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Anticompetitive Settlement of Intellectual Property Disputes


Herbert J. Hovenkamp


University of Iowa - College of Law

Mark D. Janis


Indiana University Maurer School of Law

Mark A. Lemley


Stanford Law School


Minnesota Law Review, Vol. 87, p. 1719, 2003
UC Berkeley, Public Law and Legal Theory Research Paper No. 113

Abstract:     
The overwhelming majority of intellectual property lawsuits settle before trial. These settlements involve agreements between the patentee and the accused infringer, parties who are often competitors before the lawsuit. Because these competitors may agree to stop competing, to regulate the price each charges, and to exchange information about products and prices, settlements of intellectual property disputes naturally raise antitrust concerns. In this paper, we suggest a way to reconcile the interests of intellectual property law and antitrust law in evaluating intellectual property settlements. In Part I, we provide background on the issue. Part II argues that in most cases courts can determine the legality of a settlement agreement without inquiring into the merits of the intellectual property dispute being settled, either because the settlement would be legal even if the patent were invalid or not infringed, or because the settlement would be illegal even if the patent were valid and infringed. Only in a narrow class of cases will the merits of the intellectual property dispute matter. In Part III, we argue that in that narrow middle set of cases antitrust's rule of reason is unlikely to be helpful. Rather, courts must inquire into the validity, enforceability, and infringement issues in the underlying case, with particular sensitivity to both the type of intellectual property right at issue and the industrial context of the dispute. In Part IV, we apply our framework to a number of common settlement terms, most notably the use of exclusion payments to settle pharmaceutical patent disputes. We argue that exclusion payments that exceed litigation costs should be deemed illegal per se. There is no legitimate reason for such payments, and the most likely reason - to permit the patentee to exclude competition that would likely have occurred absent the payment - is anticompetitive. Further, legitimate patent disputes can be settled in other ways than with an exclusion payment - for example, by licensing the defendant or by agreeing to delay entry.

Number of Pages in PDF File: 55

Keywords: antitrust, patent, settlement, intellectual property, Hatch-Waxman, exit payments

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Date posted: February 24, 2003  

Suggested Citation

Hovenkamp, Herbert J. and Janis, Mark D. and Lemley, Mark A., Anticompetitive Settlement of Intellectual Property Disputes. Minnesota Law Review, Vol. 87, p. 1719, 2003; UC Berkeley, Public Law and Legal Theory Research Paper No. 113. Available at SSRN: http://ssrn.com/abstract=380841 or http://dx.doi.org/10.2139/ssrn.380841

Contact Information

Herbert J. Hovenkamp
University of Iowa - College of Law ( email )
407 Boyd Law Building
Iowa City, IA 52242
United States
319-335-9079 (Phone)
Mark David Janis
Indiana University Maurer School of Law ( email )
211 S. Indiana Avenue
Bloomington, IN 47405
United States
Mark A. Lemley (Contact Author)
Stanford Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
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