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February 25, 2010



May be you will convince me that the FTC's view is the problem here (I wouldn't mind that being the case as the FTC, along with the Antitrust Division of the DOJ are two of my least favorite federal entities). I guess my "logical mind" rebels at the quirkiness of the Hatch-Waxman act that appears to shield this ploy from being considered a "horizontal conspiracy" amongst competitors. (I used to find the intersection between patent law and antitrust law disturbing as the antitrust law normally prevailed, including those awful 9 licensing "no-nos" articulated by the Antitrust Division).

I do have the 6th Cir. Cardizem case (the 6th is my local circuit) so I'm pretty sure I read it, although probably long ago. I'll be interested in your analysis of it which is apparently the only appellate court to nix this Hatch-Waxman ploy.

Dear EG:

I know there are lots of ways such agreements can have anticompetitive effects that overweigh the procompetitive effects, but the FTC takes a per se approach - a lot like the anti-gene patenting crowd. "It's just wrong" is rarely a coherent answer. I am doing these comparisons to tease out why the different Circuit Courts of Appeal (not just the CAFC) have assessed these individual agreements and come to the conclusion that they are not illegal.

The next post, on the Cardiozem case, is different, as the CAFC noted - different scope, different effects, etc. But that's the point - per se isn't an answer, it's a policy and a very blunt tool at that. Added to the deficiencies of the approach is the study we posted on a few months ago, that on the basis of economic efficiency the Hatch-Waxman provisions of Sec. 271(e)(2) are not as beneficial as advertised.

I don't blame the FTC - they are economists (a severe burden) and they are outcome-oriented. Bad combination, especially since they have not evinced an understanding (or desire to understand) patent law. If we ran the experiment without reverse payments, we would have a mixture of consequences - some branded pharma patents would be invalidated, some would not, some generics would come on the market faster, some would not. Whether this was a good or bad outcome would depend on the drugs that became generics and perhaps whether the decision maker used those drugs. But for the system as a whole, the question is resources - legal, investment, etc. Would there be more or less litigation? Would it drain more or less resources (both for branded and generic drugs) from other uses of capital? Would it inhibit investment because of increased risk? Economists can model this, but I'm not sure the FTC has - I think all their modeling has been on the back end, on the
"how much less will it cost consumers" end, looking only at the end of the telescope that relates to each reverse payment settlement. I am suggesting the bigger picture may give a different answer; remember, for all these agreements the generic entered the market earlier than it would have if the branded drugmaker won the ANDA lawsuit.

Finally, even Judge Posner thinks reverse payment agreements are not per se illegal. Who at the FTC has more credibility on the interface between economics and the law than Judge Posner?

Thanks for the comment


You're comment on the per se approach of the FTC is definitely on point. That's one of the great flaws of how the antitrust laws are applied-it's too hard to do the economics/math, so we need per se rules of illegality. In other words, you've convinced me that we need a "rule of reason" approach to these "reverse payment" situations under Hatch-Waxman (but I remain convinced that Hatch-Waxman is a mess).

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