By James Love
The U.S. Court of Appeals for the Federal Circuit (CAFC) has now heard the en banc arguments in Princo Corp. v. Int’l Trade Comm’n, (2007-1386) and is set to rule on the case in the near future.  See our February 26, 2010 post for further background.

The en banc re-hearing focused on two main issues:

  • Whether an agreement between developers of a new standard to license a patent to be used only under the standard (thus foreclosing the creation of a competing standard) should be held anti-competitive without addressing the relevant market for the standards or proving injury to competition as a result of the agreement; and

  • Whether such an agreement, even if found to be anti-competitive, can be a proper basis for a patent misuse defense preventing enforcement of other patents used to practice the standard.

While it is difficult to predict how the CAFC will rule in Princo, in order to determine whether the license agreement is anti-competitive on its face, the court will likely consider the possible effects of such an agreement.

One possible anti-competitive effect that could result from an agreement of this type relates to what would happen if a particular standard, which is the subject of such an agreement, fails.  For instance, it may be the case that two standards are in direct competition.  There may be patents that are considered essential to both standards.   If one of the standards was to fail due to widespread adoption of the competing standard, and an agreement such as the one at issue in Princo is in place, developers of the failed standard would be left with a number of essential patents that may be unavailable for inclusion in a pool linked to the surviving standard.  As a result, the pro-competitive advantage provided by the pooling of essential patents would have been impeded.  In contrast, if an agreement between developers of a new standard to license a patent to be used only under the standard was found to be anti-competitive on its face, such agreements would be disfavored, and the resultant problems would be avoided.

In addition, it is possible that a ruling that is consistent with the FTC’s amicus brief may result.  The FTC’s amicus brief takes the position that an agreement not to license a patent except for uses complying with a particular standard should be justified only when done ex ante (i.e., before the standard is finalized), and only when reasonably necessary to further pro-competitive technical collaboration.

Whatever the outcome, the CAFC ruling in the Princo case could have significant effects in the area of patent pools and standards.  A ruling is expected soon.