Antitrust and Trademark Settlements

Antitrust and Trademark Settlements

 

 

C. Scott Hemphill

New York University School of Law

Erik Hovenkamp

University of Southern California School of Law

 

Abstract

In today’s digital economy, online competitive advertising plays a central role in informing consumers about low prices and other desirable product features. Accordingly, rivals 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 firms avoid targeting one another with ads. Ordinarily, such an arrangement might be regarded as a straightforward antitrust violation. However, these deals take the form of settlements of trademark litigation, raising the possibility that the restraints might be justified by trademark law. There is little case law or scholarship identifying when settlements of trademark litigation run afoul of the antitrust laws.

This Article is an effort to fill that gap. We explain 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 settlements without having to evaluate the merits of the underlying trademark infringement claims. Settlements imposing broad restraints on competitive targeted advertising may raise significant antitrust concerns that are unlikely to arise in run-of-the-mill settlements that merely restrain what marks a firm can attach to its product. 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.