‘Pay-for-Delay’ Settlements: In Search of the Right Standard

Abstract

In its 2009 pharmaceutical sector inquiry, the European Commission observed that patent settlements involving a value transfer from the originator to the generic manufacturer (reverse payment) could fall under the prohibition of anticompetitive agreements. In 2012, it issued its first two statements of objections in reverse payment cases. In the US, where competition authorities have dealt with this issue for more than a decade, courts remain split on the applicable competition standard. Condone reverse payments as long as the settlement does not exceed the potential exclusionary scope of the patent? Or, conversely, consider them as prima facie evidence of an agreement to keep generics off the market ('pay for delay')? One reason for this indecision is that many courts are reluctant to interfere with the complex dynamics of patent settlements: while reverse payments could be indicative of anticompetitive intent, they could also be seen as a necessary mechanism to help parties reach a settlement. Blindly condemning all reverse payments thus seems excessive, but determining which payments are legitimate and which are not poses serious difficulties. In light of these difficulties, the more lenient approach to reverse payments that is currently adopted by the majority of US courts at least has the merit of pragmatism.