Deterring Innovation: NY v. Actavis and the Duty to Subsidize Competitors’ Market Entry

32 Pages Posted: 7 Oct 2015 Last revised: 19 Dec 2015

Date Written: October 1, 2015


This Article examines a relatively new business strategy in the pharmaceutical market — “product hopping” or “product replacement” — in which brand pharmaceutical companies shift their marketing efforts from a drug nearing the end of its patent period to a new, substitute drug with a longer patent life. In July 2015, the Second Circuit issued an opinion in the first appellate case addressing pharmaceutical product replacement, NY v. Actavis. This Article explains that product replacement is the predictable business response to the incentives created by patent law and state substitution laws, and withdrawing an obsolete product from market when there is a new and improved version is clearly within the patent rights of a patent holder. However, in NY v. Actavis, the Second Circuit ruled that such product replacement activities are exclusionary and produce anticompetitive effects. The Court’s decision creates a duty for brand drug companies to continue selling obsolete drugs after patent expiry in order to allow generic competitors to take advantage of automatic substitution laws. Although the court intended this new duty to benefit consumers, the actual effects of the ruling are likely to be the opposite. Requiring pharmaceutical companies to continue marketing obsolete drugs will reduce incentives for innovation and will likely increase health care spending in the long run.

Suggested Citation

Shepherd, Joanna, Deterring Innovation: NY v. Actavis and the Duty to Subsidize Competitors’ Market Entry (October 1, 2015). Minnesota Journal of Law, Science & Technology, Forthcoming; Emory Legal Studies Research Paper No. 15-374. Available at SSRN:

Joanna Shepherd (Contact Author)

Emory University School of Law ( email )

1301 Clifton Road
Atlanta, GA 30322
United States
404-727-8957 (Phone)

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