Abstract

http://ssrn.com/abstract=2387863
 


 



Activating Actavis with a More Complete Model


Michael G. Baumann


Economists Incorporated

John Payne Bigelow


Compass Lexecon

Barry C Harris


Economists Incorporated

Kevin M. Murphy


University of Chicago; National Bureau of Economic Research (NBER)

Janusz A. Ordover


New York University (NYU) - Department of Economics

Robert Willig


Princeton University - Woodrow Wilson School of Public and International Affairs

Matthew B. Wright


Economists Incorporated

January 29, 2014

Antitrust, Forthcoming

Abstract:     
In FTC v. Actavis, Inc. the Supreme Court asked whether a patent settlement agreement involving a so-called “reverse payment” from a patent holder to an alleged infringer of a pharmaceutical patent “can sometimes unreasonably diminish competition in violation of the antitrust laws.” Edlin, Hemphill, Hovenkamp, and Shapiro (2013) propose a method of evaluating the competitive effects of reverse payment settlement agreements that compares the magnitude of the reverse payment to the sum of the patent holder’s prospective litigation costs and the value of services provided by the alleged infringer to the patent holder. This paper shows that the method proposed by Edlin et al. holds only under limited conditions. This paper also identifies conditions where a reverse payment in excess of litigation costs may lead to earlier generic entry and would be procompetitive. In addition to avoided litigation costs, relevant factors in evaluating patent settlements involving a reverse payment may include inter alia the risk-tolerance of the parties, the level of the drug’s sales, the parties’ expectations and information asymmetries related to future competition for the drug, the parties’ subjective views of the likely outcome of the litigation, the parties' differences in time-values of money, the applicability of Hatch-Waxman first-filer exclusivity, the relative size of the alleged net reverse payment, and the extent of the alleged delay and associated diminution of competition.

Number of Pages in PDF File: 22

Keywords: antitrust, pharmaceuticals, generic entry, patent policy, Hatch-Waxman, reverse payments

JEL Classification: K21, L4, L5, L65, O34

Accepted Paper Series


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Date posted: January 31, 2014  

Suggested Citation

Baumann, Michael G. and Bigelow, John Payne and Harris, Barry C and Murphy, Kevin M. and Ordover, Janusz A. and Willig, Robert and Wright, Matthew B., Activating Actavis with a More Complete Model (January 29, 2014). Antitrust, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2387863

Contact Information

Michael G. Baumann
Economists Incorporated ( email )
2121 K St., NW
Suite 1100
Washington, DC 20037
United States
202-833-5251 (Phone)
202-296-7138 (Fax)
HOME PAGE: http://www.ei.com
John Payne Bigelow
Compass Lexecon ( email )
707 State Road
Suite 223
Princeton, NJ 08540
United States
609 279 0600 (Phone)
609 279 0201 (Fax)
Barry Harris (Contact Author)
Economists Incorporated ( email )
2121 K Street NW
Suite 1100
Washington, DC 20037
United States
202-833-5236 (Phone)
Kevin M. Murphy
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7280 (Phone)
773-702-2699 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Janusz A. Ordover
New York University (NYU) - Department of Economics ( email )
269 Mercer Street, 7th Floor
New York, NY 10011
United States
Robert D. Willig
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
401 Robertson Hall
Princeton, NJ 08544-1021
United States
609-258-4843 (Phone)
609-258-5014 (Fax)
Matthew B. Wright
Economists Incorporated ( email )
2121 K Street, NW
Suite 1100
Washington, DC 20037
United States
202-833-5220 (Phone)
202-296-7138 (Fax)
HOME PAGE: http://www.ei.com/
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