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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 payoffs. 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, and litigation may arise in equilibrium.

Suggested Citation

  • Jorge Lemus & Emil Temnyalov, 2020. "Pay-for-Delay with Follow-On Products," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(4), pages 697-714, June.
    • Handle: RePEc:kap:revind:v:56:y:2020:i:4:d:10.1007_s11151-020-09750-6
    DOI: 10.1007/s11151-020-09750-6
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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. Ahn, Kiefer & Trujillo, Antonio & Gibbons, Jason & Bennett, Charles L. & Anderson, Gerard, 2023. "Settled: Patent characteristics and litigation outcomes in the pharmaceutical industry," International Review of Law and Economics, Elsevier, vol. 76(C).
    3. Anton‐Giulio Manganelli, 2021. "Reverse payments, patent strength, and asymmetric information," Health Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 20-35, January.
    4. Manganelli, Anton-Giulio, 2023. "Pay-for-delay settlements and patent expansion practices," Information Economics and Policy, Elsevier, vol. 64(C).
    5. 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

    Antitrust; Evergreening; Litigation; Pay-for-delay; Product hopping;
    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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