The authors examine the competitive impacts of such clauses taking into account the regulatory structure and economics of the pharmaceutical industry in the United States.
Most settlements between brand and generic drug manufacturers in patent cases have two key features. First, they give the generic a license to enter the market before patent expiration. Second, they allow the generic’s licensed entry to be accelerated under certain conditions. Drake and McGuire (2022) argue that this second type of term, which they call most-favored-entry clauses (MFEs), are anticompetitive. According to Drake and McGuire, MFEs can delay the entry of the first generic to file a patent challenge, as well as delay the entry of later filers.
In this article, coauthors Andrew Elzinga, Penka Kovacheva, and Celeste Saravia explain why Drake and McGuire’s antitrust analysis does not fully reflect the regulatory structure and economics of the pharmaceutical industry. Accounting for these factors demonstrates that MFEs have no impact on the first filer’s entry when they (i) involve no profit sacrifice from the brand and (ii) convey no economic value to the settling first filer. In addition, such MFEs do not affect the economic incentives of later filers. At most, MFEs can prevent drug-patent settlements from increasing the incentives of later filers to litigate the patents. Indeed, MFEs can be procompetitive by making drug-patent settlements possible and thereby lowering both private and public litigation costs.
The article was originally published in The Antitrust Source in December 2023.