We are drawing close to the thirtieth anniversary of the Drug Price Competition and Patent Term Restoration Act, better known as Hatch-Waxman, enacted in 1984. Among other things, the Act grants generic manufacturers the ability to challenge the validity of a patent covering a brand name drug without incurring the cost of actually entering that drug market or having to risk the enormous damages that would flow from a finding of infringement. In other words, Hatch-Waxman made it a lot easier for generic drug companies to take on big pharma patents. Not surprisingly, the generic drug sector blossomed in the wake of the Act. In 1984, generics comprised only 19 percent prescription drug volume and 36 percent of brand drugs had a generic competitor; by 2002, 47 percent of prescription volume was generic and nearly 100 percent of brand drugs faced generic competition.
With the blossoming of generic drugs, however, came another trend: the rise of the "reverse payment" settlement. Typically when a patent infringement case is settled it is the putative infringer who pays the patent holder to close out the litigation. When a brand firm sues a generic drug maker for patent infringement, however, settlement payments run in the other direction: brand firms typically pay generic firms to drop their challenge and keep their generic versions of the drug out of the market for some period of time. It is this aspect of brand-generic settlements that has earned them the moniker "pay-for-delay."