A brand-name pharmaceutical company engaged in patent litigation with a generic competitor settles the dispute by paying the generic competitor a significant sum of money to drop the litigation and stay out of the market until sometime before the brand-name’s patents expire. Because the patent holder is the party paying, rather than the other way around, this type of agreement is called a “reverse-payment.” It’s an intellectual property strategy we’re seeing more and more often within the pharmaceutical industry — at least, we were, until a recent Supreme Court decision.
Brand-name pharmaceutical companies realized that rather than risk having their patents found invalid or not infringed, settling with the generic competitors would be a win-win for both parties. That is, brand-names could continue profiting from their drug sales while generic competitors could receive a settlement payment in lieu of their own sales. Nice and easy. The problem, however, is that generic options tend to reduce drug prices, which means that these “reverse-payment” agreements tend to discourage competition and increase overall drug costs.