In United States patent law, patent misuse is a patent holder's use of a patent to restrain trade beyond enforcing the exclusive rights that a lawfully obtained patent provides. If a court finds that a patent holder committed patent misuse, the court may rule that the patent holder has lost the right to enforce the patent. Patent misuse that restrains economic competition substantially can also violate United States antitrust law..
Definition
Patent misuse is a patent owner's improper use of patent rights, speaking very generally, to expand the scope or term of the patent. Examples of such patent misuse include forcing customers to agree to pay royalties on unpatented products or to pay royalties on an expired patent. This particular type of patent misuse can take place without a violation of antitrust laws. But it violates such policies of US patent law as the monopoly of a patent is confined to what its claims cover and once a patent expires the public has an unlimited right to practice the formerly claimed subject matter.See .
Patent misuse may also occur when the patentee's conduct is a violation of antitrust laws. For example, a company buying all the patents in a given field (relevant market) to stall competition would be misusing patents, and (assuming other statutory requirements are met) also violating section 7 of the Clayton Act (15 U.S.C. § 18) and section 2 of the Sherman Act (15 U.S.C. § 2). Other antitrust patent misuse includes (again assuming that other statutory requirements are met) a licensor's exercising control over the price that several licensees charge for a product or service; attempting to enforce a patent that the patentee knows to be invalid or not infringed; and selling patented goods on the condition, agreement, or understanding that the buyer will not deal in the goods of a competitor of the seller.; section 3 of the Clayton Act ().
History
In the early 20th century, patent misuse was not yet a well recognized defense to patent infringement, although it had been recognized in Adams v. Burke in 1873. Courts at that time recognized relatively few limitations to patentees' rights. In 1912, the Supreme Court did not recognize a doctrine of patent misuse in Henry v. A.B. Dick Co.,. a case in which a patent license was tied to a purchase of another product.A mimeograph machine patent was used to tie ink and stencils used with the machine to the machine. According to the Court, because a patent owner had the greater right to withhold its patented product from market entirely, it had the inherent lesser right to selectively withhold it from people who did not purchase other products.Brian D. Hill, "Princo Corp. v. Int'l Trade Comm'n: Patent Misuse No Longer a Deterrent to Anticompetitive Behavior in the Group Venture Context", 7 J. Bus. & Tech. L. 361 (2012)
This inherent-right doctrine was expressly rejected a few years later, however, in Motion Picture Patents Co. v. Universal Film Mfg. Co. (holding unenforceable a restriction that a user of a patented film projector must use it to screen only such films as the patentee authorized). In that case, Justice Holmes (who had been in the majority in the A.B. Dick case), now in dissent, argued that because the owner of a patented teapot "may keep his device wholly out of use . . . I cannot understand why he may not keep it out of use unless the licensee, or, for the matter of that, the buyer" will agree to buy his tea from the patent owner.243 U.S. at 519. But the majority rejected this doctrine of patentees' "inherent rights." It explained:
[T]he argument [is] that, since the patentee may withhold his patent altogether from public use, he must logically and necessarily be permitted to impose any conditions which he chooses upon any use which he may allow of it. The defect in this thinking springs from the substituting of inference and argument for the language of the statute, and from failure to distinguish between the rights which are given to the inventor by the patent law and which he may assert against all the world through an infringement proceeding, and rights which he may create for himself by private contract, which, however, are subject to the rules of general, as distinguished from those of the patent, law. While it is true that, under the statutes as they were (and now are), a patentee might withhold his patented machine from public use, yet, if he consented to use it himself or through others, such use immediately fell within the terms of the statute, and, as we have seen, he is thereby restricted to the use of the invention as it is described in the claims of his patent, and not as it may be expanded by limitations as to materials and supplies necessary to the operation of it, imposed by mere notice to the public.243 U.S. at 514-15.
A year after the A.B. Dick case, in Bauer & Cie. v. O'Donnell,. the Supreme Court began to shift its perspective by holding that, although patentees could control manufacturing, use, and sale of patented products with license agreements, they could not use license agreements to control the resale price of patented products the patentee sold. After the Motion Picture Patents case, the tide began to run more strongly against restrictive patent practices.
Case law
Origins and development
In 1917, the Supreme Court reversed the four-year-old Henry v. A.B. Dick Co. decision and established patent misuse as an affirmative defense to copyright infringement. In Motion Picture Patents Co. v. Universal Film Mfg. Co., the Supreme Court held that requiring a patented film projector only be used for screening films authorized by the patent holder was unenforceable and constituted patent misuse. The Court concluded that the patentee's attempt to extend its monopoly power beyond the rights that the patent statute conferred on it was inequitable, and because of the patentee's "unclean hands", the court, as a court of equity, would not grant it relief.White, Katherine "A Rule for When Patent Misuse Should be Applied" 11 671 In explaining its ruling, the Court said:
[W]e are convinced that the exclusive right granted in every patent must be limited to the invention described in the claims of the patent, and that it is not competent for the owner of a patent, by notice attached to its machine, to in effect extend the scope of its patent monopoly by restricting the use of it to materials necessary in its operation, but which are no part of the patented invention, or to send its machines forth into the channels of trade of the country subject to conditions as to use or royalty to be paid, to be imposed thereafter at the discretion of such patent owner. The patent law furnishes no warrant for such a practice, and the cost, inconvenience, and annoyance to the public which the opposite conclusion would occasion forbid it.243 U.S. at 516.
Carbice Corp. v. American Patents Development Corp.,. clarified that requiring patent licensees to buy other products as a condition of a patent license ("product tying") was misuse. American Patents Development Corp. held a patent for a dry ice transport enclosure. It required its customers only use their enclosure to transport dry ice from their exclusive distributor. The Supreme Court held that using patents to control an enclosure purchaser's other product purchases was patent misuse. (In a separate case a few months later, the Supreme Court held that Carbice's patent was invalid.).
The Supreme Court held that patent misuse made the patent unenforceable regarding monetary relief in Morton Salt Co. v. G.S. Suppiger Co.. Suppiger Co. owned a patent on salt-tablet dispensing machines that it manufactured. The sales agreement for the machines required customers to purchase salt tablets exclusively from Suppiger. Morton Salt Co., a competitor that also sold salt tablets, manufactured and leased dispensing machines that infringed Suppiger's patent. The Supreme Court denied Suppiger Co. compensation for Morton Salt's infringement, holding that Suppiger's patent was unenforceable because it was using it to restrain competition in unpatented salt. The Court said its ruling would not be different if Morton Salt were not Suppiger's competitor. The Court added that misuse could be found in conduct falling short of an antitrust violation.
Brulotte v Thys Co.,. established that attempting to collect royalties after a patent expired was misuse. Mr. Brulotte purchased a hop-harvesting machine from Thys Co. Upon purchase, Brulotte accepted a licensing agreement which required annual royalty payments beyond the duration of the Thys patent. When Brulotte realized that the terms of the contract exceeded the duration of the patent, he stopped paying the royalties. The Supreme Court held that the contract between Brulotte and Thys was not enforceable once the last licensed patent expired, because the license extended the term of patent protection beyond the duration of the patent. In June 2015, the Supreme Court reaffirmed the Brulotte case., emphasizing that the patent misuse doctrine is based on policies of patent law (such as the establishment of a public domain right upon patent expiry) rfather than antitrust policies.
In Zenith Radio Corp. v. Hazeltine Research, Inc. the Supreme Court established that demanding a percentage of a licensees patented and non-patented product sales in exchange for a license was misuse. Hazeltine Research required Zenith pay a total percentage of all its sales to license Hazeltine's patents. The court ruled that this license requirement was patent misuse, even though it might not be an antitrust violation because the anticompetive impact may have been too slight.395 U.S. at 140. This holding reaffirmed a line of Supreme Court patent misuse decisions holding that the competitive impact of a restrictive practice might fall short of an antitrust violation and nonetheless be misuse.
Other forms of patent misuse recognized by courts of appeals decisions but not addressed in detail as yet by the Supreme Court include: Tying the purchase of unpatented materials as a condition of a patent license, where the effect is substantially anticompetitive in a relevant market over which the patent has market power.. Tying one patent license to another, where the tying patent has market power.; see Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 461 (1992) ("Conditioning the ability of a licensee to license one or more items of intellectual property on the licensee's purchase of another item of intellectual property . . . has been held in some cases to constitute illegal tying."). Requiring a licensee not to make a competitive product as a condition of a patent license.National Lockwasher Co. v. George K. Garrett Co., 137 F.2d 255 (3d Cir. 1943). Requiring a licensee to assign back or exclusively license back subsequent related patents, where the effect is substantially anticompetitive.U.S. Department of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property, § 5.6 (1995)("Grantbacks may adversely affect competition, however, if they substantially reduce the licensee's incentives to engage in research and development and thereby limit rivalry in innovation markets.") Licensor's giving licensees veto power over additional licenses.See United States v. Krasnov, 143 F. Supp. 184 (E.D. Pa. 1956), aff'd per curiam, 335 U.S. 5 (1957); United States v. Besser Mfg, Co., 96 F. Supp. 304 (E.D. Mich. 1951), aff'd, 343 U.S. 444 (1952)' see United States v. Union Camp Corp., Crim. Action No. 4558 (indictment E.D. Va. Nov. 30, 1967); id., 1969 Trade Cas. ¶ 72,689 (E.D. Va. 1969) (consent decree).
Recent changes