Federal Circuit Holds-Line on Patent Misuse Defense

By Dennis Crouch

In a split decision, an en banc Federal Circuit has held that the non-statutory equitable doctrine of patent misuse should be narrowly applied. Here, the court held that an anticompetitive agreement between companies to suppress a given technology would not constitute misuse of a patent covering an alternative technology being promoted by the companies. Thus, the patents can still be enforced. Of course, companies following this pathway could still be liable for antitrust violations.

Princo Corp. v. International Trade Commission and U.S. Philips Corp. (Fed. Cir. 2010) (en banc)

The alleged patent misuse was associated with a CD-R/RW patent-pool arrangement between Philips and Sony. The two companies chose a particular method (Raamaker) of encoding location information on the CD to serve as the standard and then allegedly suppressed another method (Lagadec). (Both methods were covered by patents held by the companies.)

Princo argued here that creation of the patent pool licensing the Raamaker method and the suppression of the Lagadec method constituted patent misuse and should render the patents undenforceable.

Patent Misuse:     

The doctrine of patent misuse is … grounded in the policy-based desire to 'prevent a patentee from using the patent to obtain market benefit beyond that which inheres in the statutory patent right.' Mallinckrodt, 976 F.2d at 704. It follows that the key inquiry under the patent misuse doctrine is whether, by imposing the condition in question, the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects. B. Braun, 124 F.3d at 1426. Where the patentee has not leveraged its patent beyond the scope of rights granted by the Patent Act, misuse has not been found. See Monsanto, 363 F.3d at 1341 ("In the cases in which the restriction is reasonably within the patent grant, the patent misuse defense can never succeed."); Virginia Panel, 133 F.3d at 869 (particular practices by the patentee "did not constitute patent misuse because they did not broaden the scope of its patent, either in terms of covered subject matter or temporally"). . . .

Given that the patent grant entitles the patentee to impose a broad range of conditions in licensing the right to practice the patent, the doctrine of patent misuse "has largely been confined to a handful of specific practices by which the patentee seemed to be trying to 'extend' his patent grant beyond its statutory limits." USM Corp. v. SPS Techs., Inc., 694 F.2d 505, 510 (7th Cir. 1982).

Recognizing the narrow scope of the doctrine, we have emphasized that the defense of patent misuse is not available to a presumptive infringer simply because a patentee engages in some kind of wrongful commercial conduct, even conduct that may have anticompetitive effects. See C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340 (Fed. Cir. 1998) ("Although the defense of patent misuse . . . evolved to protect against 'wrongful' use of patents, the catalog of practices labelled 'patent misuse' does not include a general notion of 'wrongful' use."). Other courts have expressed the same view. See Kolene Corp. v. Motor City Metal Treating, Inc., 440 F.2d 77 (6th Cir. 1971) (There is no such thing as "misuse in the air. The misuse must be of the patent in suit. An antitrust offense does not necessarily amount to misuse merely because it involves patented products or products which are the subject of a patented process." (citations omitted)); McCullough Tool Co. v. Well Surveys, Inc., 395 F.2d 230 (10th Cir. 1968) (the defense of patent misuse has been allowed "only where there had been a misuse of the patent in suit"). While proof of an antitrust violation shows that the patentee has committed wrongful conduct having anticompetitive effects, that does not establish misuse of the patent in suit unless the conduct in question restricts the use of that patent and does so in one of the specific ways that have been held to be outside the otherwise broad scope of the patent grant.

On appeal, the en banc Federal Circuit held that this case does not fit with other misuse precedent. "This case presents a completely different scenario from the cases previously identified by the Supreme Court and by this court as implicating the doctrine of patent misuse." In particular, the alleged misuse was alleged agreement to suppress "an entirely different patent that was never asserted." "Even if such an agreement were shown to exist, and even if it were shown to have anticompetitive effects, a horizontal agreement restricting the availability of Sony's Lagadec patent would not constitute misuse of Philips's Raaymakers patents or any of Philips's other patents in suit."

Reduced to its simplest elements, the question in this case comes down to this: When a patentee offers to license a patent, does the patentee misuse that patent by inducing a third party not to license its separate, competitive technology?

The court answered this question with a resounding "no" – such an action "would not fall within the rationale of the patent misuse doctrine as explicated by the Supreme Court and this court." In particular, the patent-in-suit there must be a direct connection between the patents-in-suit and the alleged misconduct.

Dissent: Judge Dyk (joined by Judge Gajarsa) wrote a 32-page dissent arguing that the patent misuse doctrine should be given teeth:

Evidently the majority thinks it appropriate to emasculate the doctrine so that it will not provide a meaningful obstacle to patent enforcement. . . . Indeed, the majority goes so far as to suggest that the misuse doctrine be eliminated entirely. I read the relevant Supreme Court cases and congressional legislation as supporting a vigorous misuse defense, clearly applicable to agreements to suppress alternative technology. The majority cabins the doctrine in contravention of this Supreme Court authority. I respectfully dissent.