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Collusive and Exclusive Settlements of Intellectual Property Litigation

26 Pages Posted: 2 Dec 2010 Last revised: 29 Oct 2012

C. Scott Hemphill

New York University School of Law

Date Written: November 30, 2010

Abstract

This essay considers antitrust objections to recent settlements of intellectual property litigation. Part I examines the Google Book Search settlement, which resolves a copyright dispute between Google and a class of authors and publishers, including the creators of so-called orphan works. It focuses on one term of the agreement, the license granted to Google to distribute orphan works. Settlement opponents have objected on the ground that rival distributors will find it difficult to secure similar licenses. Proponents, for their part, defend on the ground that “one is better than none” - that this joint venture raises welfare compared to a world without the settlement. Part I evaluates these arguments and explains why neither is a correct approach to the antitrust inquiry.

The debate to this point has assumed that antitrust objections are relevant to the approval of this class-action settlement. As Part I also demonstrates, that premise is doubtful. Under the applicable law, the district judge must determine whether the settlement is “fair, reasonable, and adequate” for class members, not consumers. Even accepting arguendo that the settlement raises the cost of future entry, approval is appropriate if, as seems likely, this effect does no harm to authors and publishers.

Part II considers patent suits in which a brand-name drug maker seeks to prevent entry by a competing generic firm. In some cases, the brand-name firm makes a large payment to the generic firm to induce settlement and delay generic entry. Some courts considering antitrust objections to these settlements have adopted a rule of effective per se legality. As Part II explains, such a rule overstates the exclusionary force of a patent, ignores precedent that encourages judicial tests of patents, and leads to absurd results - for example, by removing the difference between strong and weak patents, since either can delay competitive entry until patent expiration, provided the payment is large enough.

Keywords: Antitrust, Class Action, Copyright, Google, GBS, Hatch-Waxman, Litigation, Patent, Pay for Delay, Reverse Payment

Suggested Citation

Hemphill, C. Scott, Collusive and Exclusive Settlements of Intellectual Property Litigation (November 30, 2010). Columbia Law and Economics Working Paper No. 384. Available at SSRN: https://ssrn.com/abstract=1718515 or http://dx.doi.org/10.2139/ssrn.1718515

C. Scott Hemphill (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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