Elhauge on Solving the Patent Settlement Puzzle

Founding Director of the Petrie-Flom Center, Professor Einer Elhauge, has just published an article with co-author Alex Krueger on an issue that the Supreme Court just granted certiorari on in FTC v. Watson: the proper antitrust analysis of reverse payment patent settlements.  In such settlements, the alleged infringer receives a payment and agrees to stay out of the market for a number of years.  Such settlements have been particularly prevalent in the pharmaceutical industry that has such a large effect on health care costs. The appellate courts have all recognized that such settlements have anticompetitive potential to exclude entry for far longer than merited by the probability of patent victory.  However, the courts have split on whether to find these settlements presumptively anticompetitive or lawful if within the formal scope of a non-sham patent.  The latter courts have focused on the possibility that a settlement might not exclude entry for longer than merited by the probability of patent victory and the administrative difficulty of conducting case-by-case inquiries into that probability.  Professor Elhauge’s article seeks to solve this puzzle by showing that case-by-case inquiries are unnecessary when the reverse payment amount exceeds the patent holder’s future anticipated litigation costs, because one can infer that such settlements will exclude entry for longer than merited by that probability of patent victory, whatever that probability may be.

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