Patent Challenge Clauses: A New Antitrust Offense?

Abstract

Patent licensing contracts commonly prohibit licensees from challenging the validity of the patents at the basis of the contract or penalize such challenges. A considerable debate has emerged as to whether courts should enforce these challenge clauses. We argue that this debate has not gone far enough. Challenge clauses should be illegal under antitrust law. Our argument is based on two grounds. The first, doctrinal route, argues that this new antitrust offense is a natural extension of the logic of the Supreme Court’s landmark case of Federal Trade Commission v. Actavis, decided three years ago. The second, normative route, shows that a normative foundation exists for recognizing this antitrust offense. We propose three cumulative conditions that should exist for a new antitrust offense to be realized, and show that they are met in the case of challenge clauses. Our conclusion challenges the existing laws and draws a new line between contract law and antitrust law, which is applicable to other cases as well.

Keywords: Patents, Challenge Clauses, Antitrust, Actavis, Patent Validity, Licensing

JEL Classification: K11, K21, O30, K00, K23, L1, L13, L14, L4, L40, L41, D40