Economics at the FTC: Pharmaceutical Patent Dispute Settlements and Behavioral Economics

Salinger, Michael A.; Ippolito, Pauline M.; Schrag, Joel L.

doi:10.1007/s11151-007-9151-y

Cited by 11 publications

(6 citation statements)

References 25 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…As in Choi (1998), a finding of patent validity (or invalidity) in the first stage applies equally to 16 In practice, there is a difference between patent infringement and validity, see Shapiro (2003). A challenger may be found not to infringe a patent, but the patent is still valid.…”

Section: The Description Of the Modelmentioning

confidence: 98%

“…16 We assume that both litigation and settlement are costless. The incumbent wins his case with probability  (patent strength), which is not known before a firm enters the market and sunks  .…”

Section: The Description Of the Modelmentioning

confidence: 99%

“…13 The plaintiff compensates the alleged infringer who agrees to delay entry of its product into the market. 14 See also Salinger, Ippolito and Schrag (2007). 15 In contrast, royalties, or more general non-linear payments, can be anticompetitive because they can be used to bring the price closer to monopoly price, Farrell and Shapiro (2008).…”

Section: Introductionmentioning

confidence: 99%

“…25 25 The issue of patent licensing and some form of entry deterrence has also been examined by Gallini (1984) and Rockett (1990). …”

mentioning

confidence: 99%

See 3 more Smart Citations

Patent Settlements as a Barrier to Entry

Duchêne¹,

Serfes²

2012

Economics Manag Strategy

View full text Add to dashboard Cite

Empirical studies have found that most patent litigations are resolved through settlements rather than trials. Moreover, license fees negotiated in settlement agreements have become very large. We formulate a model of sequential entry with an incumbent patent holder, multiple potential entrants and asymmetric information about the validity of the contested patent (patent strength) between firms that are already in the market and future potential entrants. Within this framework we show that patent settlements between the incumbent and the first entrant can be mutually beneficial even when the cost of trial is zero and the settlement agreement takes the form of a simple fixed license fee. For intermediate patent strengths, settlements are a tool for further entry deterrence. The two parties agree on a high settlement amount which sends a credible signal to 'outsiders' that the incumbent's patent is not weak and therefore further entry will not be profitable. This provides a novel explanation for the role of settlements and to the recent observation of high license fees negotiated in settlement agreements. Our analysis demonstrates than even non-reverse settlements that entail only a fixed fee can be anticompetitive because they are used to block further entry.

show abstract

Section: The Description Of the Modelmentioning

confidence: 98%

Section: The Description Of the Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…25 25 The issue of patent licensing and some form of entry deterrence has also been examined by Gallini (1984) and Rockett (1990). …”

mentioning

confidence: 99%

See 2 more Smart Citations

Patent Settlements as a Barrier to Entry

Duchêne¹,

Serfes²

2012

Economics Manag Strategy

View full text Add to dashboard Cite

show abstract

“…The previous analysis has shown that under the rule of per se legality settling companies sustain monopoly for the whole patent duration. Thus, initiated challenges do not lead to 22 We analyze the case when companies optimally choose t rr g1 = 1 in Appendix A1.…”

Section: Welfare Analysismentioning

confidence: 99%

Economic Analysis of Pay-for-Delay Settlements and Their Legal Ruling

Gratz¹

2012

SSRN Journal

View full text Add to dashboard Cite

In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigation. Within a theoretical framework we compare consumer welfare under the rule of per se legality with that under alternative standards. We find that the rule of per se legality induces maximal collusion among settling companies. In comparison, the rule of per se illegality entirely prevents collusion and the rule of reason induces limited collusion when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases companies' expected settlement profits and thus fosters generic entry. Generic companies obtain additional incentives to challenge probabilistic patents, which potentially leads to overall increased competition. We further show that generic entry is fostered more effectively by inducing limited collusion than by rewarding first generic entrants with an exclusivity right.

show abstract

The U.S. Federal Trade Commission at 100: A Symposium on FTC Economics

Farrell

2015

Rev Ind Organ

View full text Add to dashboard Cite

Economics at the FTC: Pharmaceutical Patent Dispute Settlements and Behavioral Economics

Abstract: Antitrust, Behavioral economics, Consumer protection, FTC, Patents, Pharmaceuticals,

Cited by 11 publications

References 25 publications

Patent Settlements as a Barrier to Entry

Patent Settlements as a Barrier to Entry

Economic Analysis of Pay-for-Delay Settlements and Their Legal Ruling

The U.S. Federal Trade Commission at 100: A Symposium on FTC Economics

Contact Info

Product

Resources

About