A Horizontal Agreement Restricting the Availability of a Patent Does Not Constitute Patent Misuse of Another Patent

Princo Corp. v. Int’l Trade Comm’n, No. 2007-1386 (Fed. Cir. June 18, 2010) (en banc).

Holding:

A horizontal agreement restricting the availability of a patent does not constitute misuse of another patent, even if the agreement has anticompetitive effects. Slip op. at 23.

When a patentee offers to license a patent, the patentee does not commit patent misuse that patent by inducing a third party not to license its separate, competitive technology. Id.

Relevant Facts:

Phillips and Sony developed competing patented CD technology, but entered an agreement to commercialize Phillips’ technology because it was simple and worked well. Phillips administered a licensing program that offers packaged licenses to Phillips and Sony patents. Princo alleged patent misuse on several grounds.

In U.S. Philips Corp. v. Int’l Trade Comm’n (Philips I), 424 F.3d 1179 (Fed. Cir. 2005), the Federal Circuit held that Philips’s package licensing practice that ties nonessential patents to essential patents does not constitute patent misuse because Philips charges a uniform fee and essentially, nonessential patents are included in the packages free of charge and the licensees are not required to use them.

Here, the issue is whether an agreement that would prevent the development of alternatives to the licensed technology would constitute misuse under a theory of elimination of competition or price fixing. A Federal Circuit panel initially ruled against Philips and the ITC.

The Federal Circuit granted Philips and the ITC’s petition for rehearing en banc. Philips argued that regardless of whether Philips and Sony agreed to suppress the technology embodied in the Sony patent, such an agreement would not constitute patent misuse and would not be a defense to Philips’s claim of infringement against Princo. The majority agreed with Philips.

Judge Prost authored a concurring opinion, in which Judge Mayer joins. Judge Dyk authored a dissenting opinion, in which Circuit Judge Gajarsa joins.

Comments:

The Federal Circuit is simply saying that the doctrine of patent misuse has a limited application, that misuse of one patent does not necessarily constitute misuse of another patent, and that the focus of patent misuse must be on the patent at issue.

Interestingly, even if the doctrine of patent misuse does not apply, the accused infringer may prevail under separate antitrust laws. Here, the Federal Circuit held that the Phillips-Sony agreement is not anti-competitive. However, if the agreement were to be anti-competitive, this opinion suggests that Princo could still prevail against Philips under the antitrust laws and recover damages (including attorney fees).