Corporate & Securities Law

In re Cipro and the intersection of antitrust and IP

By Hanno Kaiser

In its decision in In re Cipro, the Federal Circuit presents us with what John Ralston Saul calls the “hypnotic clarity of false choices.” Either any “analysis of patent validity is [in]appropriate in the absence of fraud or sham litigation.” Or we have to embark on some form of probabilistic ex ante analysis of patent claims every time a patent holder with market power wants to exclude a competing infringer. That dichotomy makes the preemption theory, i.e., no antitrust claim within the zone of exclusion, unless fraud/sham, more plausible than it is. Or, at least, it makes it look principled and less messy. But antitrust deals with quantitative problems all the time, in fact, the shift from per se categories to rule of reason concepts as the default reflects the willingness of courts to deal with complexity, context, and shades of gray. Consider the general evolution of the rule of reason from a muddled, unweighted multi-factor test in Chicago Board of Trade to a mixture of procedural and substantive criteria, aimed at sorting cases into buckets of (1) lawfulness (e.g., no market power), (2) illegality (e.g., no rebuttal to a plausible theory of harm) and (3) those in which a true balancing of the positive and negative effects cannot be avoided, using the minimum amount of information required to make each such choice. In practice, (1) and (2) have become much more significant than (3). So why is it that we approach the issue of patent validity in the context of an antitrust claim as if the only choice was between patent formalism on the one hand and the IP equivalent of Chicago Board of Trade on the other? A more fruitful inquiry would be one into identifying easily observable proxies for validity and invalidity the presence (or absence) of which would then shift the burdens of persuasion. For example, a successful domestic defense of the validity of the patent in question is certainly a reasonable proxy for validity, raising the bar for those calling the “zone of exclusion” shield in question. Depending on substantive patent standards, a successful defense of the patent abroad may also serve as a proxy for validity. Conversely, reverse payments that greatly exceed the expected profits of the generic challenger may justify a higher burden of persuasion to be placed on the defendant. As always in a rule of reason inquiry, context matters. But to retreat into formalism just because in some sub-set of cases an antitrust trial will have to include a full-fledged patent trial seems unwarranted.

Full post as published by Antitrust Review on October 27, 2008 (boomark / email).