Patent settlements in the pharmaceutical industry: what can we learn from economic analysis?

Abstract

Despite the Actavis decision of the U.S. Supreme Court and the Lundbeck decision of the EU Commission, both in EU competition law and US antitrust law it is still unclear how competition authorities should deal with patent settlements between originator and generic firms in the pharmaceu- tical industry. A crucial policy question is whether a per se prohibition (or at least a strong presumption of the illegality) of patent settlements with reverse payments should be recommended or whether a rule of reason approach should be applied. In this paper we critically analyze the contributions of eco- nomic papers (and explicit economic reasonings in law articles) for answering this question. This also includes the identification of the gaps in the current economic research. A crucial result of our analysis will be, on one hand, that not only the effects of antitrust rules about patent settlements on consumer welfare via prices are relevant but also the effects on consumer welfare via innovation incentives and incentives for challenging weak patents. On the other hand, we will show how deeply this problem of the antitrust assessment of patent settlements is linked to the general problems of the patent system (weak / probabilistic patent problem).