Hatch-Waxman’s increased protection discourages innovation and incentivizes suits.

WE AGREE WITH MANOCARAN THAT “CORRElation is not causation” and say as much in our Policy Forum’s first paragraph. But Manocaran’s suggestion that the pharmaceutical industry may not be facing an innovation crisis is not supported by the weight of evidence (1–3).

Companies rely critically on patents to recoup their R&D expenditures, and patent rights are only as good as the human agents (such as judges and juries) who review them. This fact increases uncertainty for innovators, and the U.S. federal courts’weakening of patent rights over the past several years has made eventual payoffs from innovation even less likely. Added incentives offered to generic entrants in the Hatch-Waxman Act to launch Paragraph IV patent challenges, and the strategic use of this regime by generic firms, are exacerbating this problem by further undermining the market incentives to do pharmaceutical research. We are unconvinced by Manocaran’s assertion that the use of authorized generics will dampen incentives to engage in Paragraph IV challenges; preliminary evidence actually suggests otherwise (4, 5).

Regarding the outcomes of Paragraph IV patent suits, the most credible evidence to our knowledge comes from a 2002 Federal Trade Commission (FTC) report cited in our article (6). Although we cannot definitively refute Manocaran’s claim that 73% of a sample of cases she studied ended in settlement, we note that another researcher, using a larger sample that includes more recent cases, finds settlement rates at trial were as low as 20% and no higher than 39% during the 2006–2009 period (7). This same research shows that generics won 25% of all cases at trial (and 41% of those that did not settle), a share substantially different than the 11% that Manocaran reports (7). Moreover, we note that the 41% figure is virtually identical to the 42% generic win rate reported by the Federal Trade Commission for earlier years (6)

These inconsistencies notwithstanding, Manocaran correctly raises the issue of collusive settlements, an issue with which the competition authorities are rightfully dealing (8). However, her general observations about settlement do not affect our main thesis: The Hatch-Waxman Act is creating incentives to challenge patents and, with shifting treatments of patent law by the courts, industry revenues are increasingly threatened. In a market system, the predictable outcome without intervention will be less innovation, to the detriment of public health in the long run.