By James Love
On August 30, 2010, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued its decision in connection with the en banc arguments in Princo Corp. v. Int’l Trade Comm’n, (2007-1386).

Although several issues were raised by the briefs for Philips and the ITC, the court focused mainly on the issue raised in the Philips brief as to whether any agreement between Philips and Sony to suppress the technology embodied in Sony’s Lagadec patent would constitute patent misuse and would be a defense to Philips’ claim of infringement against Princo.

In answering that question, the court held that such an agreement would not fall under the purview of patent misuse and would not render unenforceable Philips’ Raaymakers patents which were asserted against Princo and which were part of the Orange Book pooling agreement.

In the holding, the court addressed two main points. First, the court explained that a patent misuse allegation must be directly related to the patents accused of misuse and must be more than a general “part and parcel” of the licensing agreement. Second, the court addressed whether the conduct at issue constituted an antitrust violation and applied the rule of reason to conclude there was no antitrust violation.

In discussing the first point, the CAFC emphasized that “the purported agreement between Philips and Sony has none of the features that courts have characterized as constituting patent misuse. In particular, it does not leverage the power of a patent to exact concessions from a licensee that are not fairly within the ambit of the patent right.” The court went on to say that “if the purported agreement between Philips and Sony not to license the Lagadec technology is unlawful, that can only be under antitrust law, not patent misuse law; nothing about that agreement, if it exists, constitutes an exploitation of the Raaymakers patents against Philips’s licensees.”

Specifically, the court drew a distinction between the present case and the line of patent misuse cases such as Motion Picture Patents Co. v. Universal Film Manufacturing Corp., 243 U.S. 502 (1917), Carbice Corp. of America v. American Patents Development Corp., 283 U.S. 27 (1931), and Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942) in which the patent owner leveraged his patents against the accused infringer to gain some added advantage from the patent. For instance, in Morton Salt the owner of the patent required that certain salt tablets be used in his patented machine. When different tablets were used, the user of the machine was sued for infringement. In contrast, in the present case, the court found that Philips had not leveraged the Raaymakers patents against Princo.  Instead the court found that the requirement that the Lagadec technology be licensed together with the Raaymakers patents was within the rights of the patent owner and did not constitute patent misuse.

In discussing the second point, the CAFC emphasized that agreements such as the one allegedly made between Philips and Sony would not have anticompetitive effects. Specifically, the court stated that “although joint ventures can be used to facilitate collusion among competitors and are therefore subject to antitrust scrutiny, see NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 113 (1984), research joint ventures such as the one between Philips and Sony can have significant procompetitive features, and it is now well settled that an agreement among joint venturers to pool their research efforts is analyzed under the rule of reason.” In addition, the court stated that “the ‘ancillary restraints’ that are often important to collaborative ventures, such as agreements between the collaborators not to compete against their joint venture, are also assessed under the rule of reason.”

Thus, based on the rule of reason, the court found that the agreement ancillary to the agreement corresponding to the Orange Book standard was not anti-competitive at least because such ancillary restraints cannot be viewed in isolation, but in the context of the joint venture or other collaborative effort. In addition, the court highlighted that the Lagadec technology was not a viable potential competitor to the technology embodied in the Raaymakers patents providing another reason that the agreement could not be considered anti-competitive.

In the midst of the discussion of the question of anti-competitiveness, the court took the time to highlight the benefits provided by patent pools. For instance, the court stated that “collaboration for the purpose of developing and commercializing new technology can result in economies of scale and integrations of complementary capacities that reduce costs, facilitate innovation, eliminate duplication of effort and assets, and share risks that no individual member would be willing to undertake alone, thereby ‘promot[ing] rather than hinder[ing] competition.’”

In addition, that court stated “cooperation by competitors in standard-setting ‘can provide procompetitive benefits the market would not otherwise provide, by allowing a number of different firms to produce and market competing products compatible with a single standard.’…those benefits include greater product interoperability, including the promotion of price competition among interoperable products; positive network effects, including an increase in the value of products as interoperable products become more widely used; and incentives to innovate by establishing a technical baseline for further product improvements.”

The ruling by the CAFC has shown that the CAFC recognizes the significant benefits provided by patent pooling agreements even to the point of promoting their use, which is a positive sign for companies looking to move forward in this area.