Immovable Infringement

Princo v Int’l Trade Comm’n


Alleged infringers looking to dislodge a patent infringement allegation may wish to reassess the mechanical advantage of a patent misuse defense.  In the most recent addition to the Princo v. Int'l Comm'n saga, the majority of an en banc panel of the Federal Circuit refused to budge on anything other than a narrow application of the judicially created doctrine.  Despite the presence of an inviting horizontal plane-a potentially anti-competitive agreement between two large patent holders-the Princo majority said no patent misuse existed because the alleged infringer failed to show a direct connection between the patents-in-suit and the alleged misconduct.  A sharply worded dissent disputed the angle of the majority's correlative wedge.

The patents at issue in Princo covered technology for making recordable and rewritable compact disks.  Working collaboratively, Phillips and Sony chose one method (the Phillips patent approach) of encoding information on the CDs to serve as a standard, over a differing approach used on a Sony-held patent.  Licensed use of the patented technologies required use of the Phillips patent and adherence to the standards Phillips and Sony established.  Princo entered into a license agreement with Phillips, but soon stopped making payments and, as a result, was sued in the ITC at Phillips' initiation for patent infringement.  In response, Princo raised the affirmative defense of patent misuse.

Princo won the first round of proceedings at the ITC, but appeals and remands ensued until the matter finally reached the Federal Circuit en banc with a single remaining issue: whether an agreement between two parties to suppress one technology in favor of another could constitute patent misuse.  The majority answered the question strongly in the negative, holding that patent misuse requires a showing that the patentee has tried to leverage patent rights to gain a physical or temporal benefit beyond that which inheres in the statutory patent grant.  The majority held that, even if an agreement existed between Sony and Phillips to suppress the Sony technology, it would not constitute a misuse of the Phillips patents infringed by Princo because no direct connection existed tying the patents-in-suit to the alleged misconduct.  Without this necessary connection, the majority also said that, when it comes to patent law, it simply didn't matter whether or not the alleged agreement affected competition- though it found that Princo had failed to show the Phillips-Sony agreement was in fact anti-competitive.

The dissent vigorously disagreed. It argued that, given the existence of a potentially anti-competitive agreement, the majority's demand for a patent leverage showing reads a requirement into patent misuse not present in Supreme Court precedent.  Instead, the dissent maintained both that anti-competitive behavior qualifies as patent misuse and that the patent holder should bear the burden of establishing the lack of an anti-competitive effect.  A two-judge concurrence questioned the majority's narrow application of the doctrine (as well the breadth of the dissent's take on the defense), but joined in the opinion given the insufficiency of evidence regarding the challenged agreement's anti-competitive impact.

Princo's direct-connection fulcrum will certainly change the physics of a patent misuse defense.  Unless an infringer can establish that the patent holder improperly sought to leverage rights associated with the patents-in-suit, claims of anti-competitive behavior may simply not be used to displace an otherwise tenable infringement claim.  Patent holders contemplating infringement litigation have little need to worry about the load of any potential misuse defense,  even if their technology is included within a licensing pool agreement (as long as nothing is tied to the agreement that shouldn't be).  As a result, any chance of moving Princo's mighty weight pivots on the slim back of a yet-to-be filed Princo Petition for Writ of Certiorari and, of course, the irresistible force of the United States Supreme Court.

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