Antitrust and Trademark Settlements

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Online search advertising plays an increasingly important role in facilitating competition. Targeted ads inform consumers about the low prices and other desirable product features offered by rivals. Accordingly, firms have a strong incentive and opportunity to place anticompetitive limits on the flow of information. They do so by reaching collusive agreements in which the competitors agree not to target one another with ads. Ordinarily, such a restraint of trade might be regarded as a straightforward antitrust violation. However, these agreements take the form of settlements of trademark litigation, raising the prospect that the restraints might be justified by trademark law. There is little case law or scholarship identifying when such settlements run afoul of the antitrust laws.

This Article is an effort to fill that gap. We explain why “consent to use” settlements of trademark litigation, which merely restrain what marks a firm can attach to its own product, are an unsuitable analogy for understanding these deals. We show how the standard developed in the Supreme Court’s Actavis decision, a watershed ruling about patent settlements, can be adapted and applied to trademark cases. We articulate how courts can identify anticompetitive deals without having to evaluate the merits of the underlying trademark claims. We also consider and evaluate a number of possible procompetitive justifications for restrictive trademark settlements. Our analysis uncovers substantial errors in the first appellate decision addressing these restraints.