Finance 103

Fall 2013 Micro Paper

Nidhi Nair

What is the purpose of antitrust law? Antitrust law is used to protect consumers by preventing monopolies from controlling the market. When one large business or a group of business get together they have to potential to engage in price fixing and other unethical activities. This is disadvantageous to the general public because it actively seeks to prevent the natural lowering of prices through competition. The main purpose of antitrust laws is to encourage robust competition in every market. The logic of antitrust laws follow is that, when there are many sellers competing to sell a particular type of product to the consumer it creates an environment of efficiency. Each seller will have to offer its goods or services at the lowest possible price, with the most efficient service, or risk their customers switching to a better seller. Another advantage of antitrust laws is that it encourages constant innovation. Each seller will try to improve their goods and services in an attempt to entice sellers away from their competition and increase their market share. What is the purpose for patent law? The definition of patent law as stated in the Constitution is: The Congress shall have power ... To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. To summarise Patent law is designed to encourage innovation by giving inventors a right to exclude others from the patented product. How this works is by allowing the inventor 20 years after the date of application to utilise make use of the product as they wish before others are allowed to copy the product. Without the patent law many

Finance 103

Fall 2013

Nidhi Nair

inventors would be reluctant to share their product. After it is available to the public, anyone will have the ability to reverse the process and recreate the product. What is the purpose of the Hatch-Waxman Act? The Hatch-Waxman Act is an attempt to combine patent and antitrust laws in the pharmaceutical industry. The government feared the patentees ability to control the market on the drug they produced even after the patent on it had expired. In a attempt to fight the patenteess monopoly position the government tried to make it eaiser for generic firms to enter the market. They did this by: 1. Allowing the generic firms to use the safety of the original drug to avoid the new drug testing process. 2. Allowing the first generic firm who could prove that the patent on the drug they were attempting was either invalid or infringed, to enter the market 180 days before it expired. They also tried to increase innovation within in the brad firm by: 1. Increasing the lifespan of the patent to a time proportional to that which it took to get the drug into the market. 2. Provided a time for the brand firm to have market exclusivity, out side of the patent, if the drug they were producing e.g. had a new active ingredient. What is a reverse-payment settlement? Why does it possess its name? A reverse-payment settlement is when the brand firm pays the generic firm to either cease or delay its attempts to enter the market. This can be considered anticompetitive as it allows the brand firm retain control of the market for a longer period than normal. Typically, after the patent on a drug has expired we would expect generic firms to start producing it and undercut the price of the brand firm. This would allow more consumers to access the drug due to its competitive pricing. With reverse-payment

Finance 103

Fall 2013

Nidhi Nair

settlements the brand firm usually pays the generic firm more money than they would have made had they entered the market. This is enticing to both parties because they are both increasing their profit. This act is called reverse-payment settlement because the payment moves in the opposite direction compared to what would ordinarily be expected in patent law. What usually occurs is, the patentee charges the generic frim to enter the market and use their drug. What are the bases of the challenges brought by the Federal Trade Commission and the American Antitrust Institute in FTC v. Actavis and what do they propose as a matter of law? The FTC proposed that reverse-payment settlements should be considered unlawful because they are nearly always made with anticompetitive intentions. They claimed that exclusion payments had the effect of raising prices, reducing output and dividing
markets. They based their views on the fact that the profits that the patentee can make without a generic competitor, exceeds those to be made had they both been competing for the sales of the same drug. The FTC also claimed that the profit made by the brand firm after paying off the generic firm would still be greater than what they would have made with competition. Also, the payment made to the generic firm to not enter the market would be more than they would have if they had chosen to enter the market.

As a matter of law the FTC proposed that reverse-payment settlements always be considered anticompetitive and the defendant be given the responsibility to prove otherwise. The FTC proposed a quick look test because it would be less costly than having a patent trial within an antitrust trial.

Finance 103

Fall 2013

Nidhi Nair

Did the recent decision in Actavis accord with the wishes of the FTC and the AAI? The decision made by the court did not accord with the wishes of the FTC and AAI. The court decided that rule of reason should be applied to each case in an effort to make the correct decision. The court did not support the FTCs proposal because reversepayment settlements have the ability to be competitive and benefit the consumers. What are the implications of the Actavis decision with respect to the nature of the analyses by the opposing parties? The method proposed by the court was not congruent with the wishes of either party. When looking for firms that are violating the antitrust laws the FTC will be focusing on those that are offering an An unexplained large reverse payment itself. This will be measured by the

"United States Patent Law." Wikipedia. Wikimedia Foundation, 17 Nov. 2013. Web. 26 Nov. 2013. http://en.wikipedia.org/wiki/United_States_patent_law "Why Antitrust Laws Matter?" Markham Law Firm RSS. N.p., n.d. Web. 26 Nov. 2013. http://www.markhamlawfirm.com/law-articles/why-antitrust-laws-matter/ "What Is the Purpose of Intellectual Property Law?" Purpose of Intellectual Property Law. N.p., n.d. Web. 26 Nov. 2013. http://www.slwip.com/services/faqs/purpose_of_ip_law.html

Finance 103

Fall 2013

Nidhi Nair

"Reverse Payment Patent Settlement." Wikipedia. Wikimedia Foundation, 10 May 2013. Web. 26 Nov. 2013. http://en.wikipedia.org/wiki/Reverse_payment_patent_settlement