The Pharmaceutical Intellectual Property and Competition Law Review: Hungary
In Hungary, the pharmaceutical sector is dynamic, well regulated, and often involved in IP and competition law proceedings. As both innovative and generic manufacturers are active in the country, a significant portion of patent and trademark enforcement proceedings concern the pharmaceutical (pharma) sector, which has also given rise to an extensive judicial practice regarding preliminary injunctions as well as questions of infringement, validity and compensation for damages. With regard to IP litigation, competition law aspects often occur regarding the consideration of out-of-court activities of the parties. Furthermore, the Hungarian Competition Authority (HCA) conducted a significant number of investigations into the pharma sector. It transpires from the HCA's recent decisions that its priorities lie with investigating bid-rigging cartels in public procurements, and protecting consumer interests by tightly controlling unfair and misleading advertisement. In addition, the HCA also addressed the issue of reduced wholesale arrangements (RWAs) in the pharma sector.
Legislative and regulatory framework
The regulatory framework for pharmaceuticals in Hungary mainly consists of Act XCV 2005 on Medicinal Products for Human Use, which lays down the basic legal rules for manufacturing, authorising and supplying medicines, as well as clinical trials, parallel importing and labelling. More specific legal instruments apply to each mentioned field; for example, Regulation 52/2005 (XI.18) of the Ministry of Health on the Marketing Authorisation of Human Medicines, Regulation 450/2017 (XII.27) of the Government on the Authorisation and Marketing of Human Medicines, and Act XCVIII of 2006 on the General Provisions Relating to the Reliable and Economically Feasible Supply of Medicinal Products and Medical Aids and on the Distribution of Medicinal Products (Medicines Distribution Act), which governs, for example, pricing, reimbursement and advertisement. Where applicable, these national rules are harmonised with the respective EU directives and must be applied in view of those as well as observing the priority of directly applicable EU regulations in the field.
Furthermore, Regulation 450/2017 (XII.27) of the Government and Regulation 52/2005 of the Ministry of Health contain provisions on data and marketing exclusivity of reference medicinal products as well as a direct linkage to patent law, called the Bolar exemption, which is detailed in Section IV of this chapter.
As for patents, substantive patent law is not harmonised in the EU and Act XXXIII of 1995 on the Protection of Inventions by Patents lays down the rules of granting, duration, scope, revocation and infringement of patents as well as provides the respective special procedural rules.
Supplementary protection certificates (SPCs) are available in Hungary; the examination of applications and granting is conducted by the Hungarian Intellectual Property Office, on the basis of Regulation 469/2009/EC (grant of certificates) and 1901/2006/EC (paediatric extension), which are directly applicable.
Pharmaceutical patent disputes are the most common in Hungarian patent litigation. In this field, the Budapest High Court, which enjoys exclusive competence for patent infringement matters, often deals with cases that form part of Europe-wide patent disputes (e.g., sildenafil). An important feature of Hungarian patent litigation is the bifurcation principle. This means that the infringement and the validity of a patent are adjudicated in separate proceedings and the defendant of a patent infringement lawsuit cannot directly challenge the validity of the patent in the same proceedings. Instead, patent infringement lawsuits are suspended for the duration of the revocation or European Patent Office (EPO) opposition proceedings. Importantly, this does not affect the adjudication of preliminary injunction requests and regarding those the court does not tend to take into account invalidity arguments as such, only non-final decisions that actually affect the status of the patent (e.g., first instance revocation, or successful opposition at the EPO, or revocation of the EP patent in another Member State). For this reason, preliminary injunctions are the main tools for patentees to defend their exclusive patent rights on their market. Preliminary injunctions are often subject of a security deposit paid by the patentee; furthermore, the question of infringement urgency and proportionality are significant factors in the court's decision.
The regulatory authorities in charge with granting marketing authorisation and reimbursement, that is, the National Institute of Pharmacy and Nutrition and the National Health Security Fund, do not actively engage in patent questions. These authorities do not keep any record or register of active ingredients, formulations or indications that are still under patent protection. There are, however, a few direct links between the patent and the regulatory system.
The most often mentioned link is the experimental or Bolar exemption. The experimental exemption is foreseen in Article 19(6) of the Hungarian Patent Act: 'The exclusive right of exploitation shall not extend to . . . acts done for experimental purposes relating to the subject matter of the invention, including experiments and tests necessary for the marketing authorisation of the product constituting the subject matter of the invention or the product obtained through the process constituting the subject matter of the invention'. Importantly, this exemption is not limited to generic marketing authorisation application or even pharmaceuticals, it is a technologically neutral exemption. The provision has been invoked in judicial practice to support the finding that obtaining a marketing authorisation cannot be deemed to qualify as an infringing activity; however, beyond that, the practical application of this provision has not yet occurred before courts. The exemption is echoed – specifying generic applications – in Article 5(9) of Government Regulation 450/2017, which states that 'conducting the necessary studies and trials and performing its technical requirements with a view to the application of paragraphs 1–3 cannot infringe patent rights or supplementary protection certificates for medicinal products'. (Paragraphs 1–3 relate to the data the generic applicant shall submit to be able to be exempted from submitting clinical trial data, etc.)
Furthermore, Article 17(3) of Ministry of Health Regulation 53/2005 (XI.18) provides that an indication that is still under patent protection cannot be contained in the generic drug's marketing approval. In the Hungarian practice, in line with the CJEU's C-423/17 (Warner-Lambert) judgment it is possible for generic applicants to disclaim certain indications of the reference product to avoid infringement.
However, the regulatory authorities – both in granting marketing approvals and reimbursement – rely on the statements of the applicant and do not carry out any substantive patent related examination and do not notify the patentee about a generic application. Hence, any conflict with patent rights is the responsibility of the applicant.
In the judicial practice, it has been stated repeatedly by the courts acting in infringement cases that obtaining a marketing authorisation does not qualify as an act of infringement or even as a direct threat of infringement and, consequently, no preliminary injunction can be based solely on the fact of the defendant having obtained a marketing authorisation. The same has been held as regards reimbursement applications, although there have been cases where the totality of the circumstances (i.e., the fact of reimbursement for the generic medicine together with other signs of the generic company's intention to launch the potentially infringing product on the market) still justified a preliminary injunction.
SPCs are available in Hungary for pharmaceuticals in line with Regulation 469/2009/EC, as well as for paediatric extensions of pharmaceuticals on the basis of Regulation 1901/2006. SPCs are examined and granted by the Hungarian Intellectual Property Office (HIPO), or possibly by the Budapest High Court as an appeal court where the HIPO has rejected the application at first instance. Case C-492/17 (Incyte), which has brought clarifications regarding the calculation of the duration of certificates, was referred to the CJEU by the Budapest High Court and there are also several other decisions that added to the landscape of national practices regarding SPCs.
The special mechanism exists regarding parallel import of pharmaceuticals from Hungary. This was introduced as a derogation in the Accession Treaty of Hungary (and other countries) to the EU in 2003, to address the disparity between the old and the new Member States regarding the availability of pharmaceutical product patent protection. According to the derogation, the holder of a patent or SPC for a pharmaceutical product filed in one of the EU-15 Member States at a time when such protection could not be obtained in Hungary (i.e., before 1994), may rely on his or her patent or SPC rights to prevent the parallel import of the pharmaceutical product from Hungary even if the product was put on the market in Hungary with his or her consent, so otherwise the rights exhaustion principle would apply. The mechanism requires a one-month prior notice from the parallel importer to the holder of the patent. The responsibility to enforce the patent rights remains with the patent or SPC holder.
The competences regarding public enforcement of competition law, as in any EU country, are shared between the HCA and the European Commission in line with applicable EU legislation. The HCA's powers are laid down in Act LVII of 1996 (the Hungarian Competition Act) and consist of conducting investigations and proceedings in the fields of unfair influence on commercial decisions (including, in particular, misleading of business partners); agreements and concerted practices restricting competition; and abuse of dominant position. Furthermore, mergers and acquisitions must be notified to the HCA where the turnover thresholds laid down in the Hungarian Competition Act are met and may only be implemented if authorised. The HCA is also responsible for prosecuting infringements of Act XLVII of 2008 on Unfair Business-to-Consumer Commercial Practices. The HCA has been recently active in conducting proceedings – resulting in fines – against pharmaceutical companies based on the provisions prohibiting the misleading advertisement of drugs, as well as in the prosecution of bid-rigging cartels in healthcare public procurements. Furthermore, as to private enforcement, Hungarian national courts have the power to rule on damages cases brought before them by private parties on the basis of infringement of competition rules. Apart from the powers that are parallel to the HCA's competences – that is, hearing damages actions based on an alleged infringement of the prohibition of unfair influence on commercial decisions, agreements and concerted practices restricting competition, and abuse of dominant position – Hungarian national courts have the exclusive power to hear cases based on the prohibition of unfair competition.2
Mergers and acquisitions must be notified to the HCA where the combined turnover of the groups of undertakings concerned by the transaction exceeds 15 billion forint and the turnover of at least two of the groups of undertakings concerned, taken individually, exceeds 1 billion forint. Given the large turnover of the ultimate parents of the pharmaceutical companies active in Hungary and the cross-border effects of concentrations in the pharma sector, the latter are likely to come under the scope of the EU Merger Regulation and should be notified to the European Commission rather than to the HCA. However, Hungarian national notification may be relevant in the case of concentrations involving, for example, independent drugs wholesalers. The market definition given by the HCA in the Sanofi-Aventis case (abuse of dominant position, see Section VII) may be relevant to future merger decisions.
As mentioned in Section VI, the HCA has recently issued several decisions in the fields of abuse of dominant position, cartels and illicit advertisement.
First, in the Sanofi-Aventis case,3 the HCA examined, both under the Hungarian Competition Act and Article 102 of the Treaty on the Functioning of the EU, whether the decision of the Hungarian subsidiary of Sanofi-Aventis to refuse to supply its products to a pharmaceutical wholesaler amounted to an abuse of dominant position. The HCA highlighted the heavily regulated nature of the relevant markets, stating that wholesalers could only purchase drugs from the producers, authorised importers and companies having a wholesaler licence. It found that in the material period, there were only four wholesalers in Hungary that could offer the full range of authorised medicines (full-range wholesalers) in the entire territory of Hungary, and that several full-range wholesalers having only regional significance had disappeared from the market. The HCA then turned to examining whether Sanofi-Aventis held a dominant position on any of the relevant markets. As to the product market definition, the HCA found that demand-side substitutability had to be appraised on the basis of the Anatomical Therapeutic Chemical Classification System (ATC). The HCA directly referred to the T-321/05 Astra-Zeneca v. Commission judgment of the EU's General Court, as well as to several merger decisions of the European Commission,4 and stated that medicines belonging to the same ATC 3, or, in some cases, to the same ATC 4 group were each other's therapeutic substitutes. The HCA also highlighted that most of Sanofi-Aventis' product portfolio consisted of drugs whose patent protection had already expired. However, it left the issue of market definition open: it found that irrespective of Sanofi-Aventis' possible dominant position on some of the product markets, the examined conduct caused no harm to final consumers, thus one of the conditions for finding an abuse was missing. In this regard, the HCA stressed that 'foreclosing a market player is only anticompetitive if, as a result, effective competition is impaired. No such finding can be made if, following the disappearance of a wholesaler, the consumers shall not expect any direct or indirect disadvantage'. The HCA found that in the material period, Sanofi-Aventis had probably moved towards an RWA by maintaining supply contracts only with selected wholesalers, while refusing to supply others. Even though such an arrangement was liable to reduce intra-brand competition and could be fully acceptable only if Sanofi-Aventis were to choose partners on the basis of objective and transparent criteria, it could also provide benefits for the final consumers. The determinative finding was that pharmacies provided divergent responses as to the possibility of consumer harm, and that such harm could not be established. In particular, the HCA's investigation has produced no evidence of a rise of consumer prices that would have occurred as a result of the conduct under investigation. Account taken of all these circumstances, the HCA closed its investigation without deciding whether an abuse of dominant position was present, since existing proof was insufficient for finding an infringement and no further result could be expected from the continuation of the proceedings.
Second, in the field of cartels, the HCA established a single, complex and continuous infringement and imposed fines totaling 2,442,000,000 forint in a bid-rigging cartel involving the participation of three pharmaceutical wholesalers.5 The companies at issue, through two other companies that acted as facilitators, colluded to set the eligibility criteria for a public procurement of human medicines in such a way that only these three wholesalers could participate as tenderers. The public procurement at issue was announced and managed by the Budapest Health Centre and related to the supply of Budapest hospitals with medicines and infusion solutions. The first tender announcement was rather liberal as to eligibility conditions, the overall objective being to allow as many wholesalers as possible to participate. To that end, tenderers could submit offers individually for each of the 919 'lines' of the tender, each corresponding to a specific active substance, and had to be able to deliver drugs once a day. However, a few days later the Budapest Health Centre tightened the eligibility conditions and published a new call for offers, in which it specified that tenderers had to be capable of delivering products to each hospital twice a day, instead of only once a day. This new condition made several traders ineligible. The parallel investigations conducted by the HCA and the Hungarian Police unveiled that the cartel participants organised secret meetings and phone calls to change the eligibility conditions, to fix prices and to partition the market, by agreeing in respect of each line (active ingredient) on the company that would submit the lowest offer and win the tender. They indeed succeeded in implementing these arrangements. As to the relevant markets, the HCA defined them in accordance with the medicines containing the active substances concerned by the public procurement, which was worth 5 billion forint. The HCA found that the three aspects of the cartel (influencing the conditions of the public procurement, fixing the prices by taking into account information received from competitors and partitioning the market) constituted a single infringement. The latter was complex, in so far as it consisted of both agreements and concerted practices, and was also continuous as it involved several meetings and lasted during a certain period. The HCA stated that these arrangements amounted to a restriction of competition both by object and by effect. An interesting procedural aspect of the case was the question of whether the HCA could rely on the secret phone tapes and the cellular phone location data of the physical persons involved (indicating their simultaneous presence in certain premises) that were collected by the police in the criminal investigations. The HCA considered that since bid rigging in public procurements was a criminal offence in Hungary, and the protected legal object of this penal law provision was the same as that of the prohibition of cartels in the Hungarian Competition Act, nothing prevented the HCA from using evidence gathered for the purposes of the criminal investigation.
Although not strictly in the pharmaceutical field, the HCA also imposed heavy fines in its recent (2020) decision concerning a bid-rigging cartel related to the public procurement of diagnostic imaging equipment (i.e., MRI, CT and X-ray instruments).6 The HCA established that the cartel participants partitioned the markets concerned by the said public procurement and, as consequence, it imposed fines totalling at 1,929,000,000 forint. The proceedings started following the leniency application filed by one of the cartel participants, which was subsequently exempted from fines. Several other participants obtained a fine reduction for having cooperated with the HCA or in the framework of settlement proceedings, or both.
Third, the HCA has been recently active in pursuing infringements consisting in misleading or otherwise illicit advertising in the pharmaceutical sector. In this regard, the HCA's powers also include conducting proceedings against companies and imposing fines for certain infringements of Act XCVIII of 2006 on the General Provisions Relating to the Reliable and Economically Feasible Supply of Medicinal Products and Medical Aids (the Medicines Distribution Act) and Act XLVII of 2008 on Unfair Business-to-Consumer Commercial Practices. In the Bayer Hungária case,7 the HCA examined the legality of an advertisement campaign lead by Bayer, which concerned the over-the-counter medicine Berocca Performance and the Berocca effervescent tablet (nutritional supplement). Bayer advertised these products, among others, on television, radio and on its website by highlighting that they 'enhance intellectual performance and physical stamina'. The HCA found that this advertisement breached the applicable provisions because Bayer did not make, from the consumers' point of view, a proper distinction between pharmaceutical products and nutritional supplements, therefore it did not properly identify the 'product categories' to which these different goods belonged. Furthermore, Bayer also infringed the rule in the Medicines Distribution Act under which human medicines may only be advertised in accordance with their SmPC, which forms part of the marketing authorisation. The presentation in the advertisement at issue went largely beyond the content of the relevant SmPC, in particular by alluding to the quick effect (within a day) of the products, while, according to the SmPC, four weeks were needed for the effects to appear. For these infringements, the HCA imposed a fine of 85 million forint. The HCA also found an infringement of the combined provisions on advertising contained in the Medicines Distribution Act and the Act on Unfair Business-to-Consumer Commercial Practices in the Sager Pharma case.8 Again, the HCA relied on the SmPC and stated that the advertisement at issue went beyond the content of the SmPC, in particular by claiming that the painkiller Seractil Dolo 'immediately starts to work', which was held to be an exaggerated statement. Finally, in the Merck case,9 the HCA found that Merck infringed the rule of the Medicines Distribution Act that prohibits advertisement containing 'recommendation by scientists, healthcare professionals or well-known persons'. Even though Merck's advertisement for its Flexagil unguent did not feature any such persons, the actor in the advertisement appeared to be a healthcare professional (pharmacologists or pharmacists) based on his clothing and the background image, which sufficed for a finding of infringement and the imposition of a fine set at 150 million forint.
Outlook and conclusions
As to regulatory aspects, there are a few developments to be expected in the coming years. With patent protection expiring for many biological products, biosimilar patent disputes are expected to arise, along with the first practical cases regarding the application of the SPC manufacturing waiver introduced by Regulation (EU) 2019/933. An important issue is the question of the Unified Patent System and Hungary's participation in it. In 2018, the Hungarian Constitutional Court declared the Unified Patent Court Agreement incompatible with the Hungarian Basic Act (Constitution) and the conflict of the laws has not yet been resolved. The Unified Patent Court – if coming into existence with Hungary's participation – may significantly affect pharmaceutical patent litigation in Hungary.
As to competition law enforcement, it is reasonable to assume that the HCA will continue to focus on unfair advertising, in proceedings that often involve thorough examination of the summaries of product characteristics delivered by the Hungarian National Institute of Pharmacy and Nutrition. It can also be expected that the HCA will take firm steps against bid-rigging cartels concerning public procurement in the healthcare sector, given that avoiding unnecessary budgetary expenses is an important objective besides ensuring merit-based competition.
1 Eszter Szakács and Viktor Łuszcz are partners at Danubia Legal.
2 While cases based on the 'general clause' prohibiting unfair competition (Chapter II of the Hungarian Competition Act) may only be brought before courts, the HCA has the power to conduct proceedings on the basis of unfair influence on commercial decisions (Chapter III of the Hungarian Competition Act).
3 Decision in Case Vj/61/2014 Sanofi-Aventis Zrt. .
4 Comp/M.5253 Sanofi-Aventis/Zentiva; Comp/M.5865 Teva/Ratiopharm; Comp/M.2517 Bristol Myers Squibb/Du Pont.
5 Decision in Case Vj/28/2013 Euromedic-Pharma Zrt., Hungaropharma Zrt., Teva Zrt, Mezadin Kft., PharmAudit Kft. .
6 Decision in Case Vj/19/2016 Siemens Healthcare Kft., Siemens Termelő, Szolgáltató és Kereskedelmi Zrt., GE Hungary Ipari és Kereskedelmi Kft., PHILIPS Magyarország Kft., HOGE Orvosi Műszer Kft., Premier G. Med Kft., Euromedic Technology Kft., Chemium Zrt. 'i.L.', Medirex Zrt., and Mediszer Kórháztechnika és Kereskedelmi Kft. .
7 Decision in Case Vj/82/2016 Bayer Hungária Kft. .
8 Decision in Case Vj/46/2015 SagerPharma Kft. .
9 Decision in Case Vj/46/2016 MERCK Vegyi és Gyógyszeripari Kereskedelmi Kft. .