Monday, March 23, 2009
Posted by D. Daniel Sokol
Keith N. Hylton, Boston University - School of Law and Sungjoon Cho, Chicago Kent College of Law offer their insights into The Economics of Injunctive and Reverse Settlements.
ABSTRACT: This paper extends the economic literature on settlement, and draws some practical insights on reverse settlements. The key contributions to the economic literature on settlements follow from the distinction drawn between standard settlements, in which the status quo is preserved, and injunctive settlements, which prohibit the defendant's activity. The analysis identifies the conditions under which injunctive settlements (rather than standard settlements) are likely to be observed and the conditions under which reverse settlements will be observed among the injunctive settlements. We also examine the divergence between private and social incentives to settle and policies that would minimize socially undesirable injunctive settlements. The results are applied largely to competition-blocking litigation, such as patent infringement and anti dumping. However, the analysis of settlement here has broader implications for efficient remedies and legal rules.