Antitrust Law and Patent Settlement Design

64 Pages Posted: 2 Aug 2018 Last revised: 26 Sep 2018

See all articles by Erik Hovenkamp

Erik Hovenkamp

Harvard Law School; Yale Law School

Date Written: July 25, 2018

Abstract

For competing firms, a patent settlement provides a rare opportunity to write an agreement that forestalls competition without transparently violating the antitrust laws. Problematically, such agreements are highly profitable for reasons that have nothing to do with resolving a patent dispute. Thus, even if the firms think the patent is very likely invalid or noninfringed, they prefer to restrain competition to monopoly and share in the proceeds. In response, antitrust has recently come to focus on how the settlement’s competitive effects compare to the expected result of foregone patent litigation, which seemingly requires some assessment of the likelihood that the patentee would have prevailed. But this “case-within-a-case” approach leads to major complications in practice. Indeed, outside of one well-known settlement format—so-called “pay-for-delay” agreements—how to administer this burgeoning antitrust standard remains an open question.
Applying recent work in economics, this article argues that antitrust law should reframe its settlement analysis to focus entirely on the nature of the settlement agreement—the particular way it restrains competition or otherwise redistributes profits between the firms. That is because the settlement’s design is ultimately what determines how private bargaining outcomes will compare to the firms’ litigation expectations. Under this approach, the antitrust question can be addressed without inquiring into the likelihood that any particular patent is valid and infringed, making it much more administrable. Instead, the focus is on how the settlement design affects private bargaining generally. This disentangles the relevant antitrust violation from the extent of the resulting harm, and can be applied to all kinds of settlement agreements. Finally, this approach is broadly consistent with the Supreme Court’s recent Actavis decision. All of this points to a clear prescription for antitrust reform: evaluate the agreement, not the patent.

Keywords: Antitrust, Patent Settlement, Actavis, Horizontal Restraints, Anticompetitive Patent Settlement, Pay for Delay, Reverse Payment, Antitrust and Patent Law

JEL Classification: K21, L40, L41, O34

Suggested Citation

Hovenkamp, Erik, Antitrust Law and Patent Settlement Design (July 25, 2018). Harvard Journal of Law & Technology, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3219954 or http://dx.doi.org/10.2139/ssrn.3219954

Erik Hovenkamp (Contact Author)

Harvard Law School ( email )

Cambridge, MA
United States

Yale Law School ( email )

New Haven, CT

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