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The Distribution of Surplus in the US Pharmaceutical Industry: Evidence from Paragraph iv Patent-Litigation Decisions

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  • Ruben Jacobo-Rubio
  • John L. Turner
  • Jonathan W. Williams

Abstract

In paragraph iv pharmaceutical cases, a patent-litigation decision often determines whether a brand-firm monopoly continues or generic entry occurs. Using unique patent-litigation data and an event-study approach that accounts for probabilistic district court decisions and an appellate process, we estimate that brand-firm stakes in such cases average $4.3 billion while generic-firm stakes average $204.3 million. After the Schering-Plough v. FTC decision in 2002 that upheld a settlement in which the brand firm paid the generic firm in return for delayed entry, we find that settlement is more likely and stakes are significantly lower, despite greater average brand sales for the drugs in the cases. On the basis of this evidence, we conclude that pay-for-delay settlements led to less within-market competition after 2002.

Suggested Citation

  • Ruben Jacobo-Rubio & John L. Turner & Jonathan W. Williams, 2020. "The Distribution of Surplus in the US Pharmaceutical Industry: Evidence from Paragraph iv Patent-Litigation Decisions," Journal of Law and Economics, University of Chicago Press, vol. 63(2), pages 203-238.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/707407
    DOI: 10.1086/707407
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    Cited by:

    1. Antonio Estache & Christophe Kieffer, 2021. "Does Common Ownership Influence the Financial Strategy of the French Pharmaceutical Firms?," Working Papers ECARES 2021-09, ULB -- Universite Libre de Bruxelles.
    2. Gaurab Aryal & Federico Ciliberto & Leland E. Farmer & Ekaterina Khmelnitskaya, 2022. "Valuing Pharmaceutical Drug Innovations," Papers 2212.07384, arXiv.org, revised Apr 2024.
    3. 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.

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