Assignment: Drug Companies and Patents: The Games they Play

In Chapter 13, Krugman and Wells, discuss patents and how they create a barrier to entry (see pp. 379-380). Also in Chapter 12, Krugman and Wells discuss generic pharmaceuticals and a recent US Supreme Court case brought by the US Federal Trade Commission to halt the "pay-for-delay" tactics sometimes used by pharmaceutical companies to contractually extend the effective patent period of pharmaceutical drugs (see pp. 348-349).

The pay-for-delay tactics are more fully described in Federal Trade Commission, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions. Staff Study, January 2010. (http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf )

A recent Supreme Court outcome is discussed in Edward Wyatt, Supreme Court Lets Regulators Sue Over Generic Drug Deals, New York Times, June 17, 2013. (http://www.nytimes.com/2013/06/18/business/supreme-court-says-drug-makers-can-be-sued-over-pay-for-delay-deals.html?_r=0)

After reading these articles:

1. Explain how a patent creates a kind of monopoly and what benefits a patent conveys to the owner.
2. Explain what happens in a market when patent protection for a technology runs out.
3. Explain the effects of pay-for-delay actions on producers and consumers.
4. Discuss whether pay-for-delay tactics should no longer be allowed, or should continue. Be sure to support your conclusion using economic arguments.