Anticompetitive Settlement of Intellectual Property Disputes

55 Pages Posted: 24 Feb 2003  

Herbert J. Hovenkamp

University of Iowa - College of Law

Mark D. Janis

Indiana University Maurer School of Law

Mark A. Lemley

Stanford Law School

Abstract

The overwhelming majority of intellectual property lawsuits settle before trial. These settlements involve agreements between the patentee and the accused infringer, parties who are often competitors before the lawsuit. Because these competitors may agree to stop competing, to regulate the price each charges, and to exchange information about products and prices, settlements of intellectual property disputes naturally raise antitrust concerns. In this paper, we suggest a way to reconcile the interests of intellectual property law and antitrust law in evaluating intellectual property settlements. In Part I, we provide background on the issue. Part II argues that in most cases courts can determine the legality of a settlement agreement without inquiring into the merits of the intellectual property dispute being settled, either because the settlement would be legal even if the patent were invalid or not infringed, or because the settlement would be illegal even if the patent were valid and infringed. Only in a narrow class of cases will the merits of the intellectual property dispute matter. In Part III, we argue that in that narrow middle set of cases antitrust's rule of reason is unlikely to be helpful. Rather, courts must inquire into the validity, enforceability, and infringement issues in the underlying case, with particular sensitivity to both the type of intellectual property right at issue and the industrial context of the dispute. In Part IV, we apply our framework to a number of common settlement terms, most notably the use of exclusion payments to settle pharmaceutical patent disputes. We argue that exclusion payments that exceed litigation costs should be deemed illegal per se. There is no legitimate reason for such payments, and the most likely reason - to permit the patentee to exclude competition that would likely have occurred absent the payment - is anticompetitive. Further, legitimate patent disputes can be settled in other ways than with an exclusion payment - for example, by licensing the defendant or by agreeing to delay entry.

Keywords: antitrust, patent, settlement, intellectual property, Hatch-Waxman, exit payments

Suggested Citation

Hovenkamp, Herbert J. and Janis, Mark D. and Lemley, Mark A., Anticompetitive Settlement of Intellectual Property Disputes. Minnesota Law Review, Vol. 87, p. 1719, 2003; UC Berkeley, Public Law and Legal Theory Research Paper No. 113. Available at SSRN: https://ssrn.com/abstract=380841 or http://dx.doi.org/10.2139/ssrn.380841

Herbert J. Hovenkamp

University of Iowa - College of Law ( email )

407 Boyd Law Building
Iowa City, IA 52242
United States
319-335-9079 (Phone)

Mark David Janis

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

Mark A. Lemley (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

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