Abstract: This paper explores the conditions under which brand-name drug and generic drug manufacturers will reach a sole license agreement for pharmaceutical patents and the influences of this agreements on patients` and doctors` welfare in a vertically differentiated Stakelberg structure. This paper shows that it is beneficial for the brand-name drug manufacturer to reach a sole license agreement under certain conditions. It also shows that this agreement will benefit the doctors, but it will make the patients worse off when the health insurance coverage and the product differentiation between brand-name drug and generic drug are relatively large in the "drug maintaining medicine" system.