We study pay-for-delay settlements between a patent-holder and a challenger when the patent-holder can introduce follow-on products. We show that ignoring follow-on products biases the inferred competitive harm of pay-for-delay settlements (the “Actavis inference”).The reason is that patent invalidation triggers an earlier introduction of follow-on products, which changes pay-for-delay negotiation payoffs. When follow-on products are ignored, we show that an inference based on a reverse payment over-estimates patent strength. If parties cannot use payments (as in pure-delay settlements), follow-on products may push the parties to settle on an earlier entry date, and litigation may arise in equilibrium.
- Product hopping
ASJC Scopus subject areas
- Economics and Econometrics
- Strategy and Management
- Organizational Behavior and Human Resource Management
- Management of Technology and Innovation