Generic Drugs, Used Textbooks, and the Limits of Antitrust Liability for Product Improvements
4 Criterion J. on Innovation 207 (2019)
17 Pages Posted: 17 Sep 2019 Last revised: 7 Nov 2019
Date Written: September 16, 2019
A key issue in "product-hopping" cases is how to reconcile society's interest in increased price competition with the need for continued pharmaceutical innovation, particularly where a new product formulation presents genuine therapeutic benefits. Some courts have proposed to weigh the acknowledged therapeutic value of a new pharmaceutical product against the monetary effects of suppressed generic competition. But the task of "weighing" such radically incommensurable social values lies well beyond the competence of generalist tribunals. Michael Carrier and Steve Shadowen have proposed to side-step this problem through what they call a "no business sense" test. Although this approach would avoid a direct comparison of therapeutic benefits and monetary harms, it would present intractable implementation problems of its own, and it asks the wrong conceptual question in any event. In the final analysis, developing and marketing a new formulation should not subject a manufacturer to antitrust liability if the formulation presents genuine therapeutic benefits for patients.
We underscore these points by comparing the pharmaceutical marketplace to the economically similar marketplace for college textbooks. That marketplace, too, features a "price disconnect," where the professors who assign textbooks do not pay for them, and the students who pay for textbooks do not choose them. Yet no one seriously proposes to subject publishers and authors to antitrust liability for conduct strikingly similar to pharmaceutical product-hopping: introducing new editions more often than they otherwise would allegedly in order to suppress competition from used booksellers. There is no principled reason for applying different rules to successful reformulations of existing pharmaceutical products.
Keywords: product-hopping, antitrust, pharmaceuticals, competition, FTC, Federal Trade Commission, price disconnect
JEL Classification: K2, K20, K21, K23
Suggested Citation: Suggested Citation