Reverse Payments and Political Corruption: Guest Post by Guha Krishnamurthi
After President Trump won the election, we have seen several supposedly powerful individuals and entities bend the knee, kiss the ring, and obey in advance. In particular, we have seen media—both social and legacy—make surprising concessions to Trump and his movement. Mark Zuckerberg reportedly supplicated his way to Mar-a-Lago and thereafter announced that Meta would substantially change its fact-checking policy, and indeed eliminate third-party fact checkers, while also “personalizing” people’s political content. (Fun fact: This seems to have included automatically making my account follow Vice President J.D. Vance’s. I promptly unfollowed.) TikTok CEO Shou Chew thanked then-President-Elect Trump for his efforts in ensuring TikTok remained in operation, conveniently ignoring that it was Trump’s own Executive Order that put the TikTok ban in motion. And, among many other genuflections, several other companies donated generously to Trump’s inauguration committee.
Another Trump entity that is now awash with funds is “his future presidential foundation and museum.” That is thanks to Disney, which agreed to pay that entity a $15 million contribution to settle President Trump’s defamation suit against ABC. The basis for Trump’s suit was that, in his interview with Rep. Nancy Mace, George Stephanopoulos asked her several times about why he continued to support Trump after he was found “liable for rape.” Trump claimed this was defamatory—he had been found “liable for sexually abusing and defaming the writer E. Jean Carroll,” but the jury’s verdict form did not find him liable for rape. Still thereafter, the Judge Lewis Kaplan stated that the jury did find that Trump “raped” E. Jean Carroll “as many people commonly understand the word ‘rape.’” There has been some debate as to whether Disney hastily or wisely folded. But another question naturally arises: Was it corruption?
That possibility becomes a lot louder when you consider Paramount mulling a legal settlement with Trump. In that suit, Trump alleged that CBS’s show 60 Minutes edited an interview with Kamala Harris to favor her candidacy. The suit is plainly frivolous. But, reportedly, Paramount is considering a settlement regardless, because it aims to merge with Skydance Media and seeks quick regulatory approval.
Whether these specific actions are corrupt, they do point to a novel pathway to engage in political bribery: handsome settlement of frivolous suits. I did some legal research into this practice, but didn’t find much. That said, similar vehicles for unlawful payouts are not without precedent. An instructive example: the so-called “reverse payments” between brand pharmaceuticals and generics.
In brief: The complex Hatch-Waxman regulatory framework allows brand pharmaceuticals to sue generics for patent infringement when the generic announces that it plans on selling a generic version of the medicine, and thereby halt the FDA from approving the generic medicine for sale for a substantial period of time. Some brand pharmaceuticals brought such suits against generics and then entered into a curious form of settlement: the brand—as the patent holder—would pay the generic—the accused patent infringer—to drop any challenge to the validity of the patent and stay off the market for some period of time. But usually the patent holder gets money in a settlement of the litigation. Hence the term “reverse payment.”
And these are not peppercorn settlements. They involve huge sums of money, going from the brand company to the generic company. This works out financially, because while the patent is valid, the brand can charge very high prices for the drug. But when the patent is no longer valid, the generic sells the drug at a fractional price—it becomes a volume business. So the brand is paying these settlements out of its large patent-monopoly profits.
At some point, the FTC caught wind of these settlements and challenged them as antitrust violations (inter alia under Section 5 of the Federal Trade Commission Act). The Supreme Court considered the issue in FTC v. Actavis, holding that they were subject to rule-of-reason scrutiny. If the brand filed frivolous (or “sham”) litigation asserting patent infringement against the generic and then paid the generic even though there was no claim that brand was liable to the generic, “[t]hat form of settlement is unusual” (as Justice Breyer put it). That could be an antitrust violation to prevent competition in the drug market.
Similarly here. If a politician frivolously sues a media company for “defamation” or for “favorably editing an interview with an opponent,” they should be anti-SLAPP’d and, perhaps, laughed out of court. But if they receive a plum, beyond-nuisance payment instead, “[t]hat form of settlement is unusual.” It may be a potent indicator of corruption. And just like our antitrust laws need to be robust enough to snuff out such chicanery, so too do our anti-corruption and campaign finance laws.
Indeed, on my reading of the relevant statutes, the law can recognize such machinations as corruption. As an example, consider 18 U.S. Code § 201(b)(1), which states in relevant part:
Whoever . . . directly or indirectly, corruptly gives, offers or promises anything of value to any public official or person who has been selected to be a public official, or offers or promises any public official or any person who has been selected to be a public official to give anything of value to any other person or entity, with intent . . . to influence any official act . . . shall [be subject to various penalties].
Plush payments, through a litigation settlement that are well beyond any reasonable assessment of the claims, are a thing of value. And the surplus is arguably given to the public official to influence their official acts. Of course, these claims are factually sensitive and have to be proven with evidence beyond a reasonable doubt. But conceptually, the design of our anti-corruption laws can cognize such claims of bribery through faux settlement.