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On Misuse, Patent Thickets and Patent Pools

For years, the CAFC has heard appeals involving a long running ITC dispute involving CD-R/RW patents between Philips and importer Princo.  In April, the CAFC rejected most of Princo’s theories regarding its patent misuse defense. (See Princo v. ITC)  The alleged misuse relates to a patent pooling arrangement between Philips and Sony.  Specifically, while Philips and Sony license a group of patents essential to practice a CD-R/RW standard, the Lagadec patent (which Princo was accused of infringing) is only licensed as a part of that group, and was alleged by Princo to be non-essential to practicing the standard.  Princo also alleged that, despite Lagadec’s status as a blocking patent, it also represented an alternative to the standard.  Thus, Philips’ agreement with Sony to only license Lagadec with the other patents amounted to an agreement not to compete, and a refusal to license Lagadec in a way that would allow competitors to develop a competing product. The CAFC noted:

It is one thing to offer a pooled license to competing technologies; it is quite another to refuse to license the competing technologies on any other basis. In contrast to tying arrangements, there are no benefits to be obtained from an agreement between patent holders to forego separate licensing of competing technologies, as counsel for Philips conceded at oral argument.

However, when given an opportunity to reflect on the appropriate rule of reason standard to apply, the CAFC promptly punted:

On the one hand, evidence that a suppressed technology would have been viable would be sufficient; on the other, proof that a suppressed technology could not have been viable would be sufficient to negate a charge of misuse. We need not determine at this time where on the continuum between “certainly would have been viable” and “certainly could not have been viable” the appropriate standard lies. We leave that issue for consideration in the first instance by the Commission, together with the question of whether the evidence here satisfies the standard.

Recently, the CAFC agreed to reconsider these issues en banc.  (Reported by Patently-O here.  The en banc order can be found here.  Notably, the CAFC specifically ordered that Briefs of Amici Curiae may be filed without leave of the court.

It will be interesting to see which players in the patent space file amicus briefs on this issue.  RPX is one company in particular that may watch this issue with great interest, as clearer boundaries on antitrust laws would provide much needed certainty to the business of patent pools.  It has been suggested that antitrust laws may be slowing down the natural progression of patent pools.  For example, Professor Adam Mossoff commented over at the Volokh Conspiracy that the “rule-of-reason analysis is ‘indeterminate’” and questioned the effect of this indeterminancy on the use of patent pools to resolve patent thickets.  Professor Mossoff writes:

Antitrust scholars acknowledge that rule-of-reason analysis is “indeterminate,” which means that it is next to impossible for the firms to predict ex ante whether their actions will run afoul of the antitrust laws or not. So, here’s my question: How does this indeterminacy impact the use of patent pools to resolve paten [sic] thickets? If so, does this make patent thickets more or less problematic today? In other words, is one of the reasons for the problem of patent thickets today exogenous to the patent system — is antitrust mucking up the workings of the patent system here?

Professor Mossoff might be on to something here.  It was previously predicted that, in the near future, patents will trade more efficiently, accompanied by a reduction in litigation and an increase in market participants.  However, any mechanisms for helping those assets trade are likely to be impacted (for better or for worse) by whatever conclusions the courts reach. With this in mind, this is a case I will watch very closely.

Also, for more background on patent pools, see Professor Mossoff’s explanation of the first American patent pool here.  His discussion of the first American patent thicket can be found here.

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