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Patent Settlements in the Pharmaceutical Industry: What Can We Learn from Economic Analysis?

MAGKS Joint Discussion Paper Series in Economics, 01-2016

23 Pages Posted: 3 May 2016  

Jonas Severin Frank

University of Marburg, School of Business & Economics

Wolfgang Kerber

Philipps University Marburg - School of Business & Economics

Date Written: November 2, 2015

Abstract

Patent settlements between originator and generic firms in the pharmaceutical industry have been challenged by antitrust and competition authorities in the U.S. and the EU. Particularly Settlements with large "reverse payments" to generic firms raise the concern of collusive behaviour for protecting weak patents and delaying price competition through generic entry and therefore harming consumers. However, it is still heavily disputed under what conditions such patent settlements are anti-competitive and violate antitrust rules. This article scrutinizes critically what economic analysis has so far contributed to our knowledge about the effects of these patent settlements and the possible rules for their antitrust treatment. An important claim of this paper is that the problem of patent settlements can only be understood, if we analyze it not only from a narrow antitrust perspective but also take into account its deep interrelationship with the problems (and the economics) of the patent system. Therefore we identify three different channels of effects, how patent settlements can influence consumer welfare: (1) price effects, (2) innovation incentive effects, and (3) effects via the incentives to challenge weak patents. The paper critically analyzes the existing economic studies and identifies a number of Research gaps, especially also in regard to trade offs between different effects. It also suggests that policy Solutions for these patent settlements should also be sought in combination with patent law solutions.

Keywords: Patent settlements, probabilistic patents, weak patents, pharmaceutical industry, generic competition

JEL Classification: K40, L40, O34

Suggested Citation

Frank, Jonas Severin and Kerber, Wolfgang, Patent Settlements in the Pharmaceutical Industry: What Can We Learn from Economic Analysis? (November 2, 2015). MAGKS Joint Discussion Paper Series in Economics, 01-2016. Available at SSRN: https://ssrn.com/abstract=2773543 or http://dx.doi.org/10.2139/ssrn.2773543

Jonas Severin Frank

University of Marburg, School of Business & Economics ( email )

Am Plan 2
Marburg
Germany
+49 6421 2823925 (Phone)

Wolfgang Kerber (Contact Author)

Philipps University Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany
+49 6421 2823921 (Phone)

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