Anti-Monopoly Regulation and Improvement of Reverse Payment

Agreements in Drug Patent Rights

Yutong Xie

College of Humanities, Beijing University of Chinese Medicine, Beijing, 102446, China

Keywords: Drug Patent Rights, Antitrust, Patent Information Registration, Reverse Payment Agreements, Market

Dominance.

Abstract: Following the implementation of China’s drug patent linkage system, reverse payment agreements have

proliferated in the pharmaceutical sector. While streamlining patent dispute resolutions, these agreements risk

suppressing market competition and undermining public health. Analysis identifies structural deficiencies in

China’s legal framework, including ambiguous re-view criteria, fragmented regulatory systems. The system

fails to reconcile patent protection with antitrust objectives, as evidenced by the 2021 landmark case revealing

imbalances in bur-den of proof and legal interpretation. To address these challenges, three reforms are

proposed: a tiered review framework to categorize agreements based on risk, mandatory patent registration

coupled with dynamic quantitative evaluation mechanisms, and enhanced scrutiny of non-monetary

compensation and robust public interest litigation. The study emphasizes dismantling the “zero-sum game”

between patent monopolies and public health through adaptive legislation, risk early-warning systems, and

multi-stakeholder governance. These measures aim to incentivize pharmaceutical innovation while

safeguarding public welfare, ensuring sustainable industry development.

1 INTRODUCTION

In the process of vigorous development of the

pharmaceutical industry, the reverse payment

agreement in drug patent rights has gradually become

a focus of attention inside and outside the industry.

With the implementation of the drug patent linkage

system in China, the frequency of this special

agreement in China has increased significantly. The

so-called reverse payment agreement refers to a

special settlement agreement reached between the

original drug company and the generic drug company

in the course of a patent dispute. In the agreement, the

original drug company will pay a certain benefit to

the generic drug company in exchange for the generic

drug company delaying its entry into the market or

giving up the promise to challenge the patent.

From a market competition perspective, the

impact of reverse payment protocols is complex. On

the one hand, the original pharmaceutical companies

have maintained their monopoly position in the drug

market in the short term by delaying the entry of

generic drugs into the market by paying benefits, but

it may also inhibit the competitive vitality of the

market and reduce the choice space of consumers. On

the other hand, such an agreement may also provide

certain financial support for the original

pharmaceutical company, so that it can have more

resources to invest in the research and development

of new drugs, which may promote the innovation and

development of the pharmaceutical industry in the

long run. From the perspective of public health, the

price of original drugs is often high, and the timely

listing of generic drugs can increase market supply,

reduce drug prices, improve the accessibility of drugs,

and benefit more patients. However, if a reverse

payment agreement delays the entry of generic drugs

into the market, patients may have to bear high drug

prices for a period of time, which will undoubtedly

hurt public health interests.

From this point of view, it is of great practical

significance to study the anti-monopoly regulation of

reverse payment agreements in drug patent rights,

which is not only related to the maintenance of market

competition order in the pharmaceutical industry, but

also directly affects the health rights and interests of

the public and the sustainable development of the

entire pharmaceutical industry. Through reasonable

anti-monopoly regulations, we can ensure the fairness

and effectiveness of market competition while

358

Xie, Y.

Anti-Monopoly Regulation and Improvement of Reverse Payment Agreements in Drug Patent Rights.

DOI: 10.5220/0014380800004859

Paper published under CC license (CC BY-NC-ND 4.0)

In Proceedings of the 1st International Conference on Politics, Law, and Social Science (ICPLSS 2025), pages 358-363

ISBN: 978-989-758-785-6

protecting patent rights, and then promote the

development of the pharmaceutical industry in the

direction of innovation and health.

Based on the Chinese context, this paper takes the

first reverse payment agreement case as the starting

point, constructs a "stepped examination framework"

and a dynamic quantitative evaluation model,

innovatively introduces the game theory of

"separation equilibrium" to identify weak patent

signals, proposes a linkage mechanism between

public interest litigation and risk early warning,

solves the problem of regulatory failure, balances

patent protection and public health, and provides

Chinese solutions for global pharmaceutical anti-

monopoly.

2 ANTI-MONOPOLY

REGULATION OF REVERSE

PAYMENT AGREEMENTS

2.1 The Inherent Contradictions of the

Review Rules and the

Extraterritorial Experience

The United States has carried out a series of

explorations and practices in the review rules of

reverse payment protocols, and has tried a variety of

rules, but there are different degrees of defects in

them. The advantage of this type of rule is that it is

efficient and clear, and can quickly and effectively

regulate some agreements that obviously restrict

competition, but its disadvantages are also obvious,

and it may ignore the pro-competition effect of some

agreements in general. In practice, the validity of a

patent is not absolute, and there may be disputes and

uncertainties, and the definition of patent scope is

often vague, and there are differences between

different subjects, which makes it difficult to predict

the results of the examination according to the rules,

making it impossible for enterprises to accurately

judge the legality of their own actions when signing

an agreement. The purpose of the expedited review

rule is to improve the efficiency of the review, but the

frequency of application in practice is low, mainly

because of its predictability and compatibility, and it

is difficult for enterprises to grasp the specific

application standards of the rule in practice, resulting

in their inability to effectively prepare relevant

materials and make reasonable defenses in the face of

agreement review, and at the same time, the rule is

prone to rule conflicts in the actual operation process,

and the compatibility with other laws and regulations

needs to be improved. Reasonable rules

comprehensively consider a variety of factors,

including the impact of the agreement on market

competition, the market position of the enterprise, the

purpose and effect of the agreement, etc., this kind of

rule is a bit to be able to evaluate the legitimacy of the

agreement more comprehensively and objectively,

but its disadvantage is that it is flexible, the standards

are different, and the judge's weight judgment of

various factors may be different in different cases,

which leads to the uncertainty of the review result,

and because of the comprehensive consideration of

many factors, the litigation process is often delayed.

As a result, the litigation cost and time cost of

enterprises have greatly increased (Xiao, 2023).

At present, China has not formed a clear and

unified standard for the review rules of reverse

payment agreements, and there is a conflict between

legislation and justice. From a legislative perspective,

Article 12 of the Measures for the Implementation of

the Early Resolution Mechanism for Drug Patent

Disputes (hereinafter referred to as the "Drug

Measures") stipulates that "the parties shall not

exclude or restrict the marketing of generic drugs

through agreements", reflecting the strict stance of

adopting "inherently illegal rules" for reverse

payment agreements (Ge and Wang, 2023). However,

in judicial practice, in the first reverse payment

agreement case (2021) Zui Gao Fa Zhi Min Zhong

No. 388, "reasonable rules" were adopted for review,

resulting in a contradictory situation of "strict

legislation and lax justice".

In this case, the Supreme People's Court found

that the Settlement Agreement in question met the

appearance characteristics of a "reverse payment

agreement for a drug patent", and pointed out that

"such an agreement may constitute a monopolistic

act, and its impact on market competition needs to be

analyzed in light of the specific circumstances".

However, the court ultimately allowed AstraZeneca

to withdraw its appeal on the grounds that "the patent

in question has expired" and "there is no direct

evidence to prove monopoly damage". This judgment

also exposed multiple problems: (1) the ambiguity of

the review criteria: although the court recognized the

potential illegality of the reverse payment agreement,

it did not clearly define the criteria for determining

"monopoly damage", and only avoided substantive

examination on the grounds that the patent expired;

(2) Imbalance in the burden of proof: According to

Article 8 of the Interpretation of the Supreme People's

Court on Several Issues Concerning the Application

of Law in the Trial of Civil Monopoly Dispute Cases,

the plaintiff needs to prove that the defendant has a

Anti-Monopoly Regulation and Improvement of Reverse Payment Agreements in Drug Patent Rights

359

dominant market position and abuse, but in this case,

the generic drug company does not need to prove the

legitimacy of the agreement, resulting in a virtual

burden of proof system; (3) Contradictions in the

application of law: There is a tension between the "per

se illegality" tendency of the Drug Measures and the

"exemption clause" in Article 15 of the AML, and the

judicial authorities tend to choose reasonable rules

that are more lenient towards pharmaceutical

companies in individual cases (Supreme People’s

Court of China, 2021; Ouyang, 2023).

2.2 The Fragmentation of Legal

Regulation and the Need for

Institutional Reconstruction

Although China's patent linkage system has been

initially established, there are still many areas that

need to be improved. For example, in the case of

patent registration, a series of problems may arise in

the process of changing from self-registration to

compulsory registration. On the one hand, mandatory

registration may increase the burden on enterprises,

leading some enterprises to take some improper

actions in order to avoid registration. On the other

hand, if there is no effective supervision of the

registration process, improper registration may also

occur, which may lead to the formation of illegal

patent monopolies and the creation of more reverse

payment agreements. The provisions on joint patent

challenges in China are also not clear enough, and the

scope of challengers has not been clearly defined,

which makes it difficult for generic drug companies

to face many uncertainties when challenging patents,

making it difficult to effectively play the deterrent

effect of joint patent challenges on original

pharmaceutical companies, and to achieve the

expected effect of reducing the occurrence of reverse

payment agreements (Xiao, 2023).

In addition, in China's current legal system, there

are overlaps and gaps in the regulation of reverse

payment agreements in the Anti-Monopoly Law, the

Patent Law and the Drug Administration Law. Article

17 of the Anti-Monopoly Law prohibits abuse of a

dominant market position, but it is not clear whether

reverse payment constitutes "abuse"; However,

Article 10 of the Implementation Measures for the

Early Settlement Mechanism of Drug Patent Disputes

requires generic drug companies to submit a

declaration of non-infringement, but does not

stipulate penalties for false declarations, resulting in

the original drug company inducing generic drug

companies to withdraw their legal challenges through

reverse payment.

For example, in the (2021) Supreme Court Zhi

Min Zhong No. 388 case, the settlement agreement

signed by AstraZeneca and Vcare was not found to be

illegal due to the expiration of the patent, but the case

exposed the passivity of judicial review - the court

avoided substantive review of the agreement on the

grounds of "lack of evidence", which is in stark

contrast to the "In re Lipitor" case in the United

States, which required the original pharmaceutical

company to prove that the payment amount was

reasonably related to the litigation costs, otherwise it

would be directly presumed to be illegal.

2.3 Regulatory Failures Caused by the

Concealment of the Agreement

The concealment of reverse payment agreements

poses a serious challenge to their antitrust review, and

these agreements often adopt complex transaction

structures and diversified payment forms to conceal

their anti-competitive nature. For example, under the

guise of technology cross-licensing, the original drug

company and the generic drug company ostensibly

grant each other the right to use the technology, but

in fact, the original drug company may pay high

profits to the generic drug company in disguised form

through the hidden terms in the technology license, in

exchange for the delay in the generic drug company's

entry into the market. In such cases, it would be

difficult for the review body to discern the essence of

the reverse payment from what appears to be a normal

technical cooperation agreement.

In addition, some enterprises use the OEM

business to implement reverse payment, and the

original pharmaceutical company entrusts the

production task of some drugs to the generic drug

company, sets unreasonably high processing fees in

the OEM contract, or gives the generic drug company

"quality rewards" far beyond the normal level of the

market, etc., these additional costs are actually a form

of reverse payment. As the co-packing business is a

common business model in the pharmaceutical

industry, it is difficult to distinguish whether these

fees are normal commercial transaction prices or

reverse payment means.

Reverse payments through investment are also

increasing, and the original drug company invests in

generic drug companies, which seems to be a normal

commercial investment behavior, but there may be a

proviso in the investment agreement, requiring the

generic drug company not to challenge the patent or

delay the launch of the generic drug for a certain

period of time. This combination of investment and

reverse payment not only makes the flow of funds

ICPLSS 2025 - International Conference on Politics, Law, and Social Science

360

more complex and hidden, but also makes the review

more difficult (Li, 2023).

From the perspective of game theory, the game

between original pharmaceutical companies and

generic drug companies can be modeled as a dynamic

game with incomplete information. If generic drug

companies accept payment, a "segregated

equilibrium" is formed — that is, weak patent

companies tend to pay to cover up patent invalidity,

and regulators need to break this equilibrium by

enhancing information transparency (Shapirp, 2003).

3 SUGGESTIONS FOR

IMPROVING THE ANTI-

MONOPOLY REGULATION OF

REVERSE PAYMENT

AGREEMENTS

3.1 Clarify the Rules of Review

China should take into account its own actual

situation and build a scientific and rational system of

review rules. In terms of drawing on international

experience, we can refer to the advantages of the EU

classification regulatory model, especially the

"dynamic market share threshold" review method

emphasized by the European Commission in the latest

interpretation of the Lundbeck case in recent years,

and at the same time optimize the fast-track review

rules (Federico et al, 2023). Based on key indicators

such as patent validity, competition restrictions, and

payment scale, the classification is carried out in a

tiered manner. For reverse payment agreements with

high patent validity, low degree of competition

restriction and small payment scale, a relatively

simplified examination process can be applied;

Agreements with questionable patent validity,

obvious competition restrictions, and large payment

scales are subject to stricter scrutiny.

When establishing the event tree analysis method, it

is necessary to clarify the criteria for determining the

competitive effect of the agreement, start from the

background and purpose of the agreement, and

gradually examine the impact of the agreement on the

market structure, consumer welfare, and industry

innovation, and at the same time give both parties

equal rights to defend and reasonably allocate the

burden of proof (Xiao, 2023). For example, if the

patent has obvious flaws, then the reverse payment

agreement based on the patent should be examined,

and then the degree of restriction of the agreement on

market competition, including the impact on entry

barriers and price competition in the relevant market,

should be analyzed. According to the 2023 Journal of

Antitrust Enforcement, the concealment of non-cash

payments (e.g., technology licensing) in agreements

may lead to a 20%-35% increase in market entry

barriers, which can provide a reference for the

quantification of China's review standards (Kwon and

Kim, 2024). It is also a feasible idea to adopt the

principle of "prohibition + exemption" to determine

illegality, prohibiting reverse payment agreements in

principle to maintain the basic order of market

competition, but giving specific exemptions to those

agreements that can prove to have the ability to

promote innovation, improve production efficiency

or other benefits to the public interest is in line with

the requirements of drug innovation and

development, can increase the burden of proof on the

original drug companies, and correct the information

asymmetry and game status imbalance between the

original drug companies and generic drug companies

(Ouyang, 2025).

When determining the review rules, reference

may be made to the provisions of Article 2 of the

Anti-Monopoly Law of the People's Republic of

China on the scope of application and Article 15 of

the Anti-Monopoly Law of the People's Republic of

China on the exemption of agreements. The relevant

provisions on monopoly agreements in the

Interpretation of the Supreme People's Court on

Several Issues Concerning the Application of Law in

the Trial of Civil Monopoly Dispute Cases can also

provide a specific basis for the application of law for

review.

3.2 Improve the Relevant Legal System

Based on the latest experience in emerging

pharmaceutical markets in Asia, the mandatory

registration system needs to be linked to the incentive

mechanism for generic drug companies, such as

giving priority to generic drug companies that

successfully challenge patents for listing [Lee et

al,2023]. In terms of patent registration, the

compulsory registration system has been fully

implemented and a strict examination mechanism has

been established. Conduct a detailed review of the

patent registration application submitted by the

enterprise to ensure that the registration information

is true, accurate and complete. Enterprises that

deliberately provide false registration information or

severe administrative penalties, including heavy fines

and restrictions on market access. At the same time,

Anti-Monopoly Regulation and Improvement of Reverse Payment Agreements in Drug Patent Rights

361

the registration process should be simplified, and an

online registration platform should be established

using information technology to improve registration

efficiency, reduce the registration cost of enterprises,

and reduce the evasion of registration caused by

cumbersome procedures (Xiao, 2023)

Article 76 of the Patent Law of the People's

Republic of China stipulates the relevant obligations

of drug marketing authorization holders and generic

drug applicants in the early resolution mechanism of

drug patent disputes, which provides a legal basis for

improving the patent linkage system. For the first

time, the Anti-Monopoly Guidelines for the

Pharmaceutical Sector (Draft for Comments) clearly

stipulate the "anti-monopoly payment agreement"

from the enforcement level, which can provide

direction and reference for improving the relevant

legal system.

Clarify the provisions on joint patent challenges

and clearly define the scope of challengers. We can

learn from successful international experiences, such

as the incentive mechanism for patent challenges in

the Hatch-Waxman Act in the United States, and

formulate reasonable qualification criteria for

challengers based on the actual situation in China. For

example, only generic drug companies with certain

R&D capabilities and technical strength are eligible

to initiate joint patent challenges, which can not only

ensure the quality of patent challenges, but also

enhance the deterrent effect of original drug

companies. The white paper on the pharmaceutical

industry released by the European Union in 2022

pointed out that the enthusiasm of generic drug

companies to participate in the challenge is directly

related to their market share protection policies,

which can provide a basis for China to design

incentive mechanisms (European Commission,

2022).

3.3 Strengthen Review and Supervision

To strengthen the review of reverse payment

protocols, it is necessary to establish a multi-

dimensional review system. According to a 2023

study by World Competition, the concealment of

reverse payment fees has shifted from a single cash

payment to a hybrid form, such as technology

licensing and market segmentation, so it is important

to focus on the true market value of non-monetary

payments (Federico et al, 2023). Accurately assess

the cash value of non-monetary payment recipients

when reviewing non-monetary payments in

agreements. For example, for non-monetary forms of

payment such as technology licensing and processing

services, a professional appraisal agency or industry

expert will determine the reasonable cash value based

on market conditions, technical value and other

factors, so as to prevent enterprises from using non-

monetary payment means to evade censorship.

Comparing the reverse payment costs with the

litigation costs that may be incurred, if the reverse

payment costs are significantly higher than the

reasonable litigation costs, then it is necessary to

further examine whether the agreement has an

unreasonable anti-competitive purpose.

The establishment of a public interest litigation

system is an important measure to strengthen

supervision. According to the FTC's 2023 annual

report, public interest litigation can increase the

detection rate of reverse payment agreements by

40%, and China can refer to its experience to give

prosecutors and relevant social organizations the right

to sue in public interest (Federico et al, 2023). When

reverse payment constitutes a monopoly agreement

and harms the public interest, the procuratorate and

social organizations can file a public interest lawsuit

in accordance with the law. As a legal supervision

organ, the procuratorate has professional legal

knowledge and investigative capabilities, and can

effectively investigate and prosecute reverse payment

behaviors. Relevant social organizations, such as

consumer rights protection associations and

pharmaceutical industry associations, represent the

interests of consumers and industry practitioners, and

can promptly discover the harm caused by reverse

payment to the public interest, and safeguard the

order of market competition and public health rights

and interests through public interest litigation.

4 CONCLUSION

The anti-monopoly regulation of pharmaceutical

patent rights is a key proposition in the contemporary

intellectual property legal system, and its essence lies

in seeking a dynamic balance between innovation

incentives and public interests. With the profound

changes in the pattern of the global pharmaceutical

industry, the contradiction between patent protection

and market competition has become increasingly

prominent. This trend not only affects the innovation

and development momentum of the pharmaceutical

industry, but also directly relates to the sustainable

development of the public health system.

In the future, the anti-monopoly regulation of

pharmaceutical patents should focus on building three

mechanisms: a dynamic and balanced legislative

adjustment mechanism, which responds to

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technological changes through regular amendments;

Accurate and efficient risk early warning mechanism,

using big data to monitor changes in patent layout; A

multi-participatory co-governance coordination

mechanism that absorbs social forces such as industry

associations and patient organizations to participate

in policy formulation. Only by breaking the "zero-

sum game" between patent monopoly and public

health through institutional innovation can we

achieve a virtuous circle of pharmaceutical

innovation ecology, which not only ensures that

developers get reasonable returns, but also ensures

that the public can obtain life-saving drugs at

affordable prices, and finally achieves the dual goals

of innovation-driven and people's livelihood

protection under the "Healthy China" strategy.

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