Intellectual Property Law

En banc Federal Circuit to address potential patent misuse issues in license practices

By McKee, Voorhees & Sease, P.L.C.

The Federal Circuit has agreed to hear en banc an interesting issue with regard to the potential for patent misuse in licensing.  The case is Princo Corp. v. ITC.  At issue is the patent pool related to the technology used for CD-R and CD-RW discs.  The alleged infringer, Princo, admitted infringement before the ITC, but asserted the patents unenforceable due to patent misuse.  The ITC originally rejected this defense, but a divided panel of the Federal Circuit held additional factual determinations were necessary to assess the defense.  

Currently-available CD-R and CD-RW discs use analog technology to assist the recording device in determining where on the disc the recording laser is located at any given time.  Another potential alternative (that has not been implemented in the marketplace) is using digital technology to make this determination.  According to the defendant, the digital alternative was never commercialized because of an agreement between Sony and Philips (two of the owners of patents in the relevant patent pool) not to license a Sony patent covering this digital alternative for this purpose.  According to the defendant, this amounted to a type of horizontal price fixing, and was therefore patent misuse.  The ITC disagreed, and held no misuse occurred.

A divided panel of the Federal Circuit disagreed, and remanded the case to the ITC for further factual development.  The court stated the precompetitive benefits sometimes seen in the context of patent pools are completely absent in the context of an agreement not to license patents covering a potentially competing technology.  The panel majority held this was at least potentially an antitrust violation under the rule of reason.

The en banc Federal Circuit has now agreed to address this issue, with the briefing cycle to be completed shortly after the new year.  Oral argument is not yet set (update, see below), but the case has the potential to provide some clarity on when an arguably anticompetitive licensing practice crosses over into patent misuse.

Click here for the order granting rehearing en banc.

Update (10/29):  The Federal Circuit has set oral argument in the case for March 3 at 2:00 PM.

Click below for a full summary of the panel decision in Princo Corp. v. Int'l Trade Comm'n.

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Full post as published by FileWrapper on October 20, 2009 (boomark / email).