Delayed Entry Settlements at the Patent Office

Abstract

The Patent Trial and Appeal Board (PTAB) is a recently-formed division of the Patent Office in which patents can be challenged as invalid, and which differs from federal courts in a number of respects. We investigate whether monopolist-patentees and their prospective rivals are using the PTAB — which has not previously received antitrust attention — as a platform for striking settlements that delay the rivals’ entry. Such settlements are common in pharmaceutical markets, and are typically antitrust violations in cases where the patentee pays the challenger (“pay for delay”). However, badly-designed statutory inducements lead to excessively-delayed competition even in lieu of such payments. Our empirical findings suggest that delayed entry settlements are now commonly executed in the PTAB, and that they comprise a large majority of all PTAB settlements reached between pharmaceutical rivals. Further, nearly half of the delayed entry settlements were reached after the relevant patent claims were deemed “reasonably likely” to be invalid.

The online appendix may be found at http://ssrn.com/abstract=2847028.

Keywords: Patent, Patent Office, Patent Trial and Appeal Board, PTAB, reverse payment, pay for delay, Actavis, Antitrust., USPOT, pharmaceutical patent, drug patent, Hatch-Waxman

JEL Classification: O34, K41, K42, L40, K21