European Commission secures ‘pay for delay’ victory in top EU court ruling

Third (and final) decision in four years

The EC first imposed fines (EUR60.5 million in total) on Teva and Cephalon (now Teva’s subsidiary) in 2020. It found that the companies had agreed to delay the market entry of a generic version of Cephalon’s sleep disorder medicine Modafinil, in exchange for cash payments and commercial side deals. 

The companies challenged the EC’s decision before the GC, which rejected their claims in 2023 (see our commentary). 

The CJEU’s October 2025 judgment now concludes the appeal proceedings, dismissing the appeal on all grounds.

Focus on whether the settlement restricted competition ‘by object’ through value transfers

Pay for delay agreements can be categorized as anticompetitive ‘by object’ (i.e., a particularly serious and harmful form of conduct under EU antitrust rules) if they satisfy a test that has two main elements:

• First, an assessment of the value transfers in a patent settlement agreement. This requires an analysis of whether the value transfers can have no explanation other than the parties’ commercial interest in avoiding competition on the merits. 
• Second, an assessment of any arguments put forward by the parties that the alleged ‘pay for delay’ agreement had pro-competitive effects. If the parties can prove pro-competitive effects that are capable of giving rise to reasonable doubt that the agreement causes a sufficient degree of harm to competition, the agreement cannot be classified as restricting competition ‘by object’. 

The CJEU focused primarily on the first element. It also briefly considered arguments that the GC had failed to properly consider pro-competitive effects under the second element (finding this ground of appeal partly inadmissible and partly ineffective) and found it unnecessary to examine the parties’ challenge to the GC’s analysis of whether the settlement restricted competition ‘by effect’.

Confirming the approach to value transfers and the relevance of commercial side agreements

The GC had examined whether the value transfers would have occurred in the absence of the non-compete and non-challenge clauses in the settlement agreement, i.e., the clauses amounting to a decision not to enter the market. 

Hypothetical scenario was a valid part of the ‘by object’ analysis

The CJEU dismissed the arguments that the methodology followed by the GC was inappropriate for a ‘by object’ assessment. 

The parties had argued that the GC’s approach of comparing the agreements to a hypothetical scenario without the restrictive clauses amounted to improperly applying a ‘counterfactual’ test, which they claimed should be reserved for a ‘by effects’ analysis. 

The CJEU disagreed, holding that the GC’s consideration of this hypothetical scenario did not constitute a ‘counterfactual’ test and was a legitimate way to assess whether the non-compete and non-challenge clauses were the sole explanation for the value transfers in the agreements. 

Legal standard applied was neither impossible nor excessively strict

The CJEU also confirmed that the test applied by the GC in making the comparison was neither impossible to meet nor excessively strict. 

The parties had argued that the GC’s approach imposed an unattainable standard and reversed the burden of proof, by requiring them to advance an alternative, plausible explanation for the value transfers in the commercial agreements. 

The CJEU rejected this, ruling that the GC had correctly applied the established legal test from previous EU case law in Generics (UK) and Servier and was right to conclude that the EC had appropriately considered whether each commercial transaction served no other purpose than to increase the overall value transfer to Teva, with a view to inducing the acceptance of the non-compete and non-challenge clauses.

Legitimate commercial deals remain possible

Importantly, the CJEU also held that the GC’s approach does not preclude parties from entering into legitimate commercial transactions alongside a settlement agreement that does not constitute a pay for delay arrangement. 

The CJEU noted that the GC’s analysis—examining whether each of the commercial side deals had any purpose beyond value transfer—had recognized that such transactions may have a separate, legitimate purpose that does not amount to an inappropriate value transfer.

Key implications

The CJEU’s judgment represents a significant win for the EC and reinforces many of the key principles it has applied in previous pay for delay investigations. 

For pharmaceutical companies nearing the patent cliff, there are three key takeaways:

1. The ruling underscores the importance of careful consideration when negotiating patent settlements and associated commercial agreements. 
2. As has been known for some time, particular attention must be given to the rationale for any value transfer in a settlement agreement or in any deals that are (formally or practically) negotiated in connection with it. 
3. To mitigate risk, pharmaceutical companies should consider clearly documenting the legitimate business rationales for any such arrangements.