Settlement of Patent Litigation

• Pages: 199-221

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CHAPTER VII

SETTLEMENT OF PATENT LITIGATION

A. Settlements and Antitrust Liability Generally

As private agreements that can unreasonably restrain trade,

settlements of intellectual property litigation can raise antitrust issues in

ways that the litigation that precedes them cannot. Unless sham,

litigation in Article III courts–including intellectual property litigation–is

immunized from antitrust liability under the Noerr doctrine.1

Settlements of the underlying litigation, however, lie outside the Noerr

doctrine’s protection, and like any other agreement may therefore create

antitrust liability under Section 1 of the Sherman Act.2

Courts generally favor settlements of intellectual property disputes.3

Settlements can enhance competition by facilitating a product

manufacturer’s entry into a market constrained by a patent “monopoly,”4

by encouraging the development of generic alternatives to name-brand

1. For a description of the Noerr doctrine, see Chapter II.B.2(a).

2. See CTS Corp. v. Piher Int’l Corp., 727 F.2d 1550, 1555 (Fed. Cir. 1984).

Although rarer, settlements may also create liability under Section 2 of

the Sherman Act, which usually prohibits only unilateral behavior. See,

e.g., Jack Winter, Inc. v. Koratron Co., 375 F. Supp. 1, 55, 68 (N.D. Cal.

1974). Settlements with a governmental entity, however, have been

accorded Noerr immunity. See Sanders v. Brown, 504 F.3d 903, 913 (9th

Cir. 2007); Campbell v. City of Chicago, 823 F.2d 1182, 1186-87 (7th

Cir. 1987). Immunity under the state-action doctrine may apply to such

settlements as well. Compare Sanders, 504 F.3d at 918 with Freedom

Holdings, Inc. v. Spitzer, 357 F.3d 205, 226-32 (2d Cir. 2004).

3. U.S. DEP’T. OF JUSTICE & FED. TRADE COMM’N, ANTITRUST GUIDELINES

FOR THE LICENSING OF INTELLECTUAL PROPERTY (1995) §5.5 & Example

10 [hereinafter IP GUIDELINES] (“settlements involving the cross-

licensing of intellectual property rights can be an efficient means to avoid

litigation and, in general, courts favor such settlements”).

4. Int’l Mfg. Co. v. Landon, Inc., 336 F.2d 723, 729 (9th Cir. 1964); Boston

Scientific Corp. v. Schneider (Eur.) AG, 983 F. Supp. 245, 271 (D. Mass.

1997); see also Howard Indus. v. Rae Motor Corp., 267 F.2d 430, 434

(7th Cir. 1959) (settlement did not prevent alleged infringer from making

the same product as long as it was not “confusingly similar in

appearance” to the patented product).

200 Antitrust Counterattack in Intellectual Property Litigation Handbook

products, and by creating cross-licenses that proliferate product options

in other markets.5 In intellectual property litigation as elsewhere,

settlements can also save scarce judicial resources and litigation costs for

litigants and third parties.6

On the other hand, courts recognize that settlements have

anticompetitive effects by restraining competition in ways unrelated to

the intellectual property rights being litigated.7 Settlements can, for

example, eliminate a competitor if the parties choose to settle the

litigation through merger, which can raise the potential of antitrust

liability, particularly if the merger is reportable.8 Settlements may also

raise market-entry barriers, create market bottlenecks, or otherwise

perpetuate market or monopoly power that might not exist absent a

settlement.9

5. Herbert Hovenkamp, ANTITRUST LAW ¶ 2046(b)(1) at 311 (3d ed. 2005).

6. See, e.g., Gen. Tire & Rubber Co. v. Firestone Tire & Rubber Co., 349 F.

Supp. 333, 345 (N.D. Ohio 1972) (settlement did not unduly restrain

trade by inserting provisions that encouraged and contained benefits for

the early conclusion of the lawsuit).

7. United States v. Singer Mfg. Co., 374 U.S. 174, 196-97 (1963); Standard

Oil Co. (Indiana) v. United States, 283 U.S. 163, 171 (1931); Herbert

Hovenkamp, supra note 5, ¶ 2046 at 313; Herbert Hovenkamp, Mark

Janis & Mark A. Lemley, Anticompetitive Settlement of Intellectual

Property Disputes, 87 MINN. L. REV. 1719, 1722 (2003); In re Terazosin

Hydrochloride Antitrust Litig., 352 F. Supp. 2d 1279, 1309 (S.D. Fla.

2005).

8. See 15 U.S.C. §§18, 18a. Parties contemplating settlements involving a

merger should therefore consider how the enforcement agencies are likely

to examine both the merits of the underlying intellectual property dispute

and what standard they will apply in reviewing the competitive effects of

the merger. See generally ABA SECTION OF ANTITRUST LAW, MERGERS

AND ACQUISITIONS: UNDERSTANDING THE ANTITRUST ISSUES (2d ed.

2004); ABA SECTION OF ANTITRUST LAW, THE MERGER REVIEW

PROCESS: A STEP-BY-STEP GUIDE TO FEDERAL MERGER REVIEW (3d ed.

2006). For a more detailed discussion of settlements by merger, see

Susan A. Creighton and Scott A. Sher, Resolving Patent Disputes through

Merger: A Comparison of Three Potential Approaches, 75 ANTITRUST

L.J. 657 (2009).

9. Hovenkamp, supra note 5, ¶ 2046 passim.