Proportional Restraints in Horizontal Patent Settlements
35 Pages Posted: 25 Sep 2020 Last revised: 7 Jul 2022
Date Written: August 10, 2020
Patent settlements between rivals restrain competition in many different ways. Antitrust requires them to be "proportional" in that their anti-competitive effects are commensurate with the firms’ expectations about (counterfactual) patent litigation. Because these expectations are private and non-verifiable, this standard is hard to apply; it has been successfully applied only within a very narrow class of agreements. We show that, even if firms’ private beliefs are ambiguous, an antitrust regulator can apply the standard universally by policing the economic structure of the firms’ (observable) settlement contract. This structure determines whether private settlement outcomes will be proportional for any private beliefs.
ATTENTION: This paper has been superseded by: Antitrust Limits on Patent Settlements: A New Approach, Journal of Industrial Organization, vol. 70(2), pp. 257-293 (2022). Available at: https://papers.ssrn.com/abstract=3823315
Keywords: Antitrust, Patents, Litigation, Settlements, Horizontal Restraints, Collusion, Pay-for-Delay, Robust Design
JEL Classification: L40, L41, L10, K21, K41, O32, O34, O38
Suggested Citation: Suggested Citation