Misuse

  • BASICS: The most promising patent misuse case law for patent challengers is old Supreme Court law. E.g., it is patent misuse to insist that a licensee pay a percentage of its sales of all its products including those that do not infringe. Zenith Radio (U.S. 05/19/1969), and “a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se.” Brulotte (U.S. 11/16/1964) (sales agreement required annual patent license royalty payments for use of machine and restrictions on use and sale of the machine (sold at a fixed price) extending undiminished past expiration of last patent on the machine); Kimble (U.S. 06/22/2015) (6-3) (based on stare decisis, upholding Brulotte; patent owner sold patent for lump sum plus ongoing royalties on sales with no expiration; licensee entitled to end payments at end of patent’s term: “a patent holder cannot charge royalties for the use of his invention after its patent term has expired”); cf. AstraZeneca (Fed. Cir. 04/07/15) (patent damages cannot be based on post-expiration actions).
  • 271(d) Limited Patent Misuse: One question is what has survived in light of Sec. 271(d): “No patent owner otherwise entitled to relief for infringement or contributory infringement of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having done one or more of the following: (1) derived revenue from acts which if performed by another without his consent would constitute contributory infringement of the patent; (2) licensed or authorized another to perform acts which if performed without his consent would constitute contributory infringement of the patent; (3) sought to enforce his patent rights against infringement or contributory infringement; (4) refused to license or use any rights to the patent; or (5) conditioned the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned.” 35 U.S.C. § 271(d). See Lexmark (Fed. Cir. 02/12/16) (en banc) (10-2) (“Congress, by adopting § 271(d), sharply limited the patent-misuse doctrine in response to that line of authority [culminating in Mercoid].”), cert. granted (U.S. 12/02/2016) (on other grounds).
  • Patent Misuse Rare: Novo Nordisk (Fed. Cir. 04/14/10) (“Because the judicial doctrine of patent misuse creates an unusual circumstance where an infringer can escape the consequences of its infringing conduct because the victim of that tort may have used its patent rights to gain an unfair competitive advantage against an unrelated third party, this court examines such allegations with particularity. For instance, the doctrine may apply where the patentee’s misconduct toward unrelated parties amounted to unfair market benefits beyond the scope of the patent. In any event, in this case, the district court, apparently recognizing the rarity of this situation, expressly declined to address the doctrine of patent misuse.”), rev’d on other grounds (U.S. 04/17/2012).
  • Patent Misuse Frozen?: The Federal Circuit confirmed its hostility to patent misuse, and arguably restricted it to acts already found by the S. Ct. to constitute patent misuse, in Princo (Fed. Cir. 08/30/10) (en banc) (“patent misuse is a judge-made doctrine that is in derogation of statutory patent rights against infringement, this court has not applied the doctrine of patent misuse expansively.”) “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.” Princo (Fed. Cir. 08/30/10) (en banc).
    • Actavis Rejects Princo Rationale: S. Ct. rejected 11th and Fed. Cir. (In re Ciprofloxacin Hydrochloride Antitrust Litig. (Fed. Cir. 10/15/08)) position that because any anticompetitive effects are within the exclusionary potential of a patent, reverse settlement payments (paying possible infringer to settle invalidity challenge and stay off market for some period) are immune from antitrust liability: “Whether a particular restraint lies ‘beyond the limits of the patent monopoly’ is a conclusion that flows from that analysis and not, as THE CHIEF JUSTICE suggests, its starting point.” “If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.” FTC v. Actavis (U.S. 06/17/2013). Although S. Ct. does not mention patent misuse, this holding rejects core basis for Princo: “Such an agreement would not have the effect of increasing the physical or temporal scope of the patent in suit, and it therefore would not fall within the rationale of the patent misuse doctrine as explicated by the Supreme Court and this court.” Princo (Fed. Cir. 08/30/10) (en banc).
  • Patent Does Not Create Presumption Of Market Power: Tool Works (U.S. 03/01/2006).
  • “The Key Inquiry” Is “Leverage”: “The key inquiry under the patent misuse doctrine is whether, by imposing the condition [on licenses or sales] 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.” “What patent misuse is about, in short, is ‘patent leverage,’ i.e., the use of the patent power to impose over-broad conditions on the use of the patent in suit that are ‘not within the reach of the monopoly granted by the Government.’” Princo (Fed. Cir. 08/30/10) (en banc); Sanofi-Aventis (Fed. Cir. 10/18/11) (rejecting patent misuse theory: lying to the FTC to get approval for a settlement agreement “in no way broadened the scope of the ’265 patent grant,” in part because the FTC discovered the deception.)
  • Package Licensing Not Per Se Misuse: in applying rule that package licensing essential patents together is not misuse per se, “a blocking patent is one that at the time of the license an objective manufacturer would believe reasonably might be necessary to practice the technology at issue.” Princo (Fed. Cir. 04/20/09) (re. Philips and Sony agreement on standard for CD), reinstated in pertinent part, Princo (Fed. Cir. 08/30/10) (en banc); accord Automatic Radio (U.S. 06/05/1950) (not patent misuse to license right to use pool of patents and require royalties based on sale of products even if those products don’t use the licensed patents).
  • Agreement To Suppress Competing Technology, Not Patent Misuse: Not patent misuse where horizontal competitors (1) agreed that certain patent would not be licensed in a manner allowing its development as competitive technology, and (2) that patent’s technology was a potentially workable alternative technology to the parties’ technology. Princo (Fed. Cir. 08/30/10) (en banc) (“Philips is not imposing restrictive conditions on the use of the Raaymakers patents to enlarge the physical or temporal scope of those patents. . . . [A] horizontal agreement restricting the availability of Sony’s Lagadec patent would not constitute misuse of Philips’s Raaymakers patents.”)
  • Misuse From Incorrect Allegation Of Contributory Infringement?: Consider arguing allegation of contributory infmt. is misuse because accused product has substantial non-infringing uses; and research how Plaintiff might purge such misuse.
  • TIPS: