Generics manufacturers begin getting ready to supply the generic product prior to the expiry of the product. They begin marketing the product, although they cannot yet supply the physical product. The patentee regards this as an infringement of its patent and sues for patent violation. However, prior to the court case, it settles on the following terms:
- it will pay the generics manufacturers an amount in excess of what they could have earned by producing the product over the next 3 years;
- the generics manufacturers agree to remain out of the market for 2 years after the patent expires.
a. Why might firms enter into such arrangements, known as ‘reverse payments’ or’ pay for delay’ agreements?
b. Do you consider such arrangements would be likely to substantially lessen competition? Carefully explain your answers.