Bidders in tender proceedings lack the necessary personal suitability if offering their tendered products would constitute patent infringement, thus making it legally impossible to adequately perform the services tendered.
The tendering authority already has to clarify in the tendering documents that these bidders are to be excluded from the bidding competition. If the tendering authority simply ignores the patent infringement the ongoing tendering has to be canceled and begin anew.
Facts of the case
In the present case, the Defendant, a statutory health insurance company, tendered in an open procurement procedure for the conclusion of framework discount agreements for 46 medical substances with up to three pharmaceutical companies (contract period 07/15 – 06/17). Lot 41 of the tendering referred to the substance "Pregabalin", which is used for the treatment of neuropathic pain, epilepsy and anxiety disorder.
Patents for the indication of epilepsy and anxiety disorder had already expired. As regards the indication of neuropathic pain, Pregabalin is still protected by the patent EP 0 934 061 (hereinafter "patent-in-suit"). The owner of the patent-in-suit is a US Company, which granted the Applicant, a pharmaceutical company, a non-exclusive license to distribute this substance in Germany under the designation LYRICA®. Generics for Pregabalin had been available in Germany since 2014.
The patent proprietor authorized the Applicant to assert patent infringement and conduct the case against the Defendant on its behalf ("Prozessstandschaft").
Along with its submitted bid the Applicant objected to the present concept for an invitation to tender. After the Defendant dismissed this objection, the Applicant filed a request for review with the competent Second Procurement Chamber of the Federal Cartel Office.
The Applicant argued that the patent-protected indication of Pregabalin for treatment against neuropathic pain has wrongly not been excluded from the tendering because of the patent infringement. Thereby, the Defendant causes and accepts that manufacturing, offering and / or distributing Pregabalin by bidding generics producers infringes its patent-protected market position. The Applicant requested that the Defendant be obliged to inform the German Pharmacist Association ("DAV") and the Association of Statutory Health Insurance Physicians ("KV") about the scope of protection of the patent-in-suit.
The Applicant requested that the Defendant be ordered to cancel the tender proceedings relating to lot 41 and, alternatively, to begin them anew.
The Defendant moved that the request for review be rejected. The Defendant argued that the asserted patent-protected market position did not have to be reviewed in the procurement review procedures. Moreover, there was said to be no obligation whatsoever to prevent bidders from committing infringing acts of use. Furthermore, the statutory substitution mechanism also was said to allow patent-protected pharmaceuticals to be replaced by generics (cf. sec. 129(1) Social Insurance Code, "SGB V").
The first-instance authority concurred with the Applicant and ordered the Defendant not to accept a bid for lot 41 and to place the tender proceedings in the situation before dispatch of the tender documents having regard to its legal opinion. It also ordered the Defendant to inform DAV/KV about the patent-in-suit.
The Defendant filed an immediate appeal with the Higher Regional Court of Dusseldorf alleging that the first instance overstated the impact of patent law on public procurement law.
Findings of the Court
The Procurement Senate of the Higher Regional Court of Dusseldorf (hereinafter the "Senate") upheld the first-instance opinion by the present decision and held that the request for review was admissible and well-founded.
In line with its previous case law, the Senate found that the Applicant was authorized to file the request for review because any bidder who makes, offers and / or distributes Pregabalin generics for the treatment of neuropathic pain infringes the patent-in-suit, and therefore, faces claims for patent infringement. The patent infringement is also of relevance for the procurement review proceedings because the Defendant has to consider it as a precondition when deciding about the bidders’ suitability to perform the tendered services. Consequently, any patent-infringing bidder is not personally eligible under relevant procurement laws and needs to be excluded from the bidding.
The Senate rebutted the Defendant’s argument, according to which the Applicant’s submitted bid on rank 5 had little prospect of being accepted, meaning that no economically relevant damage was incurred. This was said to be due to the fact that if the request was successful it could not be ruled out that the Applicant would make a new offer with at least higher chances of acceptance.
The Senate also confirmed that the Applicant – although it merely holds a non-exclusive license – has effectively been authorized to assert claims for patent infringement in the procurement review procedures on behalf of the patent proprietor.
The individual arrangement of the Defendant’s tendering was said not to ensure that the range of application of Pregabalin would be restricted to the patent-free treatment of epilepsy and anxiety disorder. As a result, the Defendant’s tendering significantly increases the risk of Pregabalin being substituted by generics within the patented scope of protection (i. e. LYRICA® for the treatment of neuropathic pain).
By not excluding patent-infringing bidders from the bidding competition despite having "certain Knowledge" about their lack of suitability, the Defendant accepts and participates in the unlawful substitution of Pregabalin under the guise of the SGB V which cannot be tolerated under the relevant procurement laws.
Moreover, it has to be noted that patent rights are part of the constitutional right to intellectual property. Thus, any stipulation of the SGB V allowing the substitution of pharmaceuticals has to be restrictively interpreted in the light of the constitutional freedom of ownership.
Only in part, did the Senate reverse the first-instance order, according to which the Defendant also has to inform DAV/KV about the patent-in-suit. This was justified by stating that this order does not relate to the procurement proceedings because it affects uninvolved third parties for the time after the acceptance of a bid. Thus, procurement laws do not support such order.
Finally, the Senate made it clear that invalidity arguments by the Defendant which were only submitted after the oral hearing was closed although they had been known for some time from a UK revocation procedure against the patent-in-suit (which was partly successful), had to be disregarded as unsubstantiated and late.
The Higher Regional Court of Dusseldorf further confirms its case law that patent infringement is of relevance for public procurement / tender proceedings. It can be expected that this case law does not only apply in proceedings like the present one but generally in various kinds of tender proceedings.
A somewhat open question, however, is to what extent the tendering authority has to evaluate the alleged patent infringement. The Senate indicates a standard of "secure knowledge" doubting the legal suitability of at least some bidders without giving further guidance as to what such "certain knowledge" would be. The obvious problem in this regard is that tendering authorities may frequently not be competent to assess complex technical aspects of patent infringement cases, in particular also in view of validity issues. It only seems to be clear that both infringement and validity need to be considered. To be on the safe side, tendering authorities are probably well advised to obtain external advice on patent issues at least in some reasonable depth at an early stage but at the latest if proceedings as the present ones are initiated. The fact that this had not been done properly in the present case is shown by the fact that obviously promising invalidity arguments were not introduced to the proceedings in time or in sufficient detail.
From the point of view of the bidder, there are legal means to avoid a patent-infringing bid being accepted in procurement proceedings. Moreover, the strategic option remains to file a request for preliminary injunction or a complaint for patent infringement before the German infringement courts to seek an injunction against the patent-infringing bidder and / or the tendering authority. Such civil actions are independent from the outcome of the procurement review proceedings and provide a second shot.