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Pay-for-delay with Follow-on Products

Author

Listed:
  • Jorge Lemus

    (University of Illinois Urbana-Champaign)

  • Emil Temnyalov

    (University of Technology Sydney)

Abstract

We study pay-for-delay settlements between a patent holder and a challenger when the patent holder can introduce follow-on products. We show that ignoring follow-on products biases the inferred competitive harm of pay-for-delay settlements (the �Actavis inference�). The reason is that patent invalidation triggers an earlier introduction of follow-on products which changes pay-for-delay negotiation�s payoffs relative to the case of no follow-on products. When follow-on products are ignored, we show that an inference based on a reverse payment over-estimates patent strength. If parties cannot use payments (as in pure-delay settlements), follow-on products may push the parties to settle on an earlier entry date relative to the entry date negotiated in the absence of follow-on products, and litigation may arise in equilibrium.

Suggested Citation

  • Jorge Lemus & Emil Temnyalov, 2019. "Pay-for-delay with Follow-on Products," Working Paper Series 2019/09, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ecowps:2019/09
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    File URL: https://www.uts.edu.au/sites/default/files/2020-06/Emil%20T%20final%20WP.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Sencer Ecer & Rodrigo Montes & David Weiskopf, 2020. "On the Application of Nash Bargaining in Reverse Payment Cases in the Pharmaceutical Industry," European Journal of Law and Economics, Springer, vol. 50(1), pages 133-147, August.
    2. Anton‐Giulio Manganelli, 2021. "Reverse payments, patent strength, and asymmetric information," Health Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 20-35, January.
    3. Manganelli, Anton-Giulio, 2023. "Pay-for-delay settlements and patent expansion practices," Information Economics and Policy, Elsevier, vol. 64(C).
    4. Roger D. Blair, 2020. "The Intellectual Property-Antitrust Interface," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(4), pages 557-561, June.

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    More about this item

    Keywords

    pay-for-delay; product hopping; evergreening; antitrust; litigation;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • K2 - Law and Economics - - Regulation and Business Law
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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