Pooled Patent Licenses, Patent Misuse and Price Fixing

Recently, the Federal Circuit agreed to hear the Princo v. Phillips case en banc to decide whether or not Sony, Phillips, Taiyo Yuden and Ricoh’s agreement to pool patents and jointly license technology relating to the “Orange Book” standard for making CD-Rs and CD-RWs was a form of Patent Misuse and price fixing amounting to an Antitrust violation?  Phillips provided the joint licenses to this technology to Princo, but Princo stopped paying the fees for the license and claimed Patent Misuse.  

Patent Misuse is not a new defense, but an old equitable defense.  The idea behind Patent Misuse is to prevent business practices that do not violate any law, but draw anticompetitive strength from the patent right and thus were deemed contrary to public policy.  Phillips I, 424 F.3d at 1134 (quoting Maillinckrodt, Inc., v. Medipart Inc., 976 F.2d 700, 704 (Fed. Cir. 1992).   Typically, in a Misuse analysis, courts will focus on determining whether or not the patentee has imposed conditions or restraints that derive their force from the patent, and increase the scope of the patent with anticompetitive effect.   Phillips I, 424 F.3d at 1134 (quoting C.R. Bard Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed. Cir. 1998).  

 In Princo v. Phillips, the court recently held that there was Patent Misuse, because the Lagadec Patent was a non-essential patent that was pooled into the licensing agreement.  In other words, the court held that the pooling of a patent that was not essential to the “Orange Book” standard was an expansion of the scope of the other patents.  The Court also emphasized and seemed to find that there was an agreement by Sony and Phillips to combine and pool their individual (digital and analog) solutions to the wobble signal that is used to control the recording speed in creating CD-Rs/RWs. 

The court focused on the fact that only one of these two solutions is needed and found that the Lagadec Patent (digital) solution was non-essential.  The court stated that since Sony and Phillips ultimately chose to define the Orange Book standard with the analog solution, the Lagadec Patent was non-essential.  The Federal Circuit has agreed to hear a motion for a rehearing en banc, and may make some important changes to the patent licensing, misuse and antitrust standards. 

For a review of the Petition for Rehearing from the ITC, please see attached:  Princo-Petition for Rehearing en banc – ITC

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