The Antitrust Application Of Reverse Payment Agreements In Pharmaceutical Industry

Reverse payments agreements involve the interests balance between the protection of private right of intellectual property right and the public right of antitrust. On one hand, the execution of reverse payment agreement is good for the protection of patent right and technique innovation, and falls in within the spectrum of the patent dispute settlement, which is encouraged and advocated by public policy. On the other hand, the conclusion of reverse payment agreement is detrimental to early entry of generic drugs, which results in the increase of public costs for drugs, harms the public health on the whole and maintains a great deal of weak patents.In China, millions of people rely on the production and utilization of generic drugs. As a populous developing country, to maintain the orderly competition between patent drugs and generic drugs plays a significant role in the sound development of Chinese pharmaceutical industry and the maintenance of a proper public health system. As China has already witnessed the phenomenon of reverse payment agreements in recent years, accompanied with the fact that hundreds of patent drugs are confronted with patent expiration and the trend of drug independent pricing reform, it is urgent for China to regulate the conclusion of reverse payment agreement. However, due to the absence and ambiguity of Chinese legislation regarding reverse payment agreement, the regulation of reverse payment agreement under current antitrust legislation system will give rise to many problems. To better regulate the reverse payment agreement, it is necessary to draw on the experience of EU and the U.S., especially the judicial and administrative experience.This thesis starts from the introduction of reverse payment agreement by introducing US Actavis Case and the EU Lundbeck Case. The first part introduces the historical background of the occurrence of reverse payment agreement and the conflicts between patent drugs and generic drugs. The key point is the analysis of the provisions, impacts of “Hatch-Waxman Act” and the pros and cons of reverse payment agreements. In light of patent law, reverse payment agreement is of great importance in patent protection and resolution of patent disputes. However, in light of public welfare, reverse payment agreements may give birth to a series of issues, including without limitation, increase in public costs of drugs, restraints in competition, endangerment to public health and the maintenance of weak patents.The second part is about Chinese legislation towards reverse payment agreement and the reasons why China should regulate reverse payment agreements. As there are no particular laws or regulations concerning reverse payment agreement in China, the judicial body may come across lots of difficulties in application of current antitrust law, in particular the standards in determination of the legality of the reverse payment agreement. Therefore, China should draw on foreign experiences in regulating reverse payment agreements.The third part is about the mainstream theories of reverse payment agreements in USA and their respective merits and demerits, including per se illegal principle, patent scope principle and rule of reason principle. Besides, this part also involves the latest US judicial development-Actavis Case and its comments. The per se illegal rule is too harsh, which fails to take the justification factors into consideration. The patent scope principle, on the contrary, is based on the assumption that all of the involved patents are valid, which holds all the reverse payment agreement free from any antitrust scrutiny. While the rule of reason principle taking all the factors into consideration, is more flexible and is preferable in terms of substantive justice. Therefore, China should employ the rule of reason principle. However, in application of rule of reason principle, China should establish the main elements of rule of reasons in order to narrow the discretional power of the court and make the judicial practice more stable.The fourth part turns to the industrial investigation conducted by European Commission and focus on the development of Lundbeck Case and its disputes. Similar to China, EU has no particular legislation towards reverse payment agreement. But the industrial investigation largely cuts down the ratio of reverse payment agreements. By means of industrial investigation, the patent drug company and general drug company may gain consciousness of the illegality of reverse payment agreements and try to avoid such agreements.On conclusion, due to the inherent hazardous nature of reverse payment agreements, such agreements shall be subject to antitrust review. China shall take lessons from EU and the U.S.A and strengthen the investigation into reverse payment agreements and accelerate the legislation of reverse payment agreements by employing the rule of reason standard. In respect to patent drug company and generic drug company, they shall avoid the execution of reverse payment agreements. The patent drug company may conduct other manners to protect its patent and the generic drug company may reinforce its skills and techniques in production.