Antitrust Limits on Patent Settlements: A New Approach

Journal of Industrial Economics, 70(2), pp. 257-293 (2022).

USC CLASS Research Paper Series No. CLASS21-21

USC Law Legal Studies Paper No. 21-21

37 Pages Posted: 12 Apr 2021 Last revised: 7 Jul 2022

See all articles by Erik Hovenkamp

Erik Hovenkamp

USC Gould School of Law

Jorge Lemus

University Of Illinois Urbana Champaign

Date Written: April 9, 2021

Abstract

Patent settlements between rivals restrain competition in many different ways. Antitrust requires that their anticompetitive effects are reasonably commensurate with the firms’ expectations about (counterfactual) patent litigation. Because these expectations are private and non-verifiable, this standard is hard to administer; to date, it has been successfully applied only within a very narrow class of agreements. We show that it can be applied universally by policing the economic structure of the firms’ contract. This approach determines whether settlement outcomes will be antitrust-compliant for any private beliefs the firms might have, thus avoiding the need to speculate about such beliefs.

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

Keywords: antitrust, patent settlement, horizontal restraints, collusion, litigation, licensing, pay for delay, reverse payment, robust design, patent system

JEL Classification: L40, L41, L24, O34, K21, K41, K42

Suggested Citation

Hovenkamp, Erik and Lemus, Jorge, Antitrust Limits on Patent Settlements: A New Approach (April 9, 2021). Journal of Industrial Economics, 70(2), pp. 257-293 (2022)., USC CLASS Research Paper Series No. CLASS21-21, USC Law Legal Studies Paper No. 21-21, Available at SSRN: https://ssrn.com/abstract=3823315

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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