An Economic Assessment of Patent Settlements in the Pharmaceutical Industry

Bret Dickey, Compass Lexecon
Jonathan Orszag, Compass Lexecon
Laura Tyson, University of California - Berkeley

Abstract

In recent years, patent settlements between branded and generic manufacturers involving “reverse payments” from branded manufacturers to generic manufacturers have received close antitrust scrutiny, driven by concerns that such settlements harm consumers by delaying the entry of lower-priced generic drugs. It appears that such settlements will be a focus of the Obama Administration’s antitrust enforcement policy. Yet there is a growing consensus among the courts that such settlements are anticompetitive only under narrow sets of circumstances. In this paper, we present an analytical framework for evaluating the competitive effects of patent settlements, including those involving reverse payments, and demonstrate that these settlements can benefit consumers. Thus, we conclude that while continued scrutiny of such settlements is important, broad brush treatments are inappropriate and only a more individualized evaluation can correctly determine the competitive effects of a particular settlement agreement.