Common use of Summary and Discussion Clause in Contracts

Summary and Discussion. The model employed in this paper allows us to study the stability of reverse payment agreements between brand and generic challengers that lead to extended monopoly periods. Prior literature has focused on the welfare effects of out of court settlements with and without reverse payments, and under what conditions they may be anti or pro-competitive. We focused instead on when ex ante pay-for-delay deals would be observed in equilibrium, which is equivalent to exclusivity awarded to the first successful challenger, and how it compares to the current system in the US which awards exclusivity to the first filer. Our model combines the first mover advantage for the first generic entrant with the ability of the branded manufacturer to launch an authorized generic to describe the conditions under which such deals are an equilibrium outcome. We do not explore all the other possible explanations for this phenomena. In particular, we show that compared to the first filer system, pay-for-delay deals are more difficult under the first successful challenger system. However even under the latter system, pay-for-delay deals can occur. We also show that pay-for-delay deals can occur even without any exclusivity period, as it happens in Europe. The model also shows that the payment to stay out increases not only in the ‘weakness’ of the underlying patent, but also in the extent of the first mover advantage. This is important because both the US Supreme Court in the case against ▇▇▇▇▇▇▇, and the European Commission (DG Competition) in announcing the €147m fine against Lundbeck and the agreeing generics in a pay- for-delay case, cite the size of the payment as a “workable surrogate” for the weakness of the underlying patent, but ignore the role of the first mover advantage.21 21See p.19 US Supreme Court (2013) and comments by the Director General (DG Competition) of EC, p.9 Italianer (2013). ▇▇▇▇▇▇, ▇▇▇▇▇▇, “Authorized generic entry prior to patent expiry: reassessing incentives for inde- pendent generic entry,” The Review of Economics and Statistics, July 2015, 97 (3), 654–666.‌ ▇▇▇▇ Laboratories, Inc., “▇▇▇▇ and Shire sign three agreements: a product acquisition agreement for Adderall; a product development agreement; and a settlement and license agreement for Adderall XR,” PR Newswire [Press Release] August 14 2006. London, UK. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, “Brand loyalty, generic entry and price competition in pharmaceuticals in the quarter century after the 1984 ▇▇▇▇▇▇-▇▇▇▇▇ legislation,” International Journal of the Economics of Business, July 2011, 18 (2), 177–201. , ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇- tle, “Authorized generic drugs, price competition, and consumers’ welfare,” Health Affairs, May/June 2007, 26 (3), 790–799. ▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇, “Strategic deterrence of sequential entry into an industry,” RAND Jour- nal of Economics, Spring 1984, 15 (1), 1–11. ▇▇▇▇▇, ▇▇▇▇▇▇, “The gaming of pharmaceutical patents,” in ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇ ▇▇▇▇▇▇, eds., Innovation Policy and the Economy, Vol. 4, Cambridge, MA: MIT Press, 2004, pp. 145–187. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, “Patent expiration, entry, and competition in the U.S. pharmaceutical industry,” Brookings Papers on Economic Activity, 1991, 1991, 1–66. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇., “Exit payments in settlement of patent infringement lawsuits: Antitrust rules and economic implications,” Florida Law Review, 2002, 54 (4), 747–797. ▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇, “An economic assessment of patent set- tlements in the pharmaceutical industry,” Annals of Health Law, Winter 2010, 19 (2), 367–400. ▇▇▇▇▇, ▇▇▇▇▇ ▇., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, “Do “reverse payment” settlements constitute an anticompetitive pay-for-delay?,” International Journal of the Economics of Business, 2015, 22 (2), 173–200. EC, “Pharmaceutical Sector Inquiry, Final Report,” European Commission (Directorates General, Competition) Brussels, Belgium July 2009. ▇▇▇▇▇▇▇, Einer and ▇▇▇▇ ▇▇▇▇▇▇▇, “Solving the patent settlement puzzle,” Texas Law Review, December 2012, 91 (283). ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, “Cross-licensing of competing patents as a facilitating device,” The Canadian Journal of Economics, August 1994, 27 (3), 689–708. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇, “How strong are weak patents?,” American Economic Review, September 2008, 98 (4), 1347–1369.

Summary and Discussion. The model employed in this paper allows us to study the stability of reverse payment agreements between brand and generic challengers that lead to extended monopoly periods. Prior literature has focused on the welfare effects of out of court settlements with and without reverse payments, and under what conditions they may be anti or pro-competitive. We focused instead on when ex ante pay-for-delay deals would be observed in equilibrium, which is equivalent to exclusivity awarded to the first successful challenger, and how it compares to the current system in the US which awards exclusivity to the first filer. Our model combines the first mover advantage for the first generic entrant with the ability of the branded manufacturer to launch an authorized generic to describe the conditions under which such deals are an equilibrium outcome. We do not explore all the other possible explanations for this phenomena. In particular, we show that compared to the first filer system, pay-for-delay deals are more difficult under the first successful challenger system. However even under the latter system, pay-for-delay deals can occur. We also show that pay-for-delay deals can occur even without any exclusivity period, as it happens in Europe. The model also shows that the payment to stay out increases not only in the ‘weakness’ of the underlying patent, but also in the extent of the first mover advantage. This is important because both the US Supreme Court in the case against ▇▇▇▇▇▇▇, and the European Commission (DG Competition) in announcing the €147m fine against Lundbeck and the agreeing generics in a pay- for-delay case, cite the size of the payment as a “workable surrogate” for the weakness of the underlying patent, but ignore the role of the first mover advantage.21 21See p.19 US Supreme Court (2013) and comments by the Director General (DG Competition) of EC, p.9 Italianer (2013). ▇▇▇▇▇▇, ▇▇▇▇▇▇, “Authorized generic entry prior to patent expiry: reassessing incentives for inde- pendent generic entry,” The Review of Economics and Statistics, July 2015, 97 (3), 654–666.‌ ▇▇▇▇ Laboratories, Inc., “▇▇▇▇ and Shire sign three agreements: a product acquisition agreement for Adderall; a product development agreement; and a settlement and license agreement for Adderall XR,” PR Newswire August 14 2006. [Press Release] August 14 2006. London, UK. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, “Brand loyalty, generic entry and price competition in pharmaceuticals in the quarter century after the 1984 ▇▇▇▇▇▇-▇▇▇▇▇ legislation,” International Journal of the Economics of Business, July 2011, 18 (2), 177–201. , ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇▇ ▇▇▇- tle, “Authorized generic drugs, price competition, and consumers’ welfare,” Health Affairs, May/June 2007, 26 (3), 790–799. ▇▇▇▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇, “Strategic deterrence of sequential entry into an industry,” RAND Jour- nal of Economics, Spring 1984, 15 (1), 1–11. ▇▇▇▇▇, ▇▇▇▇▇▇, “The gaming of pharmaceutical patents,” in ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇ ▇▇▇▇▇▇, eds14., Innovation Policy and the Economy, Vol. 4, Cambridge, MA: MIT Press, 2004, pp. 145–187. ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇., ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, “Patent expiration, entry, and competition in the U.S. pharmaceutical industry,” Brookings Papers on Economic Activity, 1991, 1991, 1–66. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇., “Exit payments in settlement of patent infringement lawsuits: Antitrust rules and economic implications,” Florida Law Review, 2002, 54 (4), 747–797. ▇▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇, “An economic assessment of patent set- tlements in the pharmaceutical industry,” Annals of Health Law, Winter 2010, 19 (2), 367–400. ▇▇▇▇▇, ▇▇▇▇▇ ▇., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, “Do “reverse payment” settlements constitute an anticompetitive pay-for-delay?,” International Journal of the Economics of Business, 2015, 22 (2), 173–200. EC, “Pharmaceutical Sector Inquiry, Final Report,” European Commission (Directorates General, Competition) Brussels, Belgium July 2009. ▇▇▇▇▇▇▇, Einer and ▇▇▇▇ ▇▇▇▇▇▇▇, “Solving the patent settlement puzzle,” Texas Law Review, December 2012, 91 (283). ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, “Cross-licensing of competing patents as a facilitating device,” The Canadian Journal of Economics, August 1994, 27 (3), 689–708. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇, “How strong are weak patents?,” American Economic Review, September 2008, 98 (4), 1347–1369.