Pay-to-Delay Settlements: The Circuit-Splitting Headache Plaguing Big Pharma

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Shannon U. Han · 15 Vand. J. Ent. & Tech. L. 913

Abstract

At its passage, the Hatch-Waxman Act was hailed as a much-needed step in making generic drugs more readily available to consumers, easing some of the heavy burdens placed on consumers by the necessary, but flawed, patent system that essentially granted brand-name pharmaceutical manufacturers a de facto economic monopoly over their drugs. One consequence of the Act, unforeseen by legislators and regulators, was the creation of a perverse incentive on behalf of pharmaceutical patent holders to pay alleged patent infringers substantial cash payments to delay entry into the particular drug market. These pay-to-delay settlements—or reverse-payment settlements—have been at the center of a prolific debate among economists, legal theorists, regulators, and various industry experts on the appropriate relationship between antitrust law and patent law. This troubling byproduct of the Hatch-Waxman Act has also slowly created a definitive split among the federal circuit courts over the past ten years. The conflict is now coming to a head as the Supreme Court reviews the legality of reverse-payment settlements in FTC v. Watson Pharmaceuticals. This Note recommends that the Court recognize that, by removing the patent validity testing from the courtroom to the settlement negotiation table, the patentee-plaintiffs also removed themselves from the protection against antitrust scrutiny that a patent provides. As such, certain evidence of reverse payments should give rise to a rebuttable presumption of an illegal restraint of trade, given its clear anticompetitive implications.