'Sacrifice and Recoupment' in the Antitrust Analysis of Patent Settlements : Actavis Through the Lens of Brooke Group, Aspen Skiing, and Trinko

Patent settlements are typically procompetitive, benefiting not only the settling parties but also the courts and the general public. But in rare cases patent settlements might instead harm competition, and thus raise antitrust concerns. How are courts to determine when antitrust scrutiny should—and, importantly, should not—be applied to patent settlements?The answer ostensibly came in the Supreme Court’s 2013 decision in FTC v. Actavis, Inc. Under Actavis, antitrust scrutiny of patent settlements may “sometimes” be appropriate where there is a “large,” “unexplained” “reverse payment” from the patentee to the patent challenger. Unless, that is, the “reverse payment” is “fair value,” represents “saved litigation costs,” or is a “traditional” or “commonplace” way to settle. Unfortunately, the Supreme Court did not define any of these terms, and Chief Justice Roberts in dissent thus could only wish “good luck to the district courts” asked to interpret the decision, many of whom have struggled to do so. But the key “mysteries” of Actavis can all be solved by recognizing that Actavis follows a line of antitrust cases that ask whether an alleged monopolist made an otherwise-irrational sacrifice in expectation of recouping anticompetitive benefits. This article therefore places Actavis within the same legal framework as predatory pricing cases like Brooke Group v. Brown & Williamson Tobacco and refusal to deal cases like Aspen Skiing v. Aspen Highlands Skiing and Verizon Communications. v. Law Offices of Curtis V. Trinko. In doing so, the article explains the hidden underpinnings of Actavis, solves the apparent “mysteries” that have baffled the lower courts, and offers a roadmap to courts seeking to properly apply antitrust scrutiny to patent settlements