By Thomas K. Cheng* Download a PDF version of this article here.
Introduction
I. Overview of No Challenge Clauses
A. Definition of No Challenge Clauses
B. Different Types of No Challenge Clauses
C. Timing of the Agreement
II. Treatment of No Challenge Clauses in Different Jurisdictions
A. The United States
1. Lear, Inc. v. Adkins
2. No Challenge Clauses in Licensing Agreements
3. No Challenge Clauses in Settlement Agreements
4. No Challenge Clauses in Consent Decrees
5. Termination-Upon-Challenge Clauses
B. The European Union
1. The European Courts
2. The European Commission
C. China
1. Regulations and Draft Guidelines
2. The NDRC Qualcomm Decision
III. Consumer Harm of No Challenge Clauses
A. A Comparison with Reverse Payments
B. Probabilistic Patents and Patent Validity
C. No Challenge Clauses and Consumer Harm
1. Direct Consumer Harm
2. Impairment of Innovation Incentives
D. Factors to Consider When Assessing Consumer Harm
1. Types of Agreements
2. Market Power
3. Patent Validity
4. Market Structure at the Licensee Level
IV. Justifications for No Challenge Clauses
A. Dynamic Efficiency Justifications
1. Prohibiting No Challenge Clauses Would Cause Patentees Not to License the Patent
2. Prohibiting No Challenge Clauses Would Allow Patentees to Protect Themselves from Erroneous Invalidation by the Courts
3. Prohibiting No Challenge Clauses Would Reduce Incentives to Innovate
B. Transaction Costs-Based Justifications
1. No Challenge Clauses Protect Patentees from Wasteful and Vexatious Litigation
2. Prohibiting No Challenge Clauses Will Reduce Licensees’ Incentive to Scrutinize Patent Validity before Entering into a Licensing Agreement
C. Other Justifications
1. Prohibiting No Challenge Clauses Will Result in Higher Royalty
V. Proposed Analytical Framework
A. The Proposed Framework
B. An Evaluation of the Approaches Taken by the Three Jurisdictions
Conclusion
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