Actavis and Error Costs: A Reply to Critics

The Antitrust Source, October 2014

8 Pages Posted: 13 Jun 2014 Last revised: 27 Oct 2014

See all articles by Aaron S. Edlin

Aaron S. Edlin

University of California at Berkeley; National Bureau of Economic Research (NBER)

C. Scott Hemphill

New York University School of Law

Herbert Hovenkamp

University of Pennsylvania Law School; University of Pennsylvania - The Wharton School; University College London

Carl Shapiro

University of California, Berkeley - Haas School of Business

Date Written: June 7, 2014

Abstract

The Supreme Court’s opinion in Federal Trade Commission v. Actavis, Inc. provided fundamental guidance about how courts should handle antitrust challenges to reverse payment patent settlements. In our previous article, Activating Actavis, we identified and operationalized the essential features of the Court’s analysis. Our analysis has been challenged by four economists, who argue that our approach might condemn procompetitive settlements.

As we explain in this reply, such settlements are feasible, however, only under special circumstances. Moreover, even where feasible, the parties would not actually choose such a settlement in equilibrium. These considerations, and others discussed in the reply, serve to confirm the wisdom of the Actavis inference, in which the observation of a large reverse payment serves as a “surrogate” for patent-case weakness and therefore for lost competition.

Keywords: antitrust, drugs, FTC, Hatch-Waxman, innovation, patent, Paragraph IV, pay for delay, pharmaceuticals, regulation, reverse payment, settlement

JEL Classification: K21, L40, L41, L50

Suggested Citation

Edlin, Aaron S. and Hemphill, C. Scott and Hovenkamp, Herbert and Shapiro, Carl, Actavis and Error Costs: A Reply to Critics (June 7, 2014). The Antitrust Source, October 2014. Available at SSRN: https://ssrn.com/abstract=2448530 or http://dx.doi.org/10.2139/ssrn.2448530

Aaron S. Edlin

University of California at Berkeley ( email )

Dept of Economics 549 Evans Hall #3880
Berkeley, CA 94720
United States
510-642-4719 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

C. Scott Hemphill (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Herbert Hovenkamp

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
319-512-9579 (Phone)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Carl Shapiro

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-5905 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu

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