As previously reported in our Life Sciences News and Insights, in 2022 the EU and Swiss competition authorities launched investigations into Novartis over its alleged acquisition and use of “blocking patents” to exclude competitors (see, VBB Life Sciences News and Insights of 15 September 2022).  The investigations focused on whether Novartis used IP rights acquired from Genentech to block Lilly’s Taltz®, a rival IL-17 inhibitor that competes with Novartis’ Cosentyx®.  Although Novartis and Lilly privately settled their IP dispute in October 2022 (see, VBB Life Sciences News and Insights of 8 November 2022), the competition authorities continued their investigations until October 2024, when both the Swiss and EU authorities announced they had closed their inquiries (see VBB Life Sciences News and Insights of 10 0ctober 2024).

Late last week, the Swiss competition authority published a non-confidential version of its latest decision explaining the facts and reasons for its conclusion that Novartis’ actions did not constitute an abuse.

Timeline of Key Events

• Novartis’ Acquisition of IP Rights from Genentech.  According to the decision, Genentech was the first company to discover and develop antibodies to the IL-17 cytokine, and obtained patents for such innovations, including EP 084.  Novartis initially opposed Genentech’s patent before the EPO, but in April 2020 acquired exclusive rights to the patent.

• IP Litigation with Lilly.  Two months after acquiring rights to EP 084, Novartis initiated IP litigation against Lilly in Germany in June 2020.  While Lilly’s investor filings indicate that this litigation in Germany was settled in January 2021, Lilly thereafter filed a suit in Ireland in April 2021 seeking to revoke the patent.  Soon thereafter, Novartis launched infringement proceedings (including requests for preliminary injunctions) against Lilly in Austria, Ireland and Italy, and later in Switzerland (November 2021) and the Netherlands (October 2022).

• Lilly’s Competition Law Defence.  In December 2021, Lilly approached the EU and Swiss competition authorities to allege that Novartis was dominant and that its acquisition of alleged “blocking” patent rights from a third party and use of such rights to exclude competitors constituted an abuse in violation of the EU and Swiss competition laws.  Over the ensuing months, Lilly provided additional information to the competition authorities, ultimately resulting in the authorities opening investigations and the Swiss competition authority conducting unannounced inspections at Novartis’ Basel headquarters in September 2022.

• Private Settlement.  In October 2022, one month after the competition law inspections, the parties reached a settlement resolving the IP litigation.  According to Lilly’s investor filings, the settlement was “cashless (no payment)” and the parties agreed not to sue each other in relation to Taltz® or the patents that Novartis purchased from Genentech.  According to the decision, the parties also entered into a worldwide license agreement.  Thereafter, on 2 November 2022, Lilly withdrew its competition law complaint to the Swiss competition authority.

Ongoing Competition Law Investigation.  Despite the settlement between the parties, the competition authorities continued their investigations for two more years.  In October 2024, the Swiss competition authority issued a press release announcing that it had terminated its inquiry.  The European Commission also published a short statement indicating that it had also discontinued its investigation.

Published Decision of the Swiss Competition Authority

In its decision, the Swiss competition authority does not take a position on whether Novartis was dominant, and instead focuses on whether Novartis’ acquisition and use of IP rights against Lilly constituted an abuse under Swiss competition law.  The authority ultimately concluded that Novartis had acted in compliance with the competition laws, highlighting the following points:

• Novartis did not acquire EP 084 to block Lilly.  According to the decision, the evidence indicates that Novartis’ primary objective for acquiring the license to EP 084 was to obtain freedom to operate for Cosentyx®.  Further, the authority evaluated whether Novartis might have achieved this objective in a less-restrictive manner (e.g. by obtaining a non-exclusive licence from Genentech, such that Lilly could separately also obtain a license), but found that Genentech had rejected the possibility of a non-exclusive license.

• Novartis engaged in licensing negotiations with Lilly.  Novartis’ internal documents indicated that its goal was to monetize EP 084 by licensing it to Lilly and other companies.  Novartis thus engaged in negotiations with Lilly to provide a license to EP 084, and thereby allow Taltz® to remain on the market.  Further, the decision indicates that a worldwide license was in the final stages soon before the competition authorities opened proceedings.

• Novartis’ IP enforcement actions aimed to facilitate a license, rather than to exclude a competitor.  Novartis’ internal documents indicated that Novartis initiated IP litigation in relevant countries as part of a strategy to facilitate negotiations with Lilly and ultimately achieve more favourable terms in the license agreement.  The decision states that the evidence did not demonstrate that Novartis had the intention to block competition from Taltz®.

The Swiss competition authority therefore concluded that Novartis’ actions did not constitute an abuse.

Key Takeaways

This case and the decision by the Swiss competition authority provides important guidance and takeaways for the IP teams of pharmaceutical and other life science companies:

• Blocking Patent Strategies Continue to Raise Competition Law Risks.  While Novartis successfully defended its actions, this was largely because the Swiss competition authority found that Novartis did not engage in a “blocking patent” strategy.  If the evidence had instead indicated that the relevant patents were not necessary for Cosentyx®, and Novartis acquired exclusive rights to the patents primarily to exclude Lilly’s Taltz®, then the conclusion could have been different.  The decision of both the EU and Swiss competition authorities to pursue this investigation indicates that the authorities view “blocking patent” strategies by pharmaceutical companies to be a potentially serious competition law violation.

• Defendants in IP proceedings are increasingly turning to the competition authorities.  As demonstrated by the present case and the European Commission’s recent decision against Teva, defendants in IP proceedings are increasingly relying on competition law defences and approaching competition authorities in the midst of IP litigation.  Such use of the competition laws may improve the position of the defendant and lead to a more favourable result.  In the present case, after the launch of the competition investigations, Lilly quickly reached a settlement with Novartis that it described as “cashless” in which Novartis appears to have dropped its allegations.

• Up-front competition law input on IP strategies is increasingly important.  In anticipation of competition law challenges, parties planning and implementing IP actions that could exclude competitors should take care to minimize risks and maximize their ability to defend their strategy.  While it is speculation, in the present case, Novartis might have achieved a better outcome from its IP strategy if its actions against Lilly had only sought damages.  Instead, Novartis also pursued injunctions which threatened to take Taltz® off the market to the detriment of patients, which in turn significantly increased the likelihood that the competition authority would intervene in response to Lilly’s complaint.

• Internal documents are key.  While an unannounced inspection is the nightmare of many in house counsel, in the present case Novartis benefited from the competition authority’s review of its internal documents.  The decision of the Swiss competition authority clearing Novartis’ activities is based significantly on Novartis’ internal documents, which appear to support its arguments that the relevant IP rights were acquired primarily to ensure the freedom to operate of Cosentyx®, and not to exclude competitors.