Working Paper No. 10-54:
Policy Reversal on Reverse Payments: Why Courts Should Not Follow the New DOJ Position on Reverse-Payment Settlements of Pharmaceutical Patent Litigation

Author(s):

Henry Butler, Jeffrey Jarosch

Date Posted: October 2010

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Abstract:

In a recent policy reversal, the Department of Justice has, for the first time, pursued antitrust liability for “reverse payment” settlements. These settlements occur in the pharmaceutical industry when brand-name and generic-drug companies settle patent-infringement litigation. In a reverse-payment settlement, the generic-drug company agrees not to enter the market for some period of time and the patent holder agrees to give it something of value - often quarterly cash payments. The DOJ claims that such settlements should be analyzed under the rule of reason but in fact seeks an unwarranted presumption that reverse payments are unreasonably anticompetitive. At first glance, reverse-payment settlements do seem bad - they resemble anticompetitive market-division arrangements where one party pays another to stay out of the market. However, this Article’s more context specific economic analysis reveals that the effects of reverse payments are not obvious, can be procompetitive, and that a presumption of anticompetitive effect is thus unwarranted. Instead, courts should analyze them under the traditional rule of reason with no presumption for or against such settlements.