“Playing Both Sides?” Branded Sales, Generic Sales and Patent Policy
Panel
Panel 5: Patient Exhaustion and Competition
Moderator
Gary Pulsinelli, Associate Professor of Law, University of Tennessee Law
Description
In this article, we explore a phenomenon we call “playing both sides”: companies that participate in pharmaceutical markets as both brand owners and generics. We hypothesize that companies that earn a significant amount of their revenue from patented drugs may have less incentive to aggressively pursue a generic agenda, since patented drugs generate far more revenue for firms than generic drugs do.
To investigate this phenomenon, we built a comprehensive database of all major pharmaceutical companies, evaluating where their revenue comes from and how that relates to their behavior in court. We find that the phenomenon of playing both sides has been real and common, but is actually in decline in much of the industry. Large pharmaceutical companies are increasingly separating into one set that relies almost entirely on branded drugs, a second set that produces mostly generic drugs, and a smaller third set that relies on a more diversified “mixed” model.
We also find that the branded drug business is quite lucrative. Despite periodic claims that brand companies face a “patent cliff” and will soon lose revenue, we found that in the past two decades, brand revenues have risen enormously.
Our data show that when companies with significant generic sales do play both sides they behave differently than firms with a purer generic revenue stream. In particular, accounting for firm revenue, the pure generic firms in our study were consistently parties in more ANDA lawsuits over time as patent challengers than the mixed firms. Further, companies with growing brand sales (or share of their revenue from brand sales) are more likely to settle the patent challenges they bring; companies with growing generic share are less likely to settle and more likely to take those cases to judgment. And when they do go to judgment, patent challengers with a greater generic share are more likely to win those challenges while companies with higher brand sales are less likely to win.
In short, we find evidence to support the hypothesis that generic companies that make more of their sales from patented drugs are less likely to pursue challenges to judgment and less likely to win when they do. Playing both sides may reduce the incentive of generic challengers to fight as hard as possible to win the case before them. That may be especially true of the sorts of challenges that affect not just the patent in the instant case but might change legal doctrines that may ultimately hurt the generic challenger’s brand business.
Location
Pacific McGeorge School of Law, Lecture Hall, 3200 Fifth Ave., Sacramento, CA
“Playing Both Sides?” Branded Sales, Generic Sales and Patent Policy
Pacific McGeorge School of Law, Lecture Hall, 3200 Fifth Ave., Sacramento, CA
In this article, we explore a phenomenon we call “playing both sides”: companies that participate in pharmaceutical markets as both brand owners and generics. We hypothesize that companies that earn a significant amount of their revenue from patented drugs may have less incentive to aggressively pursue a generic agenda, since patented drugs generate far more revenue for firms than generic drugs do.
To investigate this phenomenon, we built a comprehensive database of all major pharmaceutical companies, evaluating where their revenue comes from and how that relates to their behavior in court. We find that the phenomenon of playing both sides has been real and common, but is actually in decline in much of the industry. Large pharmaceutical companies are increasingly separating into one set that relies almost entirely on branded drugs, a second set that produces mostly generic drugs, and a smaller third set that relies on a more diversified “mixed” model.
We also find that the branded drug business is quite lucrative. Despite periodic claims that brand companies face a “patent cliff” and will soon lose revenue, we found that in the past two decades, brand revenues have risen enormously.
Our data show that when companies with significant generic sales do play both sides they behave differently than firms with a purer generic revenue stream. In particular, accounting for firm revenue, the pure generic firms in our study were consistently parties in more ANDA lawsuits over time as patent challengers than the mixed firms. Further, companies with growing brand sales (or share of their revenue from brand sales) are more likely to settle the patent challenges they bring; companies with growing generic share are less likely to settle and more likely to take those cases to judgment. And when they do go to judgment, patent challengers with a greater generic share are more likely to win those challenges while companies with higher brand sales are less likely to win.
In short, we find evidence to support the hypothesis that generic companies that make more of their sales from patented drugs are less likely to pursue challenges to judgment and less likely to win when they do. Playing both sides may reduce the incentive of generic challengers to fight as hard as possible to win the case before them. That may be especially true of the sorts of challenges that affect not just the patent in the instant case but might change legal doctrines that may ultimately hurt the generic challenger’s brand business.
Speaker Bio
Mark Lemley is the William H. Neukom Professor of Law at Stanford Law School and the Director of the Stanford Program in Law, Science and Technology. He teaches intellectual property, computer and internet law, patent law, trademark law, antitrust, and remedies. He is the author of seven books (all in multiple editions) and 167 articles on these and related subjects, including the two-volume treatise IP and Antitrust. His works have been cited more than 260 times by courts, including 15 times by the United States Supreme Court, and more than 16,000 times in books and law review articles, making him the most-cited scholar in IP law, one of the four most cited legal scholars in any field in the last five law review articles of the last twenty years, more than any other scholar, and an empirical study named him the most relevant law professor in the country. His articles have appeared in 23 of the top 25 law reviews, in top economic journals such as the American Economic Review and the Review of Economics and Statistics, and in multiple peer-reviewed and specialty journals. They have been reprinted throughout the world, and translated into Chinese, Japanese, Korean, Spanish, Italian, and Danish. He has taught IP law to federal and state judges at numerous Federal Judicial Center and ABA programs, has testified seven times before Congress, and has filed more than 50 amicus briefs in the U.S. Supreme Court, the California Supreme Court, and the federal circuit courts.
Mark is a founding partner of Durie Tangri LLP. He litigates and counsels clients in all areas of intellectual property, antitrust, and internet law. He has argued 26 federal appellate cases and numerous district court cases as well as before the California Supreme Court. He has participated in more than three dozen cases in the United States Supreme Court as counsel or amici. His client base is diverse, including Genentech, Dykes on Bikes, artists, and nearly every significant Internet company.
Mark is a founder of Lex Machina, Inc., a startup company that provides litigation data and analytics to law firms, companies, courts, and policymakers. Lex Machina was acquired by Lexis in December 2015. Mark has been named California Lawyer's Attorney of the Year twice. He received the California State Bar’s inaugural IP Vanguard Award. In 2017 he received the P.J. Federico Award from the Patent and Trademark Office Society. He has been named a Young Global Leader by the Davos World Economic Forum and Berkeley Law School’s Young Alumnus of the Year (back when he was young). He has been recognized as one of the top 50 litigators in the country under 45 and one of the 25 most influential people in IP by American Lawyer, one of the 100 most influential lawyers in the nation by the National Law Journal, and one of the 10 most admired attorneys in IP by IP360. He is a member of the American Academy of Arts and Sciences, the American Law Institute and the IP Hall of Fame.
Mark clerked for Judge Dorothy Nelson on the United States Court of Appeals for the Ninth Circuit, and has practiced law in Silicon Valley with Brown & Bain and with Fish & Richardson and in San Francisco with Keker & Van Nest. Until January 2000, he was the Marrs McLean Professor of Law at the University of Texas School of Law, and until June 2004 he was the Elizabeth Josselyn Boalt Professor of Law at the Boalt Hall School of Law, University of California at Berkeley. In his spare time, Mark enjoys cooking, travel, yoga, and feeding his addiction to video games (at this writing, Shadow of the Tomb Raider).