Patent misuse

In United States patent law, patent misuse is a patent holder's use of a patent to restrain trade beyond enforcing the exclusive rights that a lawfully obtained patent provides.[1] If a court finds that a patent holder committed patent misuse, the court may rule that the patent holder has lost the right to enforce the patent. Patent misuse that restrains economic competition can also violate United States antitrust law.

Definition

Patent misuse happens when a patent owner improperly expands the scope or term of the patent. This type of patent misuse includes forcing customers to agree to pay royalties on un-patented products or pay royalties on an expired patent. This type of patent misuse can take place without a violation of antitrust laws.[2]

Patent misuse can also happen when the patentee's conduct is a violation of antitrust laws. For example, a company buying all the patents in their field to stall competition would be misusing patents. Other antitrust patent misuse includes attempts to control the resale price of a product using patents, attempting to enforce a patent the patentee knows to be invalid or price fixing.[2][3]

History

In the early 20th century, patent misuse was not a recognized defense to patent infringement. Courts recognized relatively few limitations to patentee's rights. In 1912, the Supreme Court did not incorporate a doctrine of patent misuse in Henry v. A. B. Dick Co.,[4] a case about tying a patent license to a purchase of another product. According to the Court, because a patent owner could withhold their patented product from market entirely, they could also selectively withhold it from people who did not purchase their other products.[5]

A year later, in Bauer & Cie. v. O'Donnell, the Supreme Court began to shift their perspective by holding that although patentees could control manufacturing, use and sale of patented products with license agreements, they could not use license agreements to control the resale price.[5]

Case law

Origins

In 1917, the Supreme Court reversed the four-year-old Henry v. A.B. Dick Co. decision and established patent misuse as an affirmative defense to copyright infringement. In Motion Picture Patents Co. v. Universal Film Mfg. Co.,[6] the Supreme Court held that requiring a patented film projector only be used for screening films authorized by the patent holder was unenforceable and constituted patent misuse. The Court concluded that although the plaintiff's restrictions may be within their rights, their behavior is egregious that it warrants punishment instead of an award of damages (the principle of unclean hands).[5][7][8]

Carbice Corp. v. American Patents Development Corp.,[9] clarified that requiring patent licensees to buy other products as a condition of their patent license ("product tying") was misuse. American Patents Development Corp. held a patent for a dry ice transport enclosure. They required their customers only use their enclosure to transport dry ice from their exclusive distributor. The Supreme Court held that using patents to control an enclosure purchaser's other product purchases was patent misuse. (In a separate case a few months later, the Supreme Court held Cabrice Corp's patent was invalid.)[5][8][10]

The Supreme Court held that patent misuse made the patent unenforceable in Morton Salt Co. v. G.S. Suppiger Co.[11] Suppiger Co. owned a patent on the salt-tablet dispensing machines it manufactured. The sales agreement for the machines required customers to purchase salt tablets exclusively from Suppiger. Morton Salt Co., a competitor that also sold salt tablets, manufactured and leased the dispensing machines that infringed on Suppiger's patent. The Supreme Court denied Suppiger Co. compensation for the infringement by Morton Salt Co., holding that Suppiger's patent was unenforceable because they were using it to unfairly restrain competition. The Court said their ruling would not be different if Morton Salt Co. was not Suppiger's competitor.[5][8]

Brulotte v Thys Co.,[12] established that attempting to collect royalties after a patent expired was misuse. Brulotte purchased a hop-harvesting machine from Thys Co. Upon purchase, Brulotte accepted a licensing agreement which required annual royalty payments beyond the duration of the Thys company patent. When Brulotte realized that the terms of the contract exceeded the duration of the patent, he stopped paying the royalties. The Supreme Court held that the contract between Mr. Brulotte and Thys Co. was not enforceable because it extended the term of patent protection beyond the duration of the patent.[5][13]

In Zenith Radio Corp. v. Hazeltine Research, Inc.[14] the Supreme Court established that demanding a percentage of a licensees patented and non-patened product sales in exchange for a license was misuse. Hazeltine Research required Zenith pay a total percentage of all its sales to license Hazeltine's patents. The court ruled that this license requirement was patent misuse.[5]

Recent changes

Windsurfing v. AMF[15] established that a patent misuse defense must show that the patentee's behavior hurts competition. This case also clarified that if the Supreme Court had already held a particular licensing arrangement was misuse, the infringer did not have to establish that it was anti-competitive. However, if the Supreme Court had not spoken on the licensing agreement, the infringer has to establish the agreement hurts competition.[5][8]

In Princo Corp. v. International Trade Commission,[16] the Federal Circuit court held that violations of antitrust law involving patents are not always patent misuse. Philips, Sony and other manufacturers developed patented technology to create CDs that could be rewritten multiple times (CD-RWs). Philips licensed these patents to CD player and reader manufacturers (so they could develop CD players and readers that worked with CD-RWs). Princo Corp., one of the licensees, stopped paying royalty fees to Philips, but continued to manufacture readable discs using Phillips technology. Phillips filed a complaint with the International Trade Commission and Princo responded claiming that Sony and Phillips were using their patents to suppress competition. On appeal, an en banc the Federal Circuit Court of Appeals held that Sony and Phillips had not expanded the scope of their patent in a way prohibited by previous Supreme Court cases. Namely, the violation allegedly did not "leverage" the patent at hand. Patent scholars speculate that this opinion will significantly narrow.[5][8]

Congressional limits to patent misuse

Congress limited the patent misuse affirmative defense in both 1952 and 1998, resulting in 35 U.S.C. § 271(d) of the Patent Act.

Overhaul of the Patent Act in 1952

In 1952, Congress added provisions to the Patent Act explicitly exempting charging royalties, licensing and suing from patent misuse. The act clarified that patentees can make money off their patents from by licensing their patents and enforcing their patent rights against infringers.[8]

Patent Misuse Reform Act of 1988

In 1988, Congress enacted legislation that narrowed the scope of the patent misuse by creating safe harbors for patent holders in 35 U.S.C. § 271(d). It clarified that patentees did not misuse their patents by suing people creating products which could be used to infringement patents (contributory infringement). Requiring people to buy another license or product to obtain a patented product is also not misuse, unless the patentee holds much power in either market.[1][2][5][8]

Remedy

Most types of misuse can be erased (or "purged") so the patent is valid again by abandoning the misusing practice and causing its effects to dissipate.[2] Fraud or inequitable conduct in acquiring patents, however, is not purgeable.[17]

Criticisms and support

Critics of the patent misuse defense argue it is anachronistic and that it has been narrowed to oblivion since 1988 by court rulings like Princo Corp v. International Trade Commission.[18][19] Proponents of the patent misuse defense suggest it could be a defense against litigation brought by patent trolls.[20] Use of this doctrine to contest patent infringement suits by non-practicing entities may require the courts to challenge precedent set in Continental Paper Bag Co. v. Eastern Paper Bag Co.[21]

See also

References

  1. ↑ 1.0 1.1 Quinn, Gene. "Patent Misuse, Exploring the Basics". Retrieved 12 November 2013.
  2. ↑ 2.0 2.1 2.2 2.3 Silverman, Arnold (1992). "Patent Misuse: Limitations on a Patentee's Rights". JOM 44 (9).
  3. ↑ Bernhard, Herbert A. "Patents: Misuse Doctrine: Multiple Licenses with Price-Fixing Provisos as Sherman Act Violation" Michigan Law Review Vol. 55, No. 5 (Mar., 1957), pp. 726-728
  4. ↑ Henry v. A.B. Dick Co., 224 US 1 (1912)
  5. ↑ 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 Brian D. Hill, "Princo Corp. v. Int'l Trade Comm'n: Patent Misuse No Longer a Deterrent to Anticompetitive Behavior in the Group Venture Context", 7 J. Bus. & Tech. L. 361 (2012)
  6. ↑ Motion Picture Patents Co. v. Universal Film Mfg. Co 243 U.S. 502 (1917) (Supreme Court holding unenforceable a restriction that a user of a patented film projector must use it to screen only such films as the patentee authorized).
  7. ↑ White, Katherine "A Rule for When Patent Misuse Should be Applied" FORDHAM INTELL. PROP., MEDIA & ENT. L.J. [Vol.11:671]
  8. ↑ 8.0 8.1 8.2 8.3 8.4 8.5 8.6 Barr, Camille (2011). "License to Collude: Patent Pools, the Patent Misuse Doctrine and Princo". UC Davis Law Review 45 (2).
  9. ↑ Carbice Corp. v. Patents Development Corp. 283 U.S. 27 (1931)
  10. ↑ Carbice Corp. v. American Patents Dev. Co. 283 U.S. 420 (1931)
  11. ↑ Morton Salt Co. v. G.S. Suppiger Co. 314 U.S. 488 (1942)
  12. ↑ Brulotte v. Thys Co.379 U.S. 29 (1964)
  13. ↑ Gates, S., Meier, J., "Brulotte’s continuing shadow over patent licensing" Journal of Intellectual Property Law & Practice, 2009, Vol. 4, No. 3
  14. ↑ Zenith Radio Corp. v. Hazeltine Research, Inc. 401 U.S. 321 (1971)
  15. ↑ Windsurfing Intern. INC. v. AMF, INC 782 F.2d 995 (1986)
  16. ↑ Princo Corp. v. International Trade Commission and U.S. Philips Corp.,616 F.3d 1318 (Fed. Cir. 2010)
  17. ↑ Leaffer, M."Patent Misuse and Innovation" 10 J. HIGH TECH. L. 142 (2010)
  18. ↑ Testimony of Robert J. Hoerner "FTC Hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy" (2002)
  19. ↑ Frankel, Kenneth M. "Patent Misuse After Federal Circuit's Princo Decision En Banc" The AIPLA Antitrust News February 2011
  20. ↑ Gene Quinn "Indicia of Extortion – Federal Circuit Slams Patent Troll"
  21. ↑ Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908)

Further reading