Challenge Restraints and the Scope of the Patent

Posted by Social Science Research Network

Challenge Restraints and the Scope of the Patent

Erik Hovenkamp (Northwestern University)

Abstract:      Patent rights are not the only important legal entitlements conferred by the Patent Act. It also vests “challenge rights” in third parties, permitting them to challenge granted patents as invalid or uninfringed, and potentially clearing a path for privileged competition. These classes of rights perform opposite policy functions, with patent rights providing an inducement for invention and challenge rights providing a check against unwarranted or overbroad patent enforcement. And, unlike patent rights, the Patent Act never suggests that challenge rights are alienable – i.e. that they may be transacted or constrained through contract. As such, “challenge restraints” – contractual restrictions on a party’s challenge rights – are not within “the scope of the patent.” This suggests not that they are categorically unlawful, but simply that they do not enjoy safe harbor from antitrust attack.

Challenge restraints can be used within a variety of different patent agreements – ranging from ordinary “vertical” licensing deals to reverse payment settlements – with varying competitive effects. However, the courts have failed to recognize challenge restraints as a distinct antitrust issue. This brief article explains why they ought to be viewed as such.

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