Antitrust limits to patent settlements

Carl Shapiro, University of California at Berkeley

1/01/2005
(Original Publish Date: 2003)

Patents, patent litigation, and patent settlements increasingly influence competition. Settlements of patent disputes come in many forms, including licensing and cross-licensing agreements, patent pools, mergers, and joint ventures. While frequently pro competitive, such settlements can stifle competition and harm consumers. I propose a specific antitrust rule limiting such settlements: a settlement must leave consumers at least as well off as they would have been from ongoing patent litigation. After establishing that profitable settlements satisfying this constraint generally exist, I show how this antitrust rule can be used to evaluate three types of settlements: mergers, patent pools, and negotiated entry dates.