Federal Circuit Holds Antitrust Violation Is Not Per Se Patent Misuse In Princo Case

An antitrust violation involving a patent is not necessarily a defense in a patent infringement suit, the U.S. Court of Appeals for the Federal Circuit has ruled in Princo v. ITC.

In its third opinion in the long-running Princo case, the court rejected recordable CD manufacturer Princo’s argument that an agreement between two firms to market one firm’s patent and suppress the other renders the patent that was marketed unenforceable under the “patent misuse” defense – even if the agreement violates the Sherman Act.

Both Sony and Philips, key members of the consortium that developed the recordable CD (CD-R) standard, own patents on a method of encoding position information on a CD-R. Both patents are included in the bundle licensed by the consortium, but only Philips’s patent is actually used.

When Philips sued Princo for infringement of various patents, Princo raised the patent misuse defense, which can block the enforcement of a patent when the patent holder uses its patent in an anticompetitive way.

The classic examples of patent misuse are where a patent holder ties licenses to use a patented product to a promise to use unpatented supplies, or where a patent holder makes licensees promise to honor the patent beyond its expiration date.  Princo’s theory was different.  It claimed that if Sony and Philips agreed to market Philips’s patent as part of the CD-R standard and keep Sony’s patent on the shelf – an illegal agreement not to compete – Philips’s patent became unenforceable because of patent misuse.

In a review by 10 judges of the Federal Circuit, a majority of six found that Sony and Philips’s agreement, if proven, would not be patent misuse, even if it constituted a Sherman Act violation.

Judge Bryson, writing for the majority, said that misuse is limited to situations where a patent holder leverages his patent rights against licensees to gain additional benefits that the patent doesn’t guarantee – analogous to a tying claim.  An agreement between two patent holders not to compete, said the court, is not the same as leveraging a patent.  It may be the basis for an antitrust counterclaim, but it is no defense against patent infringement.