Antitrust Treatment of No Challenge Clauses

Posted by Social Science Research Network

Antitrust Treatment of No Challenge Clauses

Thomas K. Cheng (University of Hong Kong)

Abstract:      This Article examines a patent licensing practice that has hitherto escaped the attention of U.S. antitrust law: the no challenge clauses. Under these clauses, a patent licensee is prohibited from challenging the validity of the licensed patent. These clauses have so far only been examined under patent law in terms of enforceability. This oversight by antitrust law is unfortunate, as no challenge clauses can create consumer harm by protecting an otherwise invalid patent from challenges and artificially extending the exclusive period granted by the patent law. This means that consumers have to bear supra-competitive prices for longer than necessary. A number of factors are relevant to the analysis of the legality of no challenge clauses, such as market power, patent validity, and market structure at the licensee level. This Article proposes a framework based on the Rule of Reason that incorporates all of these relevant factors and structures them in a way that renders the framework easy to apply. Lastly, the Article rejects a number of justifications that have been offered to argue for the legality of these clauses across the board.