Solving the Product-Hopping Conundrum through Safe Harbors and a No-Economic-Sense Test

Abstract

Abstract Brand-name pharmaceutical companies have engaged in a variety of business conduct that has increased price. One of these activities involves “product hopping,” or brand switches from one version of a drug to another. The antitrust analysis of product hopping implicates antitrust law, patent law, the Hatch–Waxman Act, and state drug product selection laws, as well as uniquely complicated markets characterized by buyers different from decision makers. As a result, courts have offered inconsistent approaches to product hopping. In this chapter, we offer a framework that courts and government enforcers can employ to analyze product hopping. The framework is the first to incorporate the characteristics of the pharmaceutical industry. It defines a “product hop” to include instances in which the manufacturer (1) reformulates the product to make the generic nonsubstitutable and (2) encourages doctors to write prescriptions for the reformulated rather than the original product. When the conduct meets both requirements, our framework offers two stages of analysis. First, we propose two safe harbors to ensure that the vast majority of reformulations will not face antitrust review. Second, the framework examines whether the hop passes the “no-economic-sense” test, determining if the behavior would make economic sense if the hop did not have the effect of impairing generic competition. Showing just how far the courts have veered from justified economic analysis, the test would recommend a different analysis than that used in each of the five product-hopping cases that have been litigated to date, and a different outcome in two of them.