned the parties to a hearing on 21 November 2022. As a consequence of this decision, the three generics companies and several more launched on 13 October 2022.

The possible distortion of competition through an ex parte PI concerning pharmaceuticals was the subject of a huge fine of 39 million euros by the Spanish Competition Authority in October 2022 (see its press release). There is an increasing scrutiny of strategic litigation to preserve pharmaceutical competition in the European and Spanish markets.

Within generics companies it is often commented that litigation is always worthwhile for patentees, while for generics, the best scenario after a PI is that they will only get compensation for the damages which they are able to prove (which sometimes is a tall order). The Ministry of Health will not obtain any compensation in case the patent is declared invalid. Some generics companies have suggested the implementation in Spain of cross-undertakings which would also benefit the Ministry of Health, following the model of the UK legal system.

Innovative companies on the contrary cite the enormous resources committed to investigation and that only a small number of projects get results. In any case, Spanish authorities do not seem keen to go to litigation even if they can obtain cross-undertakings.