Proportional Restraints in Horizontal Patent Settlements

34 Pages Posted: 4 Oct 2018 Last revised: 7 Mar 2019

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: October 2, 2018

Abstract

Competitors embroiled in a patent dispute always prefer to preserve and share monopoly profits, even if the patent is likely invalid. Antitrust has come to embrace a policy that requires horizontal settlements to be "proportional" in the sense that their anticompetitive effects are commensurate with the expected result of counterfactual patent litigation, which might have excluded the patentee's rival(s). But the standard presents serious practical complications, due to the uncertainty about counterfactual litigation, and as yet it has only been successfully applied to one type of settlement. We show that one can evaluate proportionality by focusing entirely on the nature of the firms' agreement, as this determines what the firms can agree on in relation to their expectations about litigation. We exploit this to propose a new enforcement approach that avoids the implementation problems with the current regime.

The online appendix for this paper is available at: https://ssrn.com/abstract=3259259.

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 (October 2, 2018). Available at SSRN: https://ssrn.com/abstract=3259249 or http://dx.doi.org/10.2139/ssrn.3259249

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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