A Real-World Analysis of Pharmaceutical Settlements: The Missing Dimension of Product Hopping

The pharmaceutical industry plays an important role in improving human health. But it also provides the setting for some of the most concerning issues in the patent-antitrust intersection today. Two activities are particularly worrisome. First, brand-name pharmaceutical firms and generic companies have settled patent litigation. As part of these agreements, brand firms have paid generic firms to drop their patent challenges and delay entering the market. Second, brand firms, frequently at the end of a patent term, have engaged in “product hopping,” often switching from one means of administering a drug (e.g., tablet) to another (e.g., capsule). In the past decade, courts and commentators have separately explored these activities. But no one has yet explored the intersection of these two forms of conduct. This Article tackles this project. In doing so, it uncovers a vital strategy that, until now, has fallen through the cracks of antitrust law. This Article will show that the combination of settlements and product hopping results in unrecognized, anticompetitive harm. Such a conclusion is particularly important given arguments offered by settling parties today, which on the surface appear reasonable. These parties have contended that settlements that allow entry before the end of the patent term are, by definition, procompetitive. After all, such entry would appear to introduce competition before patent expiration. This would seem to be a significant justification for the settlement. But the closer analysis presented here reveals anticompetitive effects arising from the combination of settlement and product hopping. For a settlement that prevents patent challenges for a period of time—even if less than the duration of the patent—gives the brand firm the space in which it can comfortably switch the market to the new product. So by the time, years later, when the generic enters, the market will have already been switched to the new product. The generic firm will no longer be able to take advantage of state drug product selection laws that allow pharmacists to automatically substitute generic drugs in place of brand-name drugs. In short, the lethal combination of the two activities erects a significant roadblock to pharmaceutical competition.