The effect of non-market experience: Evidence from patent challenges in the pharmaceutical industry

This dissertation analyzes the non-market strategies of generic and branded pharmaceutical firms in the context of patent challenges. I utilize a regulatory mechanism that allows generic firms to attempt to enter the market prior to patent expiration by challenging existing patents. Chapter 2 presents two case studies that illustrate the complexity of this strategy, thus highlighting the importance of context-specific knowledge. The rest of the dissertation focuses on the relevance of context-specific experience to firm-level decisions and outcomes. In doing this, I extend the strategy literature on the importance of firm experience into the non-market realm.;The empirical analyses use a unique dataset compiled from public and proprietary data sources on patent challenges in the U.S. pharmaceutical industry between 1984 and 2006. In Chapter 3, I find that the entrant’s non-market experience (measured by its prior number of patent challenges) has a small but positive effect on its entry decision via a similar patent challenge. The entrant’s market experience and the size of the market appear more relevant to the entry decision, thus shedding light on the relative importance of market and non-market experience.;In Chapter 4, I find that the incumbent’s patent litigation experience is positively correlated with its subsequent use of litigation to defend its patents, suggesting that there may be learning effects within this specific type of litigation. As expected, the use of litigation is also higher for more valuable markets and patents. Unlike previous literature that has focused on patent-level characteristics, the analysis introduces a firm-level measure in the study of patent litigation.;Finally, in Chapter 5, I find that the completed litigation history and the settlement history of the branded firm are negatively and positively correlated with the use of settlement, respectively. I suggest that these results may be correlated with learning effects that branded and/or generic firms experience during prior patent litigation, but I note that the results may also reflect the behavior of firms in sorting as settlers. Interestingly, the prior lawsuit outcomes of generic firms are not correlated with the use of settlement in a current patent lawsuit.