Pay-for-delay with Follow-on Products

20 Pages Posted: 22 Mar 2019 Last revised: 29 May 2019

See all articles by Jorge Lemus

Jorge Lemus

University Of Illinois Urbana Champaign

Emil Temnyalov

University of Technology Sydney, Economics Department

Date Written: March 6, 2019

Abstract

We study pay-for-delay settlements between a patent holder and a challenger when the patent holder can introduce follow-on products. We show that ignoring follow-on products biases the inferred competitive harm of pay-for-delay settlements (the "Actavis inference"). The reason is that patent invalidation triggers an earlier introduction of follow-on products which changes pay-for-delay negotiation's payoffs relative to the case of no follow-on products. When follow-on products are ignored, we show that an inference based on a reverse payment over-estimates patent strength. If parties cannot use payments (pure-delay settlements), follow-on products may push the parties to settle on an earlier entry date relative to the entry date negotiated in the absence of follow-on products, and litigation may arise in equilibrium.

Keywords: pay-for-delay, product hopping, evergreening, antitrust, litigation

JEL Classification: D2, K2, K4, L4, L13, O3

Suggested Citation

Lemus, Jorge and Temnyalov, Emil, Pay-for-delay with Follow-on Products (March 6, 2019). Available at SSRN: https://ssrn.com/abstract=3349376 or http://dx.doi.org/10.2139/ssrn.3349376

Jorge Lemus (Contact Author)

University Of Illinois Urbana Champaign ( email )

1407 Gregory Drive, DKH 214
Urbana, IL 61801
United States

HOME PAGE: http://sites.google.com/site/jorgelemuswebsite/

Emil Temnyalov

University of Technology Sydney, Economics Department ( email )

Australia

HOME PAGE: http://sites.google.com/site/temnyalov

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