Antitrust Issues in IP Settlements

While courts generally favor the settlement of intellectual property disputes, these settlements, which often include exclusive licenses, cross-licenses, and pooling arrangements, may implicate antitrust concerns. For example, the Department of Justice (“DOJ”) opened an antitrust investigation last year into a proposed settlement between Google and a class of authors and publishers in a copyright infringement class action, The Authors Guild, Inc. v. Google Inc., Civil No. 1:05-CV-8136 (S.D.N.Y.). The DOJ expressed concern that the settlement restricted price competition among authors and publishers and granted Google de facto exclusive rights over the digital distribution of millions of orphan and rights-uncertain works, effectively precluding other digital distributors from competing with Google. The parties proposed an amended agreement last November, but the DOJ found that the modified agreement continues to raise antitrust concerns by, inter alia, “confer[ring] significant and possibly anticompetitive advantages on a single entity ' Google ' [as] the only competitor in the digital marketplace with the rights to distribute and otherwise exploit a vast array of works in multiple formats.” See DOJ, Statement of Interest of the United States of America Regarding Proposed Amended Settlement Agreement (Feb. 4, 2010), at 2, available at www.justice.gov/atr/cases/f255000/255012.pdf. As a result, final settlement in the case has been substantially delayed.

To avoid potential antitrust liability and additional costly litigation, it is important to recognize the antitrust issues implicated in settlement agreements involving intellectual property rights. The inquiry into whether a given settlement and its particular terms are anticompetitive is highly fact-intensive and generally requires a “rule of reason” analysis, by which the reviewing court or agency weighs the terms' anticompetitive effects against their pro-competitive benefits. In certain limited circumstances where a practice is so plainly anticompetitive that no effects inquiry is necessary, the settlement terms can be deemed per se unlawful, such as agreements among competitors to fix prices or to allocate markets. Such “naked” restraints have no legitimate, pro-competitive purpose.