Tuesday, June 23, 2015

Should Reverse Payment Patent Settlements Be Prohibited Per Se?

Jorge Padilla, Compass Lexecon and Valerie Meunier, Compass Lexecon ask Should Reverse Payment Patent Settlements Be Prohibited Per Se?

ABSTRACT:  Using the same competition test and counterfactual that has been used in the economic literature that is often cited to justify intervention against virtually all reverse payment patent settlements (RPPSs), we conclude that (1) RPPSs can benefit consumers and, therefore, it is wrong to presume that RPPSs are necessarily anticompetitive; (2) it is also incorrect to presume that RPPSs are by their very nature injurious to competition; (3) such a presumption is unjustified even for those involving reverse payments in excess of the originator’s expected litigation costs; (4) there is therefore no justification for treating RPPSs as per se illegal; (5) a case-by-case assessment of the effects on competition and consumer welfare of an RPPS that uses the expected date of entry as the standard of comparison in the counterfactual world, would necessarily require informed judgments as to (at a minimum) the strength of the patent at issue and the likelihood of patent infringement; (6) as a result, assessing RPPSs on a case by case basis using the expected date of entry standard for comparison is bound to lead to errors and reduce consumer welfare and, hence, cannot constitute an appropriate legal standard; and (7) RPPSs, even those involving reverse payments greater than the originator’s litigation costs, should be assessed under a rebuttable presumption of legality rule — i.e. they should be presumed legal unless there is direct evidence of a conspiracy to delay entry.


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