Challenge Restraints and the Scope of the Patent

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