Much attention in the antitrust world has been focused on efforts by brand drug manufacturers to delay or deter generic entry into the pharmaceutical markets following these brand drugs’ loss of patent exclusivity. Scholars have recounted and criticized recent exclusionary techniques by brand drug manufacturers, including pay-for-delay (or reverse-payment settlement) agreements, noncash pay-for-delay agreements, and product hopping. These efforts, while successful in stymieing generic entry into the prescription drug market, have largely been struck down by courts as anticompetitive in a series of recent decisions. In light of these decisions, a key, but underanalyzed, concern now is that in order to keep generics out of the market, or at least delay their entry, brand manufacturers will turn to a new tactic: predatory pricing using authorized generics. While some scholarly attention was paid to authorized generics in the early 2000s, almost none has been given since the Supreme Court held unlawful brand drug manufacturers’ other main exclusionary tactics, despite the fact that the time is now ripe for the launch of authorized generics. Given that courts have already permitted a brand manufacturer’s launch of an authorized generic during a first-filer generic’s exclusivity period, brand manufacturers could deter generic entry by launching an authorized generic upon the start of the first filer’s exclusivity period but pricing the authorized generic below the generic’s costs, thereby preventing the generic from recouping its substantial entry costs. Eventually, if generics see a pattern of brands launching authorized generics during the first filer’s period of exclusivity, generics may be deterred from entering the market at all before patent expiration, thereby depriving consumers of price competition in the pharmaceutical market, resulting in higher drug prices overall.
The problem, however, is that if brand manufacturers are in fact pricing their authorized generics below the generic manufacturers’ costs in order to deter generic entry, it is unduly difficult to hold the brand manufacturers accountable under the Supreme Court’s current predatory pricing doctrine. Its test, as enunciated in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., only imposes liability if a predator prices below some measure of its own costs and if there is a reasonable probability that the predator will recoup its initial investment in low prices. This Note provides a new analysis that better accounts for the unique regulatory structure and patent protection of the prescription drug market. It argues that a test based on limit pricing, or pricing below the entrant’s costs, would more effectively address this exclusionary conduct that harms consumers.
* Law Clerk to the Honorable Thomas Ambro, U.S. Court of Appeals for the Third Circuit; J.D., Stanford Law School, 2019. Many thanks to Mark Lemley for his support and guidance in developing this piece. Thank you also to Barbara Fried and Bernie Meyler, as well as the students in the Stanford Legal Studies Workshop, for their astute feedback. A special thank you to the editors of the Stanford Law Review for their many hours spent improving the quality of this Note, especially Nathan Lange, Thomas Schubert, Lori Ding, Ethan Amaker, Nicole Collins, and my editing team—Will Spelder, Nitisha Baronia, Sam Gorsche, Heather Hedges, and Rob Meyer. This Note reflects only my personal views and not the views of the U.S. Court of Appeals for the Third Circuit or any member thereof.