Proportional Restraints in Horizontal Patent Settlements

37 Pages Posted: 30 Aug 2017 Last revised: 4 Oct 2018

See all articles by Erik Hovenkamp

Erik Hovenkamp

USC Gould School of Law

Jorge Lemus

University Of Illinois Urbana Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: May 7, 2018

Abstract

When rivals settle a patent dispute, they prefer to preserve the full monopoly profit, even if the patent is very likely invalid. The literature advocates comparing settlement outcomes to the expected result of litigation, but has not identified a comprehensive means of doing this. We show that a settlement's design - the way it restrains competition - determines how bargaining possibilities compare to the firms' litigation expectations. We identify "proportional" restraints such that the firms can only agree on outcomes generating the same profits - and greater consumer welfare - than they expect from litigation. This avoids the need to estimate the odds of counterfactual patent litigation.

The new version of this paper is available at: https://ssrn.com/abstract=3259249.

Keywords: Patents, Antitrust, Patent Settlements, Innovation, Licensing, Horizontal Restraints, Validity, Patent Quality, Reverse Payment, Pay for Delay, Actavis

JEL Classification: L40, L41, L10, K00, K21, O30, O31, O32, O34, O38

Suggested Citation

Hovenkamp, Erik and Lemus, Jorge, Proportional Restraints in Horizontal Patent Settlements (May 7, 2018). Available at SSRN: https://ssrn.com/abstract=3026380 or http://dx.doi.org/10.2139/ssrn.3026380

Erik Hovenkamp (Contact Author)

USC Gould School of Law ( email )

Los Angeles, CA 90089
United States

Jorge Lemus

University Of Illinois Urbana Champaign ( email )

1407 Gregory Drive, DKH 214
Urbana, IL 61801
United States

HOME PAGE: http://sites.google.com/site/jorgelemuswebsite/

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