A Short-Run Welfare Analysis of the Hatch-Waxman Act, with and Without Ftc Antitrust Regulation of Patent Litigation Settlements

Abstract

We compare the short-run welfare effects of two types of settlement agreements, "reverse payments" of the brand-name drug makers to generic producers not to enter the market and delayed entry when these payments are restricted both under the entry injunction (imposed by the Hatch-Waxman Act) and in its absence. The analysis of these four cases shows that restrictions of reverse payments are superior to no restrictions in terms of total welfare, both with and without the entry injunction. However, there is no clear ranking between entry injunction and no injunction with the restrictions. We conclude that the present Hatch-Waxman Act regulations together with FTC enforcement of prohibitions on reverse payments may be as good as it gets.

Keywords: Hatch-Waxman Act, pharmaceutical, reverse payments, brand, generic

JEL Classification: I18, K21, K32, K41, L43, L51, L65