Deviated, unsound, and self-retreating: a critical assessment of the Princo v. ITC en banc decision.

AuthorWang, Richard Li-dar
  1. INTRODUCTION II. PHILIPS CD-R/CR-RW DISPUTE AND THE EN BANC DECISION III. MISUSE ABRIDGED: DEVIATING FROM PRECEDENTS AND LEGISLATIVE HISTORY A. Over-Construing Previous Decisions B. Deviating from Supreme Court Precedent C. Neglecting Legislative History IV. UNSOUND POLICY DECISION: CONSTRAINING EQUITABLE FLEXIBILITY V. FUNCTIONAL SELF-RETREAT: A GAP WITH ANTITRUST A. Retreating from Anticompetitive Behaviors B. Functional Needs to Complement Antirust C. Requirement on Standing Has to Be Established VI. CONCLUDING REMARKS I. INTRODUCTION

    For the past few years, the licensing dispute between Philips and Taiwan CD-R and CD-RW manufacturers, such as Princo and Gigastorage, has been a powerful generator of new developments in the field of patent and competition in various countries around the world. For instance, in Germany, it stimulated the Supreme Court to deal with the applicability of antitrust defenses to injunctive relief in the context of patent infringement lawsuits, the issue that the same court left open in its Standard-Spundfass decision in 2004. The Court made use of this occasion--the Orange-Book-Standard case in 2009--to opine upon contending positions on that issue, and ruled for further extending antitrust defenses to injunctive relief claims, and meanwhile, set up prerequisites for raising such defenses on the basis of abusing dominant positions by refusal to license. (1)

    In Taiwan, where the present series of controversies initially burst out, the Fair Trade Commission is the key enforcer of antitrust law. In 2001, the Commission found that Philips maintained an excessive royalty rate as to patents that were essential for local manufacturers to comply with CD-R/CD-RW specifications--the Orange Book standards--and, consequently, abused its monopolistic position in the technology market. (2) This case represents a very rare instance where a monopolist was held to be abusing its intellectual property (IP) exploitatively, and, until now, was still under dispute in Taiwan judicial proceedings. (3) Additionally, the Taiwan Intellectual Property Office once granted compulsory licenses on Philips' patents at dispute to local CD-R producers, but was later reversed on appeal and vacated by the Taipei Administrative High Court. (4)

    Turning back to the United States, the Philips CD-R/CD-RW licensing dispute arose chiefly from the exclusionary order proceedings, which is a court-style procedure administered by the U.S. International Trade Commission (ITC) aiming to forestall IP-infringing products from entering into the United States. (5) The U.S. Court of Appeals for the Federal Circuit (Fed. Cir.) possesses appellate jurisdiction over this class of cases arising from the ITC proceedings, as it does in patent infringement ligation. (6) Since 2005, the Fed. Cir. brought out three consecutive major decisions adjudicating the present dispute, culminating at the Princo Corporation v. ITC en banc decision in 2010. (7) These decisions substantially changed the landscape of the patent-misuse doctrine in general, and tying arrangement as a defense to patent infringement litigation in particular. They broke away from the traditional dichotomy between coercion and voluntariness in judging the legitimacy of mandatory package licenses. (8) Instead, in the Philips-series cases, the Fed. Cir. consistently held that tying arrangements between patents should be analyzed under rule of reason, and put emphasis on actual or probable foreclosure of both technically and commercially viable alternative technologies. (9)

    What is unique in the Princo en banc rehearing decision is that the court expanded the impact that the present dispute brought about concerning the entire array of patent-misuse. The majority of the Fed. Cir. unequivocally held that only restrictions on the licensee's use of the patented invention would possibly constitute patent misuse. (10) Consequently, any other type of restriction or extension caused by the patent owners in exercising their patent rights is eliminated from the reach of the patent-misuse doctrine. (11) The court went even further in this decision, holding that antitrust violations based on patent rights do not unavoidably constitute patent-misuse at the same time, even if with that violation the owner extends the patent grant out of the metes and bounds of the claims recited in the same patents. (12) Those two separate but related rulings significantly curtailed the formerly applicable scope of the misuse doctrine, and as a result, substantially undermined its imperative function as a counterweight guarding against overreaching patent exploitation and infringement allegations.

    The goal of this article is to review these two far-reaching holdings in the en banc decision. The author will explore their implications for patent law and market competition, and make meticulous assessments and reflections from doctrinal, policy, and functional dimensions. As a matter of fact, the court still delivered a third ruling in the same decision. The majority concluded that for a misuse defense to prevail based on agreement to suppress nascent technologies, the defendant has to prove that absent this suppress-and-non-compete agreement, the nascent technologies should have enjoyed reasonable probabilities to turn into technically and commercially viable alternatives to the patented inventions. (13) Although the double viability requirement that the court put forward may also perversely affect the function of the misuse doctrine and is therefore worthy of examination, it would be more preferable to leave this critical and broadly-related issue for a separate and more focused investigation on a future day.

    On the substance of the en banc decision, following careful examination of relevant statutes, case law, and their respective reasoning and fundamental policy concerns, this article proceeds to argue that the Fed. Cir.'s first two rulings regarding the applicable scope of the patent-misuse doctrine deviated from both Supreme Court and past Fed. Cir. precedent. However, except for fact patterns summarized from many of the precedents but relatively trivial to the primary principles of the misuse doctrine, there is nothing in the present decision providing adequate and sufficient reasoning for this breakaway from settled case law. Nor did the court proffer any meaningful policy grounds for this sudden turn on the law of misuse. Taking into account the possible polymorphism of the ways in which the patentees misuse their patent rights, which are difficult to predict ex ante and classify beforehand to certain fixed categories, the holdings of the en banc decision holding back the misuse doctrine to categories that have previously appeared in judicial opinions do not seem to be sound and well-deliberated decisions from a policy perspective.

    Furthermore, the Fed. Cir. did not answer the core question that will occur as to the rulings on the scope of the misuse doctrine. The key problem that commentators may doubt is why those restrictions based on patent rights, imposed on parties other than the licensees but still contravening the antitrust laws and causing considerable anticompetitive harm to the economic welfare of our society, will never be considered as misuse of patent rights? In other words, the fundamental inquiry resulting from the holdings is how patent abuse targeted against non-licensees would never be misuse under patent law? The court did not provide any conceivable clue in the majority opinion to answer this question, nor did it articulate its reason for viewing this type of misuse more condemnable than other types of restraints on trade. It also failed to proffer any grounds for maintaining double remedies from patent and antitrust law only for misuse on licensees, but not for misuse residing otherwise. From a functional viewpoint, these mismatches create apparent disparities in the strength of legal protection and practical remedies against similar patent-abusing behaviors. Without comprehensible justification, the Fed. Cir. suddenly retreated in this decision from a heated battlefield that is in need of regulation by the patent-misuse doctrine, at least as much regulation as is afforded in other areas where the court chooses to keep faithful to the commitment of enforcing patent-misuse.

    This article is poised to expand and develop those substantive observations into full-fledged investigation and comprehensive assessment on this momentous judicial decision. The rest of this comment will be organized in the following manner. In Part I the author will briefly describe the Philips CD-R/CR-RW dispute and the technologies at issue in this en banc decision. Next, in Part II to Part IV, this article will review and evaluate the court's rulings from doctrinal, policy, and functional viewpoints, respectively, as summarized in the preceding paragraphs. The possible counter argument will be considered and carefully analyzed in Part V, and Part VI will be a short summary and conclusion.


    Philips, Sony, and two other companies (Taiyo Yuden and Ricoh) own patents concerning the production of recordable compact discs (CD-R) and rewritable compact discs (CD-RW). (14) Many of those patents cover technologies used on CD-R and CD-RW discs that are indispensible for them to comply with the "Orange Book," a technical specification jointly developed by Philips and Sony in the late 1980s and early 1990s. (15) In producing CD-Rs and CD-RWs, manufacturers have to follow the Orange Book standard to assure the compatibility of those discs with CD drives set up on computers and consumer electronics, including audio and video systems installed on cars or at home, which are also manufactured in accordance with the Orange Book standard. (16)

    In the early 1990s, the companies agreed to aggregate their Orange Book-related patents to configure patent pools for...

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