Patent Litigation and Licensing: Federal Circuit Rejects Broad Application of Patent Misuse Doctrine

Sullivan & Cromwell LLP - September 1, 2010

On August 30, 2010, the Federal Circuit issued a significant decision rejecting a broad application of the doctrine of patent misuse as a defense to patent infringement. In Princo Corporation v. International Trade Commission, No. 2007-1386, the United States Court of Appeals for the Federal Circuit ruled en banc that the misuse doctrine did not apply to a purported agreement between two companies engaged in a joint patent licensing program for recordable compact discs to prevent one of the companies from separately licensing a patent in the joint program for other allegedly competing technologies. The opinion notes that patent misuse is a “narrow” doctrine that should not be applied expansively in derogation of a patentee’s statutory right to prevent infringement. The court emphasized that the patentee has the right to impose a broad range of conditions on licensees, and reaffirmed that the misuse doctrine is confined to conduct involving the leveraging of an asserted patent in a manner that exceeds the scope of the patent grant with anticompetitive effect.

In sum, the Federal Circuit rejected several possible expansions of the patent misuse doctrine and clarified pre-existing law by:

  • affirming and clarifying prior rulings that patent misuse must be based on conduct relating to the asserted patent(s) themselves, e.g., there generally is no “parallel” misuse whereby misuse of patent “x” that is not asserted results in the unenforceability of patent “y” that is asserted;
  • reaffirming that patent misuse requires a showing of anticompetitive effect; and \
  • rejecting the argument that the prior case law or amendments to the Patent Act suggest that a refusal to license patents for competing technology by horizontal competitors constitutes misuse, absent anticompetitive effect with respect to the asserted patents.

The decision adds greater certainty to the enforceability of patent rights and provides guidance on acceptable licensing practices for companies engaged in technology development, standard setting and patent licensing.