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Abstract

The pharmaceutical industry is a large and important part of the overall health care system in the United States. Drug innovation and improvement lead to safer and more effective pharmaceuticals able to treat a variety of diseases and ailments. But the quest by pharmaceutical companies to develop the next successful drug is an expensive venture: pharmaceutical companies spend more on research and development, relative to sales revenue, than almost any other industry in the United States. However, this innovation and investment is rewarded when the drug is granted a patent by the United States government, giving the developing company a legal monopoly over the production—and profit—of that drug. Yet these patents held by brand-name pharmaceutical companies are not impervious to challenge. Often generic drug manufacturers do challenge patents held by brand-name companies, hoping to be let in on the market of a profitable new pharmaceutical. One strategy brand pharmaceutical companies have traditionally employed to deal with a drug patent challenge is to settle this threatened patent litigation by paying generic manufacturers large sums of money to drop patent lawsuits with the effect of delaying the generic drugs from entering the market. These arrangements between the brand and generic pharmaceutical companies are known as “pay-for-delay settlements” or “reverse payments” and have been largely successful in delaying the entry of the lower-priced generic products to the market.

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