Product Innovation in a Model of Settlements of Drug Patent Litigation

65 Pages Posted: 12 Dec 2015 Last revised: 5 Mar 2017

See all articles by Ramsi Woodcock

Ramsi Woodcock

University of Kentucky College of Law

Date Written: September 6, 2016

Abstract

A generic drug maker that has been sued for infringing a patent on a branded drug will sometimes promise, as part of an agreement settling the litigation, to delay selling its drug until as late as the expiration of the patent term. I adapt the standard optimal patent term model to determine whether the delay in competition caused by such agreements raises consumer welfare by increasing rewards for innovation. Calibrating the model with U.S. drug market data, I find that, for all but the patents with the greatest probability of surviving litigation, settlements that delay entry by more than fifteen months harm consumers. I find that generic drug makers are in some cases willing to agree to enough delay to harm consumers, even in the absence of a reverse payment, and that harm can reach $1.3 billion for the average drug.

Keywords: patent settlement, antitrust, monopolization, horizontal anticompetitive practices, innovation, optimal patent life, race to invent, drugs, pharmaceuticals, generic drug, litigation, settlement, consumer welfare

JEL Classification: L41, L65, O34, K41

Suggested Citation

Woodcock, Ramsi, Product Innovation in a Model of Settlements of Drug Patent Litigation (September 6, 2016). Available at SSRN: https://ssrn.com/abstract=2702474 or http://dx.doi.org/10.2139/ssrn.2702474

Ramsi Woodcock (Contact Author)

University of Kentucky College of Law ( email )

620 S. Limestone Street
Lexington, KY 40506-0048
United States

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