Antitrust and Trademark Settlements

NYU Law and Economics Research Paper No. 22-12

Forthcoming, Antitrust Law Journal

36 Pages Posted: 9 Feb 2022 Last revised: 30 Mar 2023

See all articles by C. Scott Hemphill

C. Scott Hemphill

New York University School of Law

Erik Hovenkamp

Cornell University - Law School

Date Written: February 1, 2022

Abstract

Online search advertising plays an increasingly important role in facilitating competition. Targeted ads inform consumers about the low prices and other desirable product features offered by rivals. Accordingly, firms have a strong incentive and opportunity to place anticompetitive limits on the flow of information. They do so by reaching collusive agreements in which the competitors agree not to target one another with ads. Ordinarily, such a restraint of trade might be regarded as a straightforward antitrust violation. However, these agreements take the form of settlements of trademark litigation, raising the prospect that the restraints might be justified by trademark law. There is little case law or scholarship identifying when such settlements run afoul of the antitrust laws.

This Article is an effort to fill that gap. We explain why “consent to use” settlements of trademark litigation, which merely restrain what marks a firm can attach to its own product, are an unsuitable analogy for understanding these deals. We show how the standard developed in the Supreme Court’s Actavis decision, a watershed ruling about patent settlements, can be adapted and applied to trademark cases. We articulate how courts can identify anticompetitive deals without having to evaluate the merits of the underlying trademark claims. We also consider and evaluate a number of possible procompetitive justifications for restrictive trademark settlements. Our analysis uncovers substantial errors in the first appellate decision addressing these restraints.

Keywords: Actavis, antitrust, keyword advertising, pay for delay, settlement, trademark

JEL Classification: D21, D43, K11, K21, L10, L13, L21, L40, L41

Suggested Citation

Hemphill, C. Scott and Hovenkamp, Erik, Antitrust and Trademark Settlements (February 1, 2022). NYU Law and Economics Research Paper No. 22-12, Forthcoming, Antitrust Law Journal, Available at SSRN: https://ssrn.com/abstract=4028144 or http://dx.doi.org/10.2139/ssrn.4028144

C. Scott Hemphill (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

HOME PAGE: http://rb.gy/d3o8ju

Erik Hovenkamp

Cornell University - Law School ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

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