Anticompetitive Settlement of Intellectual Property Disputes

The overwhelming majority of intellectual property lawsuits settle beforetrial. These settlements involve agreements between the patentee and theaccused infringer, parties who are often competitors before the lawsuit.Because these competitors may agree to stop competing, to regulate theprice each charges, and to exchange information about products and prices,settlements of intellectual property disputes naturally raise antitrustconcerns. In this paper, we suggest a way to reconcile the interests ofintellectual property law and antitrust law in evaluating intellectualproperty settlements. In Part I, we provide background on the issue. PartII argues that in most cases courts can determine the legality of asettlement agreement without inquiring into the merits of the intellectualproperty dispute being settled, either because the settlement would belegal even if the patent were invalid or not infringed, or because thesettlement would be illegal even if the patent were valid and infringed.Only in a narrow class of cases will the merits of the intellectualproperty dispute matter. In Part III, we argue that in that narrow middleset of cases antitrust's rule of reason is unlikely to be helpful. Rather,courts must inquire into the validity, enforceability, and infringementissues in the underlying case, with particular sensitivity to both the typeof intellectual property right at issue and the industrial context of thedispute. In Part IV, we apply our framework to a number of commonsettlement terms, most notably the use of exclusion payments to settlepharmaceutical patent disputes. We argue that exclusion payments thatexceed litigation costs should be deemed illegal per se. There is nolegitimate reason for such payments, and the most likely reason - to permitthe patentee to exclude competition that would likely have occurred absentthe payment - is anticompetitive. Further, legitimate patent disputes canbe settled in other ways than with an exclusion payment - for example, bylicensing the defendant or by agreeing to delay entry.