The Distribution of Surplus in the US Pharmaceutical Industry: Evidence from Paragraph (iv) Patent Litigation Decisions

55 Pages Posted: 18 Aug 2014 Last revised: 25 Jan 2020

See all articles by Ruben Jacobo-Rubio

Ruben Jacobo-Rubio

FDA

John L. Turner

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: November 21, 2019

Abstract

In Paragraph (iv) pharmaceutical cases, a patent-litigation decision often determines whether a brand-firm monopoly continues or generic entry occurs. Using unique patent litigation data and an event-study approach that accounts for probabilistic district court decisions and an appellate process, we estimate that brand-firm stakes in such cases average $4.3 billion while generic-firm stakes average $204.3 million. After the Schering-Plough vs. FTC decision in 2002 that upheld a settlement where the brand firm paid the generic in return for delayed entry, we find settlement is more likely and stakes are significantly lower, despite greater average brand sales for the drugs in the cases. Based on this evidence, we conclude that pay-for-delay settlements led to less within-market competition after 2002.

Keywords: Paragraph (iv), generic entry, deterrence, event study, patent litigation, pay for delay

JEL Classification: L51, I10, I18, K23

Suggested Citation

Jacobo-Rubio, Ruben and Turner, John L. and Williams, Jonathan W., The Distribution of Surplus in the US Pharmaceutical Industry: Evidence from Paragraph (iv) Patent Litigation Decisions (November 21, 2019). Available at SSRN: https://ssrn.com/abstract=2481908 or http://dx.doi.org/10.2139/ssrn.2481908

Ruben Jacobo-Rubio (Contact Author)

FDA ( email )

10903 New Hampshire Ave
Silver Spring, MD N/A MD 20993
United States

John L. Turner

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Athens, GA 30602-6254
United States

Jonathan W. Williams

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

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