Innovation, Litigation, and New Drugs

Posted by Social Science Research Network

Innovation, Litigation, and New Drugs Ramsi Woodcock (Georgia State University)

Abstract: The study of patent settlements that specify the date at which a challenger may bring a competing product to market (“entry settlements”) has not taken innovation into account. I adapt the standard optimal patent life model to account for innovation in considering the effect of entry settlements on consumer value. I determine the maximum strengthening of a patent through settlement that does not harm consumers, calibrate it with drug market data, and conclude that, for patents weaker than 80.3%, drug patent strengthening of more than 42.5 percentage points, or any agreement to enter at patent expiry, harms consumers.