Proportional Restraints in Horizontal Patent Settlements

35 Pages Posted: 25 Sep 2020

See all articles by Erik Hovenkamp

Erik Hovenkamp

USC Gould School of Law

Jorge Lemus

University Of Illinois Urbana Champaign

Multiple version iconThere are 3 versions of this paper

Date Written: August 10, 2020

Abstract

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.

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

Hovenkamp, Erik and Lemus, Jorge, Proportional Restraints in Horizontal Patent Settlements (August 10, 2020). Available at SSRN: https://ssrn.com/abstract=3670815 or http://dx.doi.org/10.2139/ssrn.3670815

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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