By Brian Robison and Craig Zieminski

A recent en banc decision by the U.S. Federal Circuit narrows a defendant’s ability to escape liability for patent infringement by arguing that the patentee has engaged in anticompetitive conduct. Under the “patent misuse” doctrine, a patentee cannot succeed in a patent infringement suit if it has engaged in anticompetitive conduct outside of the monopoly power legally granted under the patent. However, the Federal Circuit has held that the patent misuse doctrine does not apply to anticompetitive conduct that is unrelated to the allegedly infringed patent.

In Princo Corp. v. Int’l Trade Commission, No. 2007‑1386 (Fed. Cir. Aug. 30, 2010), U.S. Philips Corp. (Philips) alleged that Princo Corp. and Princo America Corp. (collectively, “Princo”) had infringed patents that were included in a licensed package of patents and technological standards, known as the “Orange Book.” The Orange Book is the end-product of acollaboration between Philips and Sony Corp. (Sony) to create a standard for manufacturing universally-compatible recordable compact discs. During the collaboration, Sony had developed an alternative method for one step in the manufacturing process. Philips and Sony ultimately agreed to use Philips’ solution in their Orange Book method.

Princo, a licensee of the Orange Book, failed to make license payments, and Philips filed suit. As a defense to liability, Princo argued that Philips and Sony, by agreeing that Sony would not license its alternative method for manufacturing discs, had stifled competition for the Orange Book. Such conduct, argued Princo, was patent misuse.

The Federal Circuit began its analysis by summarizing patent misuse as any “act of impermissibly broaden[ing] the physical or temporal scope of the patent grant with anticompetitive effect.” The court then clarified that anticompetitive conduct, as articulated under the antitrust laws, is a necessary but not sufficient condition for patent misuse. Rather, the patentee’s conduct must attempt to broaden the scope of the allegedly infringed patent. Patent misuse, the Federal Circuit declared, “will not be found where there is no connection between the patent right and the misconduct in question.” Thus, the Federal Circuit held that an agreement regarding Sony’s patent could not constitute misuse of Philips’ patents because “[s]uch an agreement would not have the effect of increasing the physical or temporal scope of the patent in suit.”

Judge Timothy B. Dyk filed a lengthy dissent, arguing that Supreme Court precedent established that license agreements can constitute patent misuse if they suppress alternative technologies. Although the allegedly anticompetitive agreement specifically addressed Sony’s patent, Judge Dyk argued that the purpose of the agreement was to protect Philips’ patents from competition. Because such an agreement sought to extend the scope of Philips’ patents, Judge Dyk reasoned, patent misuse should be found.

The Princo decision may have far-reaching implications for patent licenses, collaborations between competitors, and patent infringement litigation.

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