Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, December 29, 2010

Collusive and Exclusive Settlements of Intellectual Property Litigation

Posted by D. Daniel Sokol

C. Scott Hemphill, Columbia University - Law School analyzes Collusive and Exclusive Settlements of Intellectual Property Litigation.

ABSTRACT: This essay considers antitrust objections to recent settlements of intellectual property litigation. Part I examines the Google Book Search settlement, which resolves a copyright dispute between Google and a class of authors and publishers, including the creators of so-called orphan works. It focuses on one term of the agreement, the license granted to Google to distribute orphan works. Settlement opponents have objected on the ground that rival distributors will find it difficult to secure similar licenses. Proponents, for their part, defend on the ground that “one is better than none” - that this joint venture raises welfare compared to a world without the settlement. Part I evaluates these arguments and explains why neither is a correct approach to the antitrust inquiry.

The debate to this point has assumed that antitrust objections are relevant to the approval of this class-action settlement. As Part I also demonstrates, that premise is doubtful. Under the applicable law, the district judge must determine whether the settlement is “fair, reasonable, and adequate” for class members, not consumers. Even accepting arguendo that the settlement raises the cost of future entry, approval is appropriate if, as seems likely, this effect does no harm to authors and publishers.

Part II considers patent suits in which a brand-name drug maker seeks to prevent entry by a competing generic firm. In some cases, the brand-name firm makes a large payment to the generic firm to induce settlement and delay generic entry. Some courts considering antitrust objections to these settlements have adopted a rule of effective per se legality. As Part II explains, such a rule overstates the exclusionary force of a patent, ignores precedent that encourages judicial tests of patents, and leads to absurd results - for example, by removing the difference between strong and weak patents, since either can delay competitive entry until patent expiration, provided the payment is large enough.

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