Drugwonks discusses collusion in the public interest:
The Wall Street Journal has disclosed an interesting way that research-based and generic companies are settling patent disputes. Rather than duking it out in court, the research-based company agrees to let the generic company compete after a certain number of years. For example, if a drug’s patent has 10 years to run, but a generic company alleges that the patent is invalid, the inventing company will agree to let the generic manufacturer compete in 5 years. Is this collusion or co-operation that benefits the public? I’d say the latter. It’s certainly better than what was (allegedly) happening before.
Patents on prescription drugs are handled a little differently than patents on mousetraps, because they involve the FDA and not just the courts. If a generic competitor can prove that a patent is invalid, the FDA gives that first generic competitor the exclusive right to sell it’s version for 6 months, before it licenses other generic competitors’ copies. This gives a generic competitor with a strong case an incentive to attack the weak patent, which it would not if it had to share the spoils with other generic manufacturers.
A while back, it was alleged that these generic competitors would then negotiate payoffs from the research-based competitors, in return for which they would promise actually not to launch their versions for some time. Obviously, this simply transferred wealth from one company to another, with no benefit to public welfare. When this came out, I thought that a good solution would be to require a generic first mover who earned such a license to start shipping its products within a short time of the FDA approval, or lose its exclusivity.
Here's the WSJ article to which the article refers:
The settlements are a mixed blessing at best for consumers and insurers. A settlement could result in the later entry of a generic than if its maker had stuck with the patent challenge and prevailed. But if the generic manufacturer pursued the case and lost, the launch would be pushed off until after the patent expired, much later than the agreed-upon settlement date. A 2002 FTC study found that generic companies won nearly three-quarters of the cases where patents were litigated, suggesting settling cases more often protects branded drug makers. Initially, generic prices are typically 40% to 50% lower than branded pills, but they drop even lower as additional generic versions come on the market.
The FTC has maintained that settlements delay competition and hurt consumers. It has aggressively pursued some cases in which it alleged that branded-drug makers had basically paid a generic company to keep a copycat off the market.
But in recent court decisions, some antitrust lawyers say, judges seem to have concluded that such settlements are not by definition anticompetitive and that the size of the payment or incentives given to the generic manufacturer is immaterial. In doing so, the judges are bringing drug-patent lawsuits in line with the broader trend of encouraging settlements in many areas of litigation, so as to conserve courts' resources and time. The FTC has petitioned the U.S. Supreme Court to review one of the cases it lost.
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