When Do Generics Challenge Drug Patents?

The Hatch‐Waxman Act regulates competition between brand‐name and generic drugs in the United States. We examine a feature of the Act that has attracted great controversy but little systematic attention. “Paragraph IV” challenges are a mechanism for generic drug makers to challenge the patents of brand‐name drug makers as a means to secure early market entry. We first present descriptive results that chart the rise of brand‐name patent portfolios and Paragraph IV challenges. Over time, patenting has increased, measured by the number of patents per drug and the length of the nominal patent term. Meanwhile, the fraction of drugs subjected to patent challenges has increased. Drugs are also challenged sooner, relative to brand‐name approval. Our econometric analyses of challenges over the past decade show that brand‐name sales have a positive effect on the likelihood of generic challenge. The likelihood of challenge also varies with the nature of the patent portfolio. A drug with weaker patents faces a significantly higher likelihood of challenge, conditional on sales and other drug characteristics. That is not because the drug's patent protection is weaker overall; additional patents, even weak ones, generally strengthen a brand‐name firm's ability to exclude. Rather, a weak patent, particularly if it expires later than the basic patents, disproportionately attracts a challenge to the pertinent drug. Overall, our results suggest these challenges serve a useful purpose by promoting scrutiny of weaker and late‐expiring patents.