Frank Maier-Rigaud, Nathan Blalock and Oliver Gannon
In recent years, reverse payment settlements in the pharmaceutical industry have attracted the attention of competition authorities on both sides of the Atlantic. These settlements arise from the incentive to settle patent challenges under terms that specify a date of generic entry and consideration paid by the originator to the generic. The chapter reviews and compares the approaches of the US and European competition authorities in investigating reverse payment settlements. The authors also show that the beliefs of originators and generic companies as to the validity of the patent are important in determining the set of feasible reverse payment settlement outcomes. Economic theory suggests that, under certain circumstances, reverse payment settlements do benefit consumers by allowing litigating parties to avoid costly litigation and establishing a generic entry date that is earlier than expected under litigation. As a result, an effects-based regulatory approach to reverse payment settlements may improve overall welfare.