Misuse of a Patent Pool: En Banc Federal Circuit To Decide Whether CD-R/RW Patentees Improperly Sequestered Alternative Technologies

Princo Corp. v. International Trade Commission (ITC) (Fed. Cir. 2009)

The long-running Princo cases involve questions of when bundled licensing of patent rights may be seen as patent misuse (and thus rendering the patents unenforceable). The underlying pools of patents cover compact discs that are recordable (CD-R) and re-writeable (CD-RW).

In its most recent panel decision, the Federal Circuit (Judges BRYSON, GAJARSA, and DYK) rejected several theories of patent misuse, but remanded to consider whether the patentees has improperly sequestered alternative technologies. Judge Bryson did not agree with the novel misuse theory and dissented-in-part. Princo, US Philips, and the ITC each requested rehearing en banc.

The Federal Circuit has now granted the requests from US Philips and the ITC to hear the case en banc. (The court rejected Princo's request for rehearing its questions en banc).

US Philips presented two questions:

1. Whether a supposed agreement, between developers of new technology and a new product standard, to license one of the resulting patents only for use under that standard, thus foreclosing the possibility that it might be used to create a competing standard, could be held anticompetitive without (i) defining a relevant market in which the standards compete and (ii) proving that the agreement injured or was likely to injure competition in that market.
2. Whether such an agreement, even if deemed anticompetitive, would be a proper basis for invoking the doctrine of patent misuse to refuse enforcement of different patents used to practice the joint standard.

The ITC did not explicitly list its en banc question, but basically argues that the remand is improper because (1) neither party raised the misuse theory that the court relied upon in its decision and (2) the ITC needs the Federal Circuit to define the "relevant market" before it can properly determine the market harm.

Briefs: US Philips en banc brief will be due at the end of November, and briefs from the ITC and Princo will be due thirty days from the date of service of US Philips. "Briefs of amici curiae will be entertained, and any such amicus briefs may be filed without leave of court but must otherwise comply with Federal Rule of Appellate Procedure 29 and Federal Circuit Rule 29."

US Philips is represented by Douglas Melamed at WilmerHale; Princo is represented by Eric Wesenberg at Orrick; the ITC's lead attorney is Clara Kuehn. Portions of the Melamed and Calebresi 1972 article on property rights is found in almost every property law casebook.

Comments

[Chris McGeehan]

Can you post the parties' petitions for rehearing en banc?

[Dennis Crouch]

Thanks Chris - I only have them from Westlaw, and that company is claiming copyright over the briefs.

[Leopold Bloom]

It would be nice to see a little life breathed back into the doctrine of patent misuse. The CAFC has all but killed it off, first by effectively refusing to recognize any per se misuse defenses, and then by turning up their noses at any attempts to show actual harm under the rule of reason. So far, the pro-competitive aspects of pool licensing have been deemed to trump virtually everything else.

[LeMieux]

Its the standards themselves that tend to be anticompetitive. Paradoxically, standards also have the effect of fostering cooperation and efficiency (and non-destructive competition) in a market that, but for the standard, could spawn non-compliant competing technologies (and may spawn them anyway in the form of a competing "standard"). In such a product market one is destined to emerge as pre-eminent.

Therefore, I don't think the owner of the standards blocking patent should be under any obligation to license outside the standard.

/prepare for shrill response (sounding like a girl scream) from Mooney, et al.

[Leopold Bloom]

LeMieux, at the risk of being accused of a "shrill response," I'm afraid that I don't follow your logic. First, the question is not whether an owner of a standards-block patent is under an obligation to license outside the standard. 35 USC 271(d) puts any uncertainty about that to rest - there is no such obligation.

Instead, I believe that one of the actual questions is whether it is anticompetitive to enter into an agreement not to license a given patent outside a standard. There is a difference, yes?

Your comment seems to suggest that because standards can be beneficial to the market (I agree), then any patent agreements related to those standards should be winked at. Unfortunately (in my opinion), this is pretty much the position of the CAFC. The ITC tried at least once to find patent misuse in the CD area, but was smacked down by the CAFC. (See Philips Corp. v. International Trade Commission, 424 F.3d 1179 (Fed. Cir. 2005).) The ITC is on the other side in this case, and I'm a little surprised at the original remand - I wouldn't be surprised if the en banc court finds that the remand was improper. But perhaps I should actually read the earlier opinion...

[Humorless Democrat]

Dennis, did Westlaw somehow make its own arrangements of the briefs? If it's only providing a pdf of the documents filed by the parties, then please enlighten me as to how it can claim copyright in a work wholly produced by someone else, to which Westlaw contributed nothing, and which is part of the public record - I'm curious what I missed in copyright class.

[Dale B. Halling]

The patent misuse doctrine has a sad history. The FTC’s nine-no-nos in the 1970s killed off US innovation and resulted in a significant drag on the US economy. The FTC’s over aggressive antitrust attitude towards patents, forced Xerox to license all its technology to its competitors in the 1970s. This about bankrupted the company a decade later and now the copier market is dominated by foreign companies. While I do not know the details of this case, history has shown that the patent misuse rules are likely to hurt the US economy and US innovation.

[6]

"Dennis, did Westlaw somehow make its own arrangements of the briefs? If it's only providing a pdf of the documents filed by the parties, then please enlighten me as to how it can claim copyright in a work wholly produced by someone else, to which Westlaw contributed nothing, and which is part of the public record - I'm curious what I missed in copyright class."

Seconded.

Did they "buy the rights"? How can you even have rights on things in the public records? Or are they not part of the public records since they haven't been filed yet?

[Just Visiting]

I believe what Westlaw actually does is allege a contractural agreement to restrict distribution of the stuff on their servers along with asserting copyright in whatever commentary they insert.

[Dennis Crouch]

6 - I did not say that they hold the copyright - only that they claim copyright protection. 

[LeMieux]

I usually avoid responding seriatim (like the ever tiresome "6"), but in this case I couldn't think of a better way.

"First, the question is not whether an owner of a standards-block patent is under an obligation to license outside the standard. 35 USC 271(d) puts any uncertainty about that to rest - there is no such obligation."

I never suggested that there is a statutory obligation. The article is about whether the courts have created a de facto obligation, "license outside your area - or else" thus engaging in improper judicial legislative activism, the kind of thing prudent jurists throughout history such as Learned Hand have vigorously counseled against.

"...one of the actual questions is whether it is anticompetitive to enter into an agreement not to license a given patent outside a standard."

Yes, but to the extent that the court is interfering with a legitimate (legal) private contract, then they are effectively creating an obligation.

"There is a difference, yes?"

Effectively - no.

"Your comment seems to suggest that because standards can be beneficial to the market (I agree), then any patent agreements related to those standards should be winked at."

Far from "winking" at the notion, the FC is acknowleding that the right to private contract is sacrosanct; it is up there with sacrosanct private property rights.

And the only reason proffered to interfere would be to "benefit the market" in the sense of attempting to reduce a supposed anti-competitive effect. I am arguing that there is no anti-competitive effect and, in fact, for the same reason, e.g. to "benefit the market" you can just as easily rationalize leaving these parties and these types of contracts alone. The idea of forcing patentees to license to someone flies in the face of the exclusive right.

Besides, CDs are going the way of the buggy-whip anyway...

[whip it good]

Funny you mention that, I just got a new buggy-whip the other day!

[Leopold Bloom]

"Far from 'winking' at the notion, the FC is acknowleding that the right to private contract is sacrosanct; it is up there with sacrosanct private property rights."

If it's as sacrosanct as you say, then all of antitrust law goes out the window. Right now, those laws are still on the books, even if they are not enforced. For what it's worth, that private property rights are "sacrosanct" is news to me - private property rights have yielded to public interest considerations since well before the founding of this country.

"The idea of forcing patentees to license to someone flies in the face of the exclusive right.

Sorry, but I still think you're misapprehending (or at least mischaracterizing) the issue. Nobody is suggesting that a patentee should be forced to license his patent to others. What has been suggested is that it is illegal to enter into a contract that obligates you not to license it to others. In other words, it's perfectly alright to refuse to license your patent. It's not alright (according to the accused infringers in this case) to make a deal with a few competitors to use your patent to restrict further competition.

You don't have to like the theory. But it's not as simple as either "contracts are sacrosanct" or "patentees must license their patents to all comers."

[Leopold Bloom]

"Did they 'buy the rights'? How can you even have rights on things in the public records? Or are they not part of the public records since they haven't been filed yet?"

In the past, West has been pretty agressive with their copyright assertions. See http://lawlibrary.ucdavis.edu/LAWLIB/Nov93/0030.html .

[6]

Blot out the page numbers then.

[LeMieux]

If you collude to restrict output and/or maintain price, you are running afoul of the antitrust statutes, which have criminal sanctions. Presumably, the parties in these contracts are sophisticated and would not knowingly enter into a written contract to collude to run afoul of the antitrust laws. Ergo, unless the contract is illegal, let it stand.

"that private property rights are "sacrosanct" is news to me - private property rights have yielded to public interest considerations since well before the founding of this country."

What communist backwater are you living in. Aside from a few controversial takings, I would say private property rights are sacrosanct.

Heck, you're starting to sound like a Birkenstock wearing, PeaceCorps beatnik, or at least like Mooney.

[LeMieux]

Some guy named Mooney keeps buying my buggy whips... He keeps coming in here in red pumps and satin underwear. I don't think he even has a buggy.

[Leopold Bloom]

"If you collude to restrict output and/or maintain price, you are running afoul of the antitrust statutes, which have criminal sanctions. Presumably, the parties in these contracts are sophisticated and would not knowingly enter into a written contract to collude to run afoul of the antitrust laws. Ergo, unless the contract is illegal, let it stand."

Your analysis speaks for itself. My congratulations to you.

"What communist backwater are you living in. Aside from a few controversial takings, I would say private property rights are sacrosanct."

Thanks for the intelligent discussion, LeMieux. You win, at least if winning is defined as having the room entirely to yourself.

[Humorless Democrat]

Dennis, there are a number of alternatives available that do not involve capitulating to Westlaw. You could, for example, OCR the texts, edit out any information particular to Westlaw, and post the text. Personally I'm not interested in the Westlaw page numbering, just in seeing the briefs.

Or is fear of losing a book contract, rather than fear of being sued by Westlaw, that keeps you from making the briefs available?

[LeMieux]

If I can keep out the communist riff raff, its been worth my time...

[lost harvard student]

why is this being reheard en banc?? i could understand a rehearing maybe... where did dyk go that wrong?

[Ned Heller]

Lost, Philips an a few asian companies, such Sony and Panasonic, et al., typically form coalitions to jointly bring to market new consumer products such as VCRs, CDs, DVDs and the like, by adopting standardized formats that all content and player providers can use. In many cases, a rival coalition will develop and will attempt to compete. But in the end, only one technology and format prevail. Famous prior examples of competing formats include Betamax and VCRs, HD and BluRay DVDs.

If Dyk is correct, it will be harder to standardize as the likes of Philip could be sued for suppressing the alternative standard.

The implications of this case are enormously important for us all, although only a very few big companies are directly affected.