Competition, inalienability, and the economic analysis of patent law

Posted by Social Science Research Network

Competition, inalienability, and the economic analysis of patent law

By Erik Hovenkamp (Northwestern University)

Abstract:     Most influential economic theories about private disputes, including the Coase theorem, assume that there are no legal restraints on alienability. However, the parties to a patent dispute are often competing firms, and their private dealings may thus be constrained by the antitrust laws. Antitrust prohibits private transactions that allocate commercial rights in ways that unreasonably subvert competition between the parties. This creates an asymmetry between (1) the allocations of rights that the parties can effect through contract; and (2) those a court can effect through its judgment. For example, antitrust may condemn a “reverse payment” settlement in which a monopolist-patentee pays an accused infringer to stay off the market for several years. But if the dispute were litigated to judgment, a court could produce the same exclusionary outcome by issuing an injunction. The result is ultimately that, in contrast to familiar Coasean logic, a court’s delimitation of patent rights can influence the final allocation of such rights, even if the parties can bargain. Further, the parties may (rationally) litigate to judgment even if they have common expectations about litigation, and even if they are perfectly capable of entering into a lawful settlement ex ante.

Antitrust limits on alienability may t

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