Pay-for-Delay

Fiona Scott Morton, Dec 20, 2013

This article lays out the economics of competition between branded and generic pharmaceuticals and its welfare consequences. I explain the logic behind so-called “pay-for-delay” or “reverse payments” in the context of the current IP environment where weak (probabilistic) patents are frequently granted by the PTO. The article goes on to relate the Supreme Court decision in Activis to these concepts. I argue that the “scope of a patent” is closely related to its probability of being valid. !e Supreme Court dissenting opinion states that IP owners should be allowed to operate within the scope of the patent. For a very weak patent, that might be a very limited scope and bring the dissent into agreement with the majority opinion that a weak patent owner should not be allowed to create market power where the patent did not grant it. However, the dissenting opinion closes with a rejection of using the concept of probabilistic patents in legal analysis.

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