US Doctrine of Patent Misuse Narrowed by the Federal Circuit Court of Appeals

On August 30, 2010, the US Court of Appeals for the Federal Circuit (Court) issued an en banc ruling, Princo Corp v International Trade Commission (2007 – 1386) and, by a majority of 8-2, affirmed the use of the doctrine of patent misuse as a defense to an infringement claim, but considerably narrowed the scope of application of the doctrine. Industry standards had been created to allow the devices of different manufacturers to read the variety of manufactured CDs or CD-RWs. These standards, called the Recordable CD Standard or the Orange Book, were created mainly by two manufacturers, Sony and Phillips. They had cooperated to meet the challenge of arranging information on CDs so that the information could later be read by any device. Both companies developed and patented solutions, but it was the Phillips’ solution that became the industry standard in the Orange Book. Sony and Phillips then licensed this technology and other patents to various CD and CD-RW manufacturers on condition that the manufacturers would follow the industry standards in the Orange Book. Shortly after one of the manufacturers, Princo, entered into the arrangement it stopped paying the licensing fees, claiming patent misuse since it was obliged to take out licenses that it did not need. The administrative law judge ruled that the defendant Princo infringed the patents but refused relief for Phillips because of patent misuse, finding that the licensing arrangements amounted to a restraint on trade, price fixing and price discrimination. On appeal, the Court reversed the administrative law judge’s decision, finding that there was no patent misuse and emphasized the narrow scope of the doctrine. Simply because a patentee engages in some kind of wrongful commercial conduct that could have anti-competitive effects is not enough to invoke the patent misuse defense, said the Court. Instead, the activity must amount to “improper leveraging” of the patent by, for example, tying or requiring payment outside the terms of the patent. By contrast, any recourse for anticompetitive practices with only a loose connection to the patent must be found in antitrust law, not in patent law. For a news article on the Princo case, see: http://tinyurl.com/238e8rx For the full text of the reasons for judgment, follow this link Summary by: Cindy Vergara