The Federal Circuit sitting en banc continued the trend of limiting the scope of the doctrine of patent misuse in Princo, Corp. v. Int’l Trade Comm’n, 2010 WL 3385953 (Fed. Cir. Aug. 30, 2010). At issue in Princo was whether an alleged side agreement between two patent holders to effectively suppress one company’s technology, while separately licensing the other company’s technology, constituted misuse of the licensed patents. While the Court did not rule out potential antitrust violations, it held that the alleged side agreement did not constitute patent misuse because the alleged agreement did not directly involve the patents-in-suit, and the infringer failed to prove that this alleged agreement had anticompetitive effects.
Patent misuse occurs when a patentee “impermissibly broaden[s] the ‘physical or temporal scope’ of the patent grant with anticompetitive effects. . .” Id. at *7. The doctrine originated in cases where the patentee attempted to either expand the scope of its patent by conditioning the license on the sale of non-patented products or expand the length of its patent by requiring licensing fees that extended past the patent’s life. In Princo, the Court rejected efforts to expand the doctrine and reemphasized that the patent misuse doctrine still requires a connection between the patent and the misconduct in question and evidence of actual anticompetitive effects. Id. at *10.
As set forth in Princo, Sony and Philips worked together in a joint venture to develop compact disc technology incorporated into the “Recordable CD Standards,” known informally as the “Orange Book.” Id. at *1. Through its licensing program, Philips licensed the patents covering these industry standards to Princo, which subsequently stopped paying the required licensing fees. Philips then sued Princo for patent infringement that Princo defended, in part, with a claim of patent misuse.
In support of its patent misuse claim, Princo argued that Philips used a purported side agreement with Sony to suppress Sony’s competitive technology, while licensing its own. The Court found no misuse, however, because the misconduct did not arise from a situation where “conditions have been placed in patent licenses to require licensees to agree to anticompetitive terms going beyond the scope of the patent grant,” but rather from an “alleged collateral agreement between Sony and Philips.” Id. at *12. As such, the Court found that there was no connection between the licensed patents and the alleged misconduct. Importantly, the Court did not rule on whether this alleged agreement between Sony and Philips was lawful, but rather noted only that “if the purported agreement. . . not to license [Sony’s] technology is unlawful, that can only be under antitrust law, not patent misuse law.” Id.
In addition, the Court also refused to find patent misuse because Princo failed to show that the alleged agreement had anticompetitive effects. First, the Court found that Philips and Sony “acted legitimately in choosing not to compete against their own joint venture.” Id. at *12. Second, the Court found that the record supported the conclusion that Sony’s technology was not a “viable potential competitor to the technology embodied in [Philip’s] patents” such that the alleged agreement could have resulted in suppressing competition. Id.
While the Federal Circuit reached its decision over a vigorous dissent, this case demonstrates that the majority of the Court is reluctant to extend the patent misuse doctrine much past its origins. As a result, litigants should approach claims of patent misuse with caution and be able to clearly demonstrate the direct connection of the alleged misconduct to the patent in question as well as its anticompetitive effects.