Actavis and Multiple ANDA Entrants: Beyond the Temporary Duopoly

10 Pages Posted: 11 Oct 2014 Last revised: 21 Mar 2015

See all articles by Bruce H. Kobayashi

Bruce H. Kobayashi

George Mason University - School of Law

Joshua D. Wright

George Mason University - Antonin Scalia Law School, Faculty

Douglas H. Ginsburg

U.S. Court of Appeals for the District of Columbia Circuit; George Mason University - Antonin Scalia Law School, Faculty

Joanna Tsai

Government of the United States of America - Federal Trade Commission

Date Written: March 20, 2014

Abstract

This paper examines the economics of litigation and settlement of patent disputes arising from Paragraph IV ANDA filings under the Drug Price Competition and Patent Term Restoration Act (“Hatch-Waxman Act”) within the framework set out in FTC v. Actavis. Recent economic analyses of reverse payment settlements are based upon a monopoly-to-duopoly model that assumes a single generic entrant. These analyses have been used to support antitrust rules that would enjoin reverse payments that exceed the cost of litigation. We demonstrate that the simple monopoly-to-duopoly models providing the analytical basis for the litigation cost benchmark for analyzing reverse payment settlements is incomplete. Our key institutional insight is the fact that entry by multiple firms follows the invalidation of a patent. Accounting for this critical institutional detail in a more generalized monopoly-to-duopoly model results in important and different implications for patent settlements, welfare, and application of the rule of reason pursuant to Actavis. The result is a broader settlement range than under the monopoly-to-duopoly model that yields robust incentives for the brand and generic entrant to settle the case. This broad settlement range makes attempts to regulate the size of patent settlements ineffective at achieving consumer welfare increasing settlements, or inducing the invalidation of “bad” patents through higher litigation rates. Incorporating multiple serial entrants also decouples the litigation-adjusted expected value of the patent and the consumer welfare standard, and further weakens the relationship between patent strength and the size of the settlement which has motivated numerous calls to deem presumptively unlawful all payments greater than anticipated litigation costs.

Keywords: Actavis, reverse payments, settlements, antitrust, pharmaceutical, FTC, Hatch-Waxman, patents, rule of reason

JEL Classification: K21, K41, L41, L43, L44

Suggested Citation

Kobayashi, Bruce H. and Wright, Joshua D. and Ginsburg, Douglas H. and Tsai, Joanna, Actavis and Multiple ANDA Entrants: Beyond the Temporary Duopoly (March 20, 2014). Forthcoming in Antitrust Magazine, Vol. 29, No. 2, pp. 89-97, Spring 2015; George Mason Law & Economics Research Paper No. 14-62. Available at SSRN: https://ssrn.com/abstract=2508094 or http://dx.doi.org/10.2139/ssrn.2508094

Bruce H. Kobayashi

George Mason University - School of Law ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States
703-993-8034 (Phone)
703-993-8088 (Fax)

HOME PAGE: http://mason.gmu.edu/~bkobayas

Joshua D. Wright (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

Douglas H. Ginsburg

U.S. Court of Appeals for the District of Columbia Circuit ( email )

333 Constitution Ave NW
Room 5523
Washington, DC 20001
United States

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

Joanna Tsai

Government of the United States of America - Federal Trade Commission ( email )

600 Pennsylvania Ave., NW
Washington, DC 20580
United States

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