Implied License: Purchases from Licensed Manufacturer Come with Implied License to Practice the Invention (Regardless of Non-Infringing Uses)

Zenith Electronics v. PDI Communications (Fed. Cir. 2008) [Part II]

[Read Part I discussing anticipation] Zenith's patented remote TV control system is designed for hospital use. The invention includes both a remote "pillow speakers" and a TV receiver. Zenith accused PDI of infringing even though PDI had purchased Zenith-authorized remote pillow speakers from licensed manufacturers. PDI had, however, purchased off-brand TVs and receivers – Zenith wanted its own TVs to be used.

On summary judgment, the district court found that PDI could not infringe Zenith's patent because the defendant was practicing the invention under an implied license from the patentee. On appeal, the CAFC reversed.

Implied License: Under the first sale doctrine, a license to practice an invention will be implied when the patentee (or its licensee) sells a device that has "no non-infringing uses" under circumstances that "plainly indicate that the grant of a license should be inferred." The no non-infringing use requirement is lifted when the patentee expressly licenses a manufacturer to sell its products for infringing uses. (Jacobs v. Nintendo).

Here, PDI purchased the pillow speakers from manufacturers expressly authorized to sell products for uses that would infringe the Zenith patent. Thus, potential non-infringing uses are "irrelevant" to the question of implied license. Interestingly, the Zenith licenses include aspirations that Zenith TV-equipment will be used. Those aspirations however are "simply the seller's hope or wish, rather than an enforceable restriction."

"We agree with the district court that customers who purchase pillow speakers from [the licensed manufacturers] Curbell, MedTek, and Crest obtain an implied license to use those pillow speakers in combination with any compatible television—not just Zenith televisions. That implied license is derived from the express licenses in place between Zenith and the manufacturers."

Notes

• This situation is similar to that of Quanta, now pending at the Supreme Court. However, in that case, the license made explicit restrictions.
• This decision also is an interesting parallel to the recent DataTreasury decision. In that case, the CAFC decided that the restrictive burden (a requirement to arbitrate disputes) was not actionable to a subsequent purchaser. Here, the CAFC decided that the beneficial license to practice does automatically extend to the purchaser of a patented good. This is like the law of real covenants where the benefit of a covenant flows to the subsequent purchaser much more easily than the burden. (There is a difference here between purchasing a patent in DataTreasury and purchasing a patented good in Zenith.)

Patently-O Tidbits

• Lemley (Stanford) & Myhrvold (IntVen) have released a short article on “how to make a patent market.” They suggest that an information gap is one problem creating friction in licensing negations. The solution — require publication of patent assignments and license terms. [LINK]
• Over the past few weeks, we have directed some focus on the protection of industrial designs. Why? (1) the law surrounding protection of industrial designs is in disarray; (2) I expect that protection of industrial designs will become more important as utility patent protection becomes more difficult and more costly; and (3) if well protected, industrial designs & fashion rights may well be worth more than the value of all non-pharmaceutical utility patents.
• New Patent Law Job Postings:
• Patent Engineer V - Novellus Systems - Silicon Valley
• Patent Engineer III - Novellus Systems - Silicon Valley
• Patent Prosecution - Schneck & Schneck - San Jose
• Electrical Engineering Patent Attorney - Washington DC
• Sr Mechanical Associate - Litig and opinions - Washington DC

Supreme Court: Licensee in Good Standing May File Declaratory Judgment

MedImmune v. Genentech (Supreme Court 2007).

Declaratory judgment (DJ) actions are often used by potential defendants to obtain a declaration that a patent is invalid, unenforceable, or not infringed.  Under Federal Circuit law, a licensee cannot challenge a patent without first breaching the license.  The CAFC's reasoning was that a licensee in good standing feels no apprehension of suit since the license is essentially a settlement between the parties. Without an apprehension of suit, the DJ action would not rise to an actual controversy as required by the Constitution.

In a broadly worded opinion, the Supreme Court has scrapped the Federal Circuit's "reasonable-apprehension" test on declaratory judgment standing in favor of a rule that allows licensee's in good-standing to file DJ actions.

We hold that petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed.

There are several things to note immediately:

Not Limited to Patents: This case at least extends to all licensing issues and likely to most contracts -- whether or not they involve patents or intellectual property.

Suggested Contractual Work-Around: Reading between the lines, the opinion may indicate that a contractual "prohibition against challenging the validity of the patents." may serve to block challenges by licensee's in good standing. Without the clause, however, the Court found no such prohibition:

To begin with, it is not clear where the prohibition against challenging the validity of the patents is to be found. It can hardly be implied from the mere promise to pay royalties on patents

Regarding apprehension of suit, the Opinion's footnote 11 is a complete divergence from common practice -- finding that a licensee who pays royalties either in fear of an injunctions or for fear of treble damages is being coerced in a way that creates an Article III case or controversy.

Links:

• Download MedImmune.pdf
• Briefs filed in MedImmune v. Genentech;
• CAFC Decision in MedImmune v. Genentech;
• CAFC Decision in MedImmune v. Centocor;
• MedImmune Petition Granted;
• Lear v. Adkins;
• Professor Miller’s comments;
• Supreme Court on the March;
• Supreme Court docket sheet.