Patent Settlement Agreements in the Pharmaceutical. Sector Reverse payments, or “pay-for-delay” agreements, represent an extrajudicial solution to disputes concerning the validity and/or scope of a patent. In the pharmaceutical sector, the parties to these agreements are a manufacturer which produces a branded drug and one or more generic companies seeking to produce a generic equivalent of the brand-name drug. The payment is “reverse” because it flows from the claimant (the patentee) to the defendant (the generic), whilst settlements usually imply a payment from the defendant to the claimant. They are also named “pay-for-delay”13 as the patentee, through the payment, can keep the potential competitor out of the market for a period of time agreed upon by the parties. Parties may design those agreements in a variety of ways. Generally, the generic commits: (i) to not challenge the validity of the patent (“non-challenge” clauses); (ii) to discontinue the litigation; and (iii) to refrain from infringing or threatening to infringe the patent.14 The patentee agrees to make a payment to the generic. Reverse payments, similarly to patents, conceal a fundamen- tal tension between dynamic and static efficiency. Patents and “pay-for-delay” agreements lie at the intersection of these two different conceptions of efficiency. The patentee has strong economic incentives to conclude such agreements.15 Through a “pay-for-delay” agreement, the patentee circumvents judicial scrutiny, thereby perpetuating its monopoly. Interestingly enough, the generic would also be better off by entering into these agreements rather litigating. In fact, an annulment or a favourable outcome of the patent litigation more generally would let all of the generic’s competitors enter into the market, whereas the generic would obtain a share of the patentee’s monopoly profits by concluding such an agreement.16 At this juncture, two questions arise: does such an agreement genuinely favour dynamic efficiency? Is it a legitimate interim exception to competition law? The answer to these questions depends on the validity and scope of the patent. Put differently, “pay-for-delay” agreements are not problematic from a competition law viewpoint insofar as they concern a patent that is valid and in force which covers the products marketed by the patentee.17 In such circumstances, a PSA would allow the patentee to enjoy his patent rights without going through a costly litigation, and would also alleviate 13 In this article, we use the terms “pay-for-delay” and...
