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Reverse-Payment Patent Settlements in the Pharmaceutical Industry: An Analysis of US Antitrust Law and EU Competition Law

Michael J. Clancy, Damien Geradin, and Andrew Lazerow, The Antitrust Bulletin, Vol. 59, 2014

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In the pharmaceutical industry, originator companies researching and developing new medicines will typically obtain a range of patents to protect these medicines against generic competition. On the other side, generic suppliers seeking to enter the market will often challenge the validity of these patents or may simply launch their products, forcing the originators to bring litigation to enforce their patents and prevent the generics’ entry. In the context of the corresponding litigation, the originators and generic suppliers often decide to enter into a settlement.

While the settlement terms will vary from case to case, a number of settlements have involved a payment made from the patent holder (the originator) to the accused infringer (the generic supplier) in order to settle the dispute (these settlements are known as “reverse-payment patent settlements”). The legality of such settlements is the subject of a heated debate, both in Europe and in the United States (“US”). Competition authorities on both sides of the Atlantic are concerned that such settlements may unduly delay market entry of generic drugs, to the detriment of consumers and governments’ health care budgets.

In June 2013, both the US Supreme Court and the European Commission (“Commission”) addressed the legality of reverse-payment patent settlements between originator and generic drug companies, reaching rather different conclusions. In order to explain the causes and consequences of this divergence, this paper discusses first the relevant Hatch-Waxman Act provisions and explore the evolution of the US case-law with regard to patent settlements (Part II). Thereafter, we analyse the EU regulatory context and current investigation activity of the Commission and the national competition authorities (Part III). Finally, we compare the US approach to reverse-payment patent settlements, as highlighted by the recent Actavis ruling, to the approach endorsed by the Commission in the Lundbeck decision (Part IV).

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