Essay by John E. Lopatka
In this Essay, I suggest a framework for the antitrust analysis of reverse payment settlements. The framework is based on the Hand formula, a method of analysis familiar to any student of tort law and respected by economically oriented torts scholars. In basic form, the Hand formula, named after Judge Learned Hand who first articulated it, states that a person is negligent if the burden of precaution (B) that would have avoided an accident is less than the probability (P) of the accident absent the precaution multiplied by the loss (L) that would result from the accident (B < PL ⇒ Negligent). To be more economically precise, the Hand formula provides that a person is negligent if the marginal cost in accident prevention is less than the marginal benefit in expected accident costs avoided. In fact, the fundamental economic logic underlying the Hand formula—that liability is a function of marginal cost and marginal benefit—is broadly applicable across the spectrum of legal disputes. Explicit use of the Hand formula can inform the antitrust analysis of reverse payment settlements and sharpen, if not resolve, the antitrust significance of the underlying patent's validity and scope.
About the Author
John E. Lopatka. Alumni Professor of Law, University of South Carolina School of Law.
Citation
79 Tul. L. Rev. 235 (2004)