U.S. Federal Circuit (en banc) finds no patent misuse in Princo

On 20 August 2010 the U.S. Court of Appeals for the Federal Circuit (en banc, 8-2) found – in contrast to an earlier ruling by a panel of the Court – that an alleged agreement between Philips Corp. and Sony Corp. to suppress a technology which could have formed a basis for a competitor to their CD-R/RW standard could not amount to patent misuse (see Newsletter 3/2009 p. 2 for background).

Following a review of Supreme Court case-law and the legislative history of provisions limiting the scope of patent misuse, the Federal Circuit considered that patent misuse requires 1) that the scope of the patent is sought to be expanded and 2) that an anti-competitive effect thereby results. Under these conditions the Federal Circuit held that the alleged horizontal agreement between Philips and Sony could not constitute patent misuse because it did not extend the scope of the patent or otherwise leverage the patent.

The Federal Circuit considered that the alleged agreement also failed the second prong of the defense, as Princo, the party invoking patent misuse, had not established that the alleged agreement produced anti-competitive effects. The Court rejected arguments that a naked restraint of competition or a presumptively anti-competitive restraint was concerned, considering that the alleged agreement was ancillary to a joint venture to develop an industry standard and therefore subject to rule of reason analysis along with the joint venture. The Court further considered that Princo had not established that the alleged agreement between Philips and Sony had an effect of suppressing a competing technology. Instead, there was evidence before the U.S. International Trade Commission that the allegedly suppressed technology lacked both technical and commercial prospects for developing into a rival of the CD-R/RW standard in question.

In contrast, the concurring and dissenting opinions question whether it was necessary or appropriate to apply the patent misuse doctrine as narrowly as the majority did. [Juha Vesala]