A patent may be defined as an exclusive right granted for a novel invention or a product that provides an entirely new way of doing things. This kind of arrangement creates a monopoly in the sense that when an inventor holds a patent, every other person is excluded from selling, using, making, offering for sale or otherwise benefitting from the invention during the term of the patent. To mitigate the impact of such monopoly, rival pharmaceutical companies make generic versions of drugs, which obviously come at a more affordable price. This is illegal in most countries, but prevails in nations like India which opted not to join the international bodies dealing with patenting. In this case, such nations can develop the products for their use, but under supervision which can include not exporting. When these patents expire, consumers are exposed to cheaper products being that everyone is brought down to a competitive level. Producers will be compelled to strategize to ensure that they stay relevant in the market. One of the main tactics includes price reduction.
This is where the concept of delay-for pay tactics comes in. Delay-For-Pay ensures that the competing product is held off the market for a certain period by paying off the competitor. In my opinion, this arrangement is not beneficial to any party in the arrangement other than the inventor company. The companies licensed to make generics suffer being that they are shielded from competing competitively, of which would even see them increase their profit margins. It actually hurts the consumer so much since they have less variety to choose from and of course higher prices. This is because generic versions usually cost much less than the branded product. This translates to higher profits for the original companies and less competition.
Pay for delay tactics have been allowed by the courts since 2004, but a recent ruling by the court set to throw out previous rulings that made such agreements possible. In the case, Federal State Commission v Actavis, it was held that the payment to Actavis by Solvay Pharmaceuticals, the owner of the patent, was unlawful since it represented an unlawful restraint to trade.
This move was commendable since pay for delay arrangements don’t consider the poor. It should, therefore, be eliminated completely. As part of health care reform, this arrangement should end as a way of controlling costs in terms of insurance. Lastly, we need to ask ourselves whether it is justified for a company to make money by NOT selling its product.
Paul Krugman, Robin Wells. Microeconomics. La Jolla: Granite Hill Publishers, 2004. Print.
Paul Krugman, Robin Wells, Kathryn Graddy. Essentials of Economics. New York: Worth Publishers, 2010. Print.