Antitrust Implications of Patent Settlements: An Incentives Modifying Approach

Abstract

Recent patent settlement agreements in pharmaceutical cases have involved payment of large sums by branded drug producers to generic challengers to abandon or delay entry. While the law generally favors settlements, patent and other intellectual property settlements can become powerful vehicles for antitrust abuse when patent rights are invalid. Some have called on antitrust courts to resolve the validity of the patent rights in antitrust cases, but such an approach is impractical. It would burden antitrust courts with intractable complexity and require litigation of an issue where the parties with the best information - the patentee and the alleged infringer - are both aligned against the antitrust plaintiff. We urge that a better approach is to modify the incentives of the economic actors to align them with the public interest in competition. This can be done in three ways: (1) changing patent law in ways that would reduce the number of invalid patents issued, (2) requiring disclosure to public antitrust agencies of heretofore undisclosed patent settlements, and (3) limiting the terms of settlement agreements to the date of entry by the alleged infringer and the royalty to be paid to the patent holder.

Keywords: antitrust and patent settlement agreements, patent settlement agreements, pharmaceutical cases, antitrust, patent

JEL Classification: K21, K11