Patent Misuse Doctrine

Patent Misuse Doctrine

What Is the "Patent Misuse" Doctrine ?

In the cases applying the Supreme Court's patent misuse decisions, the Court characterized patent misuse as the patentee's act of "impermissibly broadening the `physical or temporal scope' of the patent grant with anticompetitive effect." Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed.Cir.1986).

When the patentee has used restrictive conditions on licenses or sales to broaden the scope of the patent grant, the Court held that an accused infringer may invoke the doctrine of patent misuse to defeat the patentee's claim. See Monsanto Co. v. McFarling, 363 F.3d 1336, 1341 (Fed.Cir.2004); Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 870 (Fed.Cir.1997); Senza-Gel Corp. v. Seiffhart, 803 F.2d 661 (Fed.Cir.1986).

In B. Braun Medical, Inc. v. Abbott Laboratories, 124 F.3d 1419 (Fed.Cir. 1997), and Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed.Cir.1992), the Court explained the rationale underlying the doctrine of patent misuse.

As a general matter, the unconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of the device thereafter, on the theory that the patentee has bargained for, and received, the full value of the goods. That "exhaustion" doctrine does not apply, however, to a conditional sale or license, where it is more reasonable to infer that a negotiated price reflects only the value of the "use" rights conferred by the patentee.

Thus, express conditions accompanying the sale or license of a patented product, such as field of use limitations, are generally upheld. See Gen. Talking Pictures Corp. v. W. Elec. Co., 304 U.S. 175, 181, 58 S.Ct. 849, 82 L.Ed. 1273 (1938) ("Patent owners may grant licenses extending to all uses or limited to use in a defined field."). When those contractual conditions violate public policy, however, as in the case of price-fixing conditions and tying restraints, the underlying patents become unenforceable, and the patentee loses its right to sue for infringement or breach of contract. B. Braun, 124 F.3d at 1426; Mallinckrodt, 976 F.2d at 706.

The doctrine of patent misuse is thus grounded in the policy-based desire to "prevent a patentee from using the patent to obtain market benefit beyond that which inheres in the statutory patent right." Mallinckrodt, 976 F.2d at 704.

It follows that the key inquiry under the patent misuse doctrine is whether, by imposing the condition in question, the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects. B. Braun, 124 F.3d at 1426.

Where the patentee has not leveraged its patent beyond the scope of rights granted by the Patent Act, misuse has not been found. See Monsanto, 363 F.3d at 1341 ("In the cases in which the restriction is reasonably within the patent grant, the patent misuse defense can never succeed."); Virginia Panel, 133 F.3d at 869 (particular practices by the patentee "did not constitute patent misuse because they did not broaden the scope of its patent, either in terms of covered subject matter or temporally").

In determining whether a particular licensing condition has the effect of impermissibly broadening the patent grant, courts have noted that the patentee begins with substantial rights under the patent grant-"including the right to suppress the invention while continuing to prevent all others from using it, to license others, or to refuse to license, ... to charge such royalty as the leverage of the patent monopoly permits," and to limit the scope of the license to a particular "field of use." United States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d 1122, 1127, 1133 (D.C.Cir. 1981).

Given that the patent grant entitles the patentee to impose a broad range of conditions in licensing the right to practice the patent, the doctrine of patent misuse "has largely been confined to a handful of specific practices by which the patentee seemed to be trying to `extend' his patent grant beyond its statutory limits." USM Corp. v. SPS Techs., Inc., 694 F.2d 505, 510 (7th Cir.1982).

Recognizing the narrow scope of the doctrine, the Court emphasized that the defense of patent misuse is not available to a presumptive infringer simply because a patentee engages in some kind of wrongful commercial conduct, even conduct that may have anticompetitive effects. See C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1373 (Fed.Cir.1998) ("Although the defense of patent misuse ... evolved to protect against `wrongful' use of patents, the catalog of practices labeled `patent misuse' does not include a general notion of `wrongful' use.").

Other courts have expressed the same view. See Kolene Corp. v. Motor City Metal Treating, Inc., 440 F.2d 77, 84-85 (6th Cir.1971) (There is no such thing as "misuse in the air. The misuse must be of the patent in suit. An antitrust offense does not necessarily amount to misuse merely because it involves patented products or products which are the subject of a patented process."); McCullough Tool Co. v. Well Surveys, Inc., 395 F.2d 230, 238-39 (10th Cir.1968) (the defense of patent misuse has been allowed "only where there had been a misuse of the patent in suit").

While proof of an antitrust violation shows that the patentee has committed wrongful conduct having anticompetitive effects, that does not establish misuse of the patent in suit unless the conduct in question restricts the use of that patent and does so in one of the specific ways that have been held to be outside the otherwise broad scope of the patent grant.

Although patent misuse has been mainly a judicially created defense, Congress has not been entirely silent about the doctrine.

However, instead of saying what patent misuse is, Congress has said what it is not. Thus, section 271(d) of the Patent Act sets forth five types of conduct that may not provide the basis for finding "misuse or illegal extension of the patent right." The last two of the five, which were added in 1988, are:

(4) refusing to license or use any rights to the patent; or (5) conditioning the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned. 35 U.S.C. § 271(d).

Importantly, Congress enacted section 271(d) not to broaden the doctrine of patent misuse, but to cabin it. See Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176, 201, 100 S.Ct. 2601, 65 L.Ed.2d 696 (1980) (addressing the role of section 271(d) in narrowing the scope of patent misuse). The 1988 amendment in particular was designed to confine patent misuse, with respect to certain licensing practices, to conduct having anticompetitive effects. See Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 41, 126 S.Ct. 1281, 164 L.Ed.2d 26 (2006); S.Rep. No. 100-492, at 9 (1988) (explaining that purpose of the amendment was to narrow the patent misuse doctrine, which "punishes innovators engaged in procompetitive distribution and licensing practices"); id. at 14 ("The lack of clarity and predictability in application of the patent misuse doctrine and that doctrine's potential for impeding procompetitive arrangements are major causes for concern."); 134 Cong. Rec. 32,471 (1988) (statement of Sen. Patrick Leahy) ("Reform of patent misuse will ensure that the harsh misuse sanction of unenforceability is imposed only against those engaging in truly anticompetitive conduct."); id. at 32,-295 (statement of Rep. Robert Kastenmeier) ("The proposed modifications should have a procompetitive effect, insofar as they require some linkage between patent licensing practice and anti-competitive conduct.").