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Abstract:
Recent patent settlement agreements in pharmaceutical cases have involved payment of large sums by branded drug producers to generic challengers to abandon or delay entry. While the law generally favors settlements, patent and other intellectual property settlements can become powerful vehicles for antitrust abuse when patent rights are invalid. Some have called on antitrust courts to resolve the validity of the patent rights in antitrust cases, but such an approach is impractical. It would burden antitrust courts with intractable complexity and require litigation of an issue where the parties with the best information - the patentee and the alleged infringer - are both aligned against the antitrust plaintiff. We urge that a better approach is to modify the incentives of the economic actors to align them with the public interest in competition. This can be done in three ways: (1) changing patent law in ways that would reduce the number of invalid patents issued, (2) requiring disclosure to public antitrust agencies of heretofore undisclosed patent settlements, and (3) limiting the terms of settlement agreements to the date of entry by the alleged infringer and the royalty to be paid to the patent holder.

antitrust and patent settlement agreements, patent settlement agreements, pharmaceutical cases, antitrust, patent

Abstract:
Responding to a critique that our earlier article on predatory pricing moved too swiftly and decisively to implement modern strategic theory in antitrust enforcement, we urge that (1) strategic theory is robust and provides a solid foundation for legal policy, (2) the several elements of our proposed rule effectively distinguish between predation and competition, and thereby avoid over enforcement risks, (3) claims that post trial evidence in three relatively recent cases disproves the feasibility of a strategic approach to predatory pricing are without foundation, the courts having made no attempt in those cases to evaluate the facts within a strategic framework. Finally, we elaborate and extend our previous analysis of predatory pricing in our defense of the economic robustness of strategic theory in Part I and in our development of the proposed legal rule in Part II.

Predatory pricing, strategic theory, below-cost pricing, recoupment, efficiencies defense, robustness of strategic theory, business justification, reputation effect, test market predation, cost-signalling, financial market predation, pricing below-cost, Brooke Group v. Brown & Williamson

Abstract:
This paper proposes a new legal rule on predatory pricing based on strategic analysis. The Supreme Court's decision in Brooke with its emphasis on closely analyzing the scheme of predation and recoupment calls for such an analysis. At the same time economic development over the last 20 years of a rigorous analysis of predatory pricing provides the tools required to achieve a more effective legal policy. Economics can now explain when predation can be rational, or in Brooke's terms when it can enable profitable recoupment, casting new light on earlier examples of predatory pricing. The further challenge for legal analysis is to develop workable legal rules to guide enforcement agency policy and judicial decisions. To accomplish this we propose a structured rule of reason, including a fully specified efficiencies defense. Under such an approach enforcement would focus on cases where market structure and conduct makes predation plausible and where anticompetitive effects have occurred, or are dangerously probable. Equally important, the finding of predation would be subject to an efficiencies justification where below-cost pricing is necessary to achieve significant efficiencies, including dynamic efficiencies.