Uncertainty and Reverse Payments

Abstract

Antitrust has long agonized about how to regulate patent settlements that include a payment from a branded drug maker to a generic challenger in exchange for the generic’s promise to stay out of the market for a time. I make the case for a ban on all patent settlements that fix a date of entry, regardless of the existence of a “reverse payment” or whether entry leads to a duopoly or competition between multiple generic entrants. The current approach to reverse payments seeks to preclude only those settlements that are guaranteed to harm consumers. I argue that because there is uncertainty about how much delay drug makers will negotiate in settlement, antitrust must instead make it impossible for settlements to harm consumers. I argue that a settlement ban is the best way to do that.