Why the 'Scope of the Patent' Test Cannot Solve the Drug Patent Settlement Problem

Abstract

One of the most difficult legal issues today involves settlements by which brand-name drug companies pay generic firms to delay entering the market. Such conduct requires courts to consider not only patent and antitrust law, but also the Hatch-Waxman Act, the complex regime governing behavior in the pharmaceutical industry.

Courts have analyzed these agreements by relying on a test that asks if the settlement falls within the “scope of the patent.” They have found, in nearly all of these cases, that it does. And, as a result, they have concluded that the agreements do not violate the antitrust laws.

This 8-page article shows why the scope test is not appropriate in determining the antitrust treatment of drug patent settlements. It recounts the history of the test, showing its increasing deference over time. And it demonstrates the three primary problems with the test: (1) it involves a transformation that has left the test toothless, (2) it assumes that the patent at issue is valid, and (3) it neglects the issue of infringement.

Keywords: patents, antitrust, pharmaceuticals, settlements, patent scope

JEL Classification: I18, K21, L40, L41, L43, L65, O34, O38