|Gratz, Linda (February 2012): Economic Analysis of Pay-for-delay Settlements and Their Legal Ruling. Discussion Papers in Economics 2012-6|
In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigation. Within a theoretical framework we compare consumer welfare under the rule of per se legality with that under alternative standards. We find that the rule of per se legality induces maximal collusion among settling companies. In comparison, the rule of per se illegality entirely prevents collusion and the rule of reason induces limited collusion when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases companies' expected settlement profits and thus fosters generic entry. Generic companies obtain additional incentives to challenge probabilistic patents, which potentially leads to overall increased competition. We further show that generic entry is fostered more effectively by inducing limited collusion than by rewarding first generic entrants with an exclusivity right.
|Item Type:||Paper (Discussion Paper)|
|Keywords:||antitrust and intellectual property law, patent settlements, collusion, per se rule, rule of reason, Hatch-Waxman Act|
Economics > Munich Discussion Papers in Economics
|Subjects:||300 Social sciences > 330 Economics|
|JEL Classification:||I18, K40, L40, O34|
|Deposited On:||09. Feb 2012 11:23|
|Last Modified:||29. Apr 2016 12:26|
 Addanki, Sumanth, and Alan J. Daskin (2008), "Patent Settlement Agreements," book chapter 85, published in: Issues in Competition Law and Policy, American Bar Association.
 Arrow, Kenneth J. (1961), "Economic Welfare and the Allocation of Resources for Invention," in: Nelson, R. (ed.): The Rate and Direction of Inventive Activity: Economic and Social Factors, Princeton University Press, 609-626.
 Balto, David (2004), "Bringing Clarity to the Patent Settlement Debate: Judge Posner's Asahi Decision," Biotechnology Law Report, 23(2), 168-171.
 Blair, Roger D., and Thomas F. Cotter (2002), "Are Settlements of Patent Disputes Illegal Per Se?," The Antitrust Bulletin, 47, 491-539.
 Bulow, Jeremy (2003), "The Gaming of Pharmaceutical Patents," Stanford Research Paper No. 1804.
 Crane, Daniel A. (2002), "Exit Payments in Settlement of Patent Infringement Lawsuits: Antitrust Rules and Economic Implications," Florida Law Review, 54, 747-798.
 European Commission, Competition DG, (2008), "Pharmaceutical Sector Inquiry - Preliminary Report," DG Competition Sta Working Paper, available online at: http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/preliminary report.pdf.
 European Commission, Competition DG, (2009), "Pharmaceutical Sector Inquiry|Final Report," available online at: http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/sta working paper part1.pdf.
 European Commission, Competition DG, (2010), "1st Report on the Monitoring of Patent Settlements," available online at: http://ec.europa.eu/competition/sectors/pharmaceuticals/inquiry/patent settlements report1.pdf.
 Farrell, Joseph, and Robert P. Merges (2004), "Incentives to Challenge and Defend Patents: Why Litigation Won't Reliably Fix Patent Office Errors and Why Administrative Patent Review Might Help," Boalt Working Papers in Public Law.
 Federal Trade Commission (2002), "Generic Drug Entry Prior to Patent Expiration," available at http://www.ftc.gov/os/2002/07/genericdrugstudy.pdf.
 Harho, Dietmar, Frederic M. Scherer, and Katrin Vopel (2003), "Citations, Family Size, Opposition and the Value of Patent Rights," Research Policy, 32, 1343-1363.
 Hemphill, C. Scott (2006), "Paying for Delay: Pharmaceutical Patent Settlement As a Regulatory Design Problem," New York University Law Review 1553.
 Hemphill, C. Scott (2009), "An Aggregate Approach to Antitrust: Using New Data and Rulemaking to Preserve Drug Competition," Columbia Law Review.
 Hemphill, C. Scott, and Mark A. Lemley (2011), "Earning Exclusivity: Generic Drug Incentives and the Hatch-Waxman Act," Antitrust Law Journal, forthcoming.
 Hovenkamp, Herbert, Mark Janis, and Mark A. Lemley (2003), "Anticompetitive Settlements of Intellectual Property Disputes," Minnesota Law Review, 87, 1719-1766.
 Langenfeld, James, and Wenqing Li (2003), "Intellectual Property and Agreements to Settle Patent Disputes: The Case of Settlement Agreements with Payments from Branded to Generic Drug Manufacturers," Antitrust Law Journal, 70(3), 777-818.
 Leffler, Keith, and Cristofer Leffler (2004), "Efficiency Trade-Offs in Patent Litigation Settlements? Analysis Gone Astray," University of San Francisco Law Review, 39, 33-56.
 Lemley, Mark A. (2001), "Rational Ignorance at the Patent Office," Northwestern University Law Review, 95(4).
 Lemley, Marc A., and Carl Shapiro (2005), "Probabilistic Patents," Journal of Economic Perspective, 19(2), 75-98.
 O'Rourke, Maureen, and Joseph F. Brodley (2003), "Antitrust Implications of Patent Settlements: An Incentives Modifying Approach," Minnesota Law Review, 87, 101-123.
 Salinger, Michael A., Pauline M. Ippolito, and Joel L. Schrag (2007), "Economics at the FTC: Pharmaceutical Patent Dispute Settlements and Behavioral Economics," Review of Industrial Organization, 31(2), 85-105.
 Schildkraut (2004), "Patent-Splitting Settlements and the Reverse Payment Fallacy," Antitrust Law Journal, 71(3), 1033-1068.
 Shapiro, Carl (2003), "Antitrust Limits to Patent Settlements," The RAND Journal of Economics, 34(2), 391-411.
 United States Patent and Trademark Office (2009), "Performance and Accountability Report," available at http://www.uspto.gov/about/stratplan/ar/index.jsp.
 Willig, Robert D., and John P. Bigelow (2004), "Antitrust Policy Toward Agreements that Settle Patent Litigation," The Antitrust Bulletin, 49(3), 655-698.