Challenge Restraints and the Scope of the Patent

1 Antitrust Chronicle 48, 2016.

13 Pages Posted: 13 Nov 2016 Last revised: 3 Mar 2017

See all articles by Erik Hovenkamp

Erik Hovenkamp

University of Southern California School of Law

Date Written: December 1, 2016

Abstract

Patent rights are not the only important legal entitlements conferred by the Patent Act. It also vests “challenge rights” in third parties, permitting them to challenge granted patents as invalid or uninfringed, and potentially clearing a path for privileged competition. These classes of rights perform opposite policy functions, with patent rights providing an inducement for invention and challenge rights providing a check against unwarranted or overbroad patent enforcement. And, unlike patent rights, the Patent Act never suggests that challenge rights are alienable – i.e. that they may be transacted or suppressed through contract. It follows that “challenge restraints” – contractual provisions that bar or penalize the exercise of a party’s challenge rights – are not within “the scope of the patent.” This suggests not that they are categorically unlawful, but simply that they do not enjoy safe harbor from antitrust attack.

Challenge restraints are used within a variety of different patent agreements – ranging from ordinary licensing deals to “reverse settlements” – with varying competitive effects. However, the courts have failed to recognize challenge restraints as a distinct antitrust issue. This brief article explains why they ought to be viewed as such. The analysis also helps to clarify the proper ambit of antitrust intervention in patent agreements.

Keywords: Patent, validity, infringement, antitrust, challenge, no-challenge, licensing, reverse settlement, pay for delay, Actavis, Hatch-Waxman

JEL Classification: K21, O30, O32

Suggested Citation

Hovenkamp, Erik, Challenge Restraints and the Scope of the Patent (December 1, 2016). 1 Antitrust Chronicle 48, 2016., Available at SSRN: https://ssrn.com/abstract=2866630 or http://dx.doi.org/10.2139/ssrn.2866630

Erik Hovenkamp (Contact Author)

University of Southern California School of Law ( email )

Los Angeles, CA 90089
United States

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