IP News

Federal Circuit Issues En Banc Ruling on Patent Misuse

In Princo Corp. v. International Trade Commission, 2010 U.S. App. LEXIS 18101 (Fed. Cir. Aug. 30, 2010) (en banc), the Federal Circuit held that a patent pooling agreement between Philips Corp. and Sony Corp. did not constitute patent misuse of certain asserted pooled patents, even if the agreement resulted in the suppression of technology embodied in non-asserted pooled patents.

The technology at issue concerned digital storage devices, and specifically, recordable compact discs (“CD-Rs”) and rewriteable compact discs (“CD-RWs”). The companies that developed the technology, principally Philips and Sony, generated technical standards for the industry, which were collected in a publication informally referred to as the “Orange Book.” In the course of their work, Sony and Philips each separately developed solutions to the problem of how to encode position information in a disc so that a consumer's CD reader/writer could maintain proper positioning while writing data to the disc. Philip's solution is described in two patents, (collectively the “Raaymakers patents”) and Sony's approach is described in one of its patents (the “Lagadec patent”). After reviewing the competing solutions, Sony and Philips engineers agreed that they would incorporate the Raaymakers approach in the Orange Book standard. Philips and Sony sought to commercialize their technology by offering a package license to patents covering CD-R/RW technology, including the Raaymaker and Lagadec patents. The package license contained a “field of use” restriction, limiting the licensees to using the licensed patents to produce discs according to the standards.

In the late 1990s, Princo entered into a package license agreement with Philips, who was solely responsible for administration of the licensing program. Soon after entering the agreement, however, Princo stopped paying licensing fees. Philips then filed a complaint with the International Trade Commission alleging that Princo was violating 19 U.S.C. ' 337 by importing CD-R/RWs that infringed Philips' patents. The administrative law judge (“ALJ”) found infringement, but denied relief on the ground that the asserted Philips patents were unenforceable because of unlawful tying, constituting patent misuse. On review, the Commission affirmed the ALJ's misuse finding, but a Federal Circuit panel reversed, reasoning that Philips' package license did not constitute improper tying since it gave licensees the option of using any of the packaged patents, and charged a uniform fee regardless of the patents used.

On remand, the Commission rejected Princo's remaining patent misuse theories. Specifically, the Commission rejected Princo's argument that Philips committed patent misuse by “combining with its horizontal competitors to fix the price of patent licenses,” finding that there was no evidence that the licensed patents were close substitutes. The Commission further rejected as speculative Princo's argument that inclusion of the Lagadec patent in the package license enabled Philips to secure Sony's adherence to the Orange Book standards and thereby foreclose competition. On appeal, a divided Federal Circuit panel ruled against the Commission and Philips, and directed the Commission to re-examine “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.”

After granting en banc petitions filed by Philips and the Commission, the Federal Circuit held that regardless of whether Philips and Sony agreed to suppress the technology in Sony's Lagadec patent, such an agreement would not constitute patent misuse of the asserted Raaymakers patents since misuse requires that the patent in suit significantly contribute to the practice under attack. The court also stated that Princo's complaint was essentially the lack of availability of the Lagadec patent for uses other than under the standard, but that this does not constitute unlawful leveraging of the patent in suit to exact concessions from the licensee.

Separate and apart from its finding that Princo failed to show unlawful leveraging of the Raaymaker patents, the majority held that a finding of patent misuse was unwarranted because Princo failed to establish that the alleged agreement to suppress the Lagadec technology had anticompetitive effects. The majority reasoned that collaboration for the purpose of developing and commercializing technologies can have pro-competitive effects, and there was no evidence in the record that any potential licensee might develop the Lagadec technology to compete with the CD-R/RW discs.

Judges Timothy B. Dyk and Arthur J. Gajarsa dissented. They reasoned that the effect of the Sony-Philips agreements was to protect the Philips Raaymakers technology from any actual or potential competition. They also disagreed with the majority's conclusion that any misuse did not relate to the Raaymaker patents, reasoning that the Philips/Sony agreement was designed to protect the Raaymaker patents from competition.

Jeffrey S. Ginsberg is a partner and Matthew Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.

Federal Circuit Issues En Banc Ruling on Patent Misuse

In Princo Corp. v. International Trade Commission, 2010 U.S. App. LEXIS 18101 (Fed. Cir. Aug. 30, 2010) (en banc), the Federal Circuit held that a patent pooling agreement between Philips Corp. and Sony Corp. did not constitute patent misuse of certain asserted pooled patents, even if the agreement resulted in the suppression of technology embodied in non-asserted pooled patents.

The technology at issue concerned digital storage devices, and specifically, recordable compact discs (“CD-Rs”) and rewriteable compact discs (“CD-RWs”). The companies that developed the technology, principally Philips and Sony, generated technical standards for the industry, which were collected in a publication informally referred to as the “Orange Book.” In the course of their work, Sony and Philips each separately developed solutions to the problem of how to encode position information in a disc so that a consumer's CD reader/writer could maintain proper positioning while writing data to the disc. Philip's solution is described in two patents, (collectively the “Raaymakers patents”) and Sony's approach is described in one of its patents (the “Lagadec patent”). After reviewing the competing solutions, Sony and Philips engineers agreed that they would incorporate the Raaymakers approach in the Orange Book standard. Philips and Sony sought to commercialize their technology by offering a package license to patents covering CD-R/RW technology, including the Raaymaker and Lagadec patents. The package license contained a “field of use” restriction, limiting the licensees to using the licensed patents to produce discs according to the standards.

In the late 1990s, Princo entered into a package license agreement with Philips, who was solely responsible for administration of the licensing program. Soon after entering the agreement, however, Princo stopped paying licensing fees. Philips then filed a complaint with the International Trade Commission alleging that Princo was violating 19 U.S.C. ' 337 by importing CD-R/RWs that infringed Philips' patents. The administrative law judge (“ALJ”) found infringement, but denied relief on the ground that the asserted Philips patents were unenforceable because of unlawful tying, constituting patent misuse. On review, the Commission affirmed the ALJ's misuse finding, but a Federal Circuit panel reversed, reasoning that Philips' package license did not constitute improper tying since it gave licensees the option of using any of the packaged patents, and charged a uniform fee regardless of the patents used.

On remand, the Commission rejected Princo's remaining patent misuse theories. Specifically, the Commission rejected Princo's argument that Philips committed patent misuse by “combining with its horizontal competitors to fix the price of patent licenses,” finding that there was no evidence that the licensed patents were close substitutes. The Commission further rejected as speculative Princo's argument that inclusion of the Lagadec patent in the package license enabled Philips to secure Sony's adherence to the Orange Book standards and thereby foreclose competition. On appeal, a divided Federal Circuit panel ruled against the Commission and Philips, and directed the Commission to re-examine “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.”

After granting en banc petitions filed by Philips and the Commission, the Federal Circuit held that regardless of whether Philips and Sony agreed to suppress the technology in Sony's Lagadec patent, such an agreement would not constitute patent misuse of the asserted Raaymakers patents since misuse requires that the patent in suit significantly contribute to the practice under attack. The court also stated that Princo's complaint was essentially the lack of availability of the Lagadec patent for uses other than under the standard, but that this does not constitute unlawful leveraging of the patent in suit to exact concessions from the licensee.

Separate and apart from its finding that Princo failed to show unlawful leveraging of the Raaymaker patents, the majority held that a finding of patent misuse was unwarranted because Princo failed to establish that the alleged agreement to suppress the Lagadec technology had anticompetitive effects. The majority reasoned that collaboration for the purpose of developing and commercializing technologies can have pro-competitive effects, and there was no evidence in the record that any potential licensee might develop the Lagadec technology to compete with the CD-R/RW discs.

Judges Timothy B. Dyk and Arthur J. Gajarsa dissented. They reasoned that the effect of the Sony-Philips agreements was to protect the Philips Raaymakers technology from any actual or potential competition. They also disagreed with the majority's conclusion that any misuse did not relate to the Raaymaker patents, reasoning that the Philips/Sony agreement was designed to protect the Raaymaker patents from competition.

Jeffrey S. Ginsberg is a partner and Matthew Berkowitz is an associate in the New York office of Kenyon & Kenyon LLP.