Brattle principal Dr. Lisa Cameron and academic advisor Professor Joshua Gans have co-authored an article for Law360 on how to quantify a branded pharmaceutical company’s beliefs about patent strength and expected patent life in reverse payment settlement cases.

Their article, “An Empirical Approach To Reverse Payment Settlements,” examines the frequently-debated topic of whether patent settlement agreements involving a payment from a branded company to the generic accused infringer (so-called “reverse payment settlements”) violate antitrust laws. A key economic question is whether or not the branded company’s patent is valid and has been infringed. If not, then a large reverse settlement payment that causes the generic to delay entry may be viewed as anticompetitive.

Thus, it is important to determine the branded company’s beliefs about the strength of its patents. To address this issue, Dr. Cameron and Professor Gans use a model which recognizes that the size of the settlement payment provides useful information about the branded company’s beliefs. However, the authors show that it is crucial to view such settlements in proportion to the extra profit that the branded company protects through the settlement. Demonstrating this point, they use numeric examples to show that the greater this protected profit, the more likely it is that a large settlement payment will be consistent with the branded company’s belief that its patent is strong.

Dr. Cameron and Professor Gans explain how their model can be used in conjunction with readily available data to calculate the branded drug company’s range of beliefs about the likelihood that it will lose its patent suit. They also show that the same model and data can be used to quantify the branded drug company’s beliefs about the expected duration of the patent. The authors conclude that the use of this model will provide both courts and litigants with a new and improved method for assessing the competitive implications of these settlements on a case by case basis.

The article can be downloaded below.

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An Empirical Approach To Reverse Payment Settlements