Patentees beware of anticompetitive settlements
11/02/2009

Patent litigation in South Africa often forms part of a global patent litigation strategy where corresponding patents in jurisdictions such as the US and Europe are also in play.

The patentee may decide to settle the litigation on a global basis, resulting in the litigation being withdrawn in South Africa too. But patentees should make sure the settlement agreement complies with the Competition Act.

In the pharmaceutical sector, the parties sometimes agree that in return for the patentee’s withdrawal of an action for infringement against a generic company, the generic company will launch a competing generic product only a few years after the patentee’s patent expires. This essentially extends the exclusivity of the patentee in respect of its product beyond the life of the patent.

The Federal Trade Commission (FTC), the United States of America equivalent to the South African Competition Commission, believes that such agreements violate antitrust laws and provide the patentee with an unfair monopoly which denies the public access to cheaper drugs. As a result, the FTC filed a complaint at the end of January 2009 in the US District Court in the Central District of California and hopes to obtain a finding to the effect that such conduct is indeed anticompetitive.

From a South African perspective it is important to bear in mind that such settlement agreements, if they extend to South African litigation, have an economic effect within the Republic of South Africa and as a result fall within the purview of the Competition Act No. 89 of 1998 (the Competition Act).

The Competition Act applies to the exercise of intellectual property rights and such agreements may be seen as a restrictive horizontal practice wherein the competitors agree to fix certain trading conditions. This is expressly forbidden by the Competition Act.

If the patentee were to be found to be dominant in the relevant market by virtue of its market share or its ability to control prices or exclude competition or behave independently of its competitors, customers and suppliers, then such an agreement might be regarded as involving an exclusionary act aimed at preventing or impeding a party from entering the relevant market. Such conduct may also be prohibited in terms of the Competition Act.