Misuse of Misuse: Princo Corp. v. International Trade Commission and the Federal Circuit’s Misguided Patent Misuse Jurisprudence

• Publication year: 2011

Saami Zain^*

The equitable doctrine of patent misuse is best known for prohibiting patentees from exploiting the rights and benefits that arise from the grant of a patent. Despite a long history of favorable Supreme Court cases, over the past twenty-five years the U.S. Court of Appeals for the Federal Circuit has substantially narrowed the patent misuse doctrine. Most recently, in Princo Corp. v. International Trade Commission, the Federal Circuit seems to have further curtailed the doctrine by suggesting that additional, burdensome requirements may be necessary for a successful misuse defense. Specifically, the Princo decision seems to impose a stringent evidentiary burden on those asserting misuse, including demonstrating a direct and substantial nexus between the challenged conduct and the asserted anticompetitive effects, and intimating a higher threshold for proving anticompetitive effects. The opinion also further entangles patent misuse jurisprudence with antitrust concepts. The Federal Circuit's Princo decision is not only inconsistent with Supreme Court precedent, but also substantially hinders the policy goals of preventing inequitable, abusive, and anticompetitive conduct by patent holders. Rather than weakening it, the Federal Circuit should focus on creating a better-defined, vigorous misuse doctrine, independent of antitrust principles, to uphold these worthy goals.

I. Introduction

The doctrine of patent misuse is an equitable defense that proscribes certain conduct by patentees that is inconsistent with the goals and policies underlying patent law. Patent misuse thereby prohibits patentees from leveraging rights and benefits obtained from their patent(s) to adversely affect competition in other markets or in a manner that otherwise improperly exploits those rights or benefits. The doctrine has a long and rich history. Nevertheless, misuse has been criticized as being too vague and lacking coherence in both application and policy, as well as unfairly providing a windfall to infringing parties. Moreover, because misuse is often pled alongside an antitrust counterclaim, the two doctrines have become somewhat conjoined. Consequently, some have argued that misuse has become superfluous and should be subsumed by antitrust law, or even abandoned entirely.

The U.S. Court of Appeals for the Federal Circuit, which has exclusive appellate jurisdiction over patent cases, has been critical of misuse for many years. In a line of cases spanning over twenty-five years, it has substantially narrowed the doctrine while at the same time further entangling misuse with antitrust. For example, Federal Circuit cases have long required that a successful misuse defense prove anticompetitive effects resulting from the challenged conduct. In Princo Corp. v. International Trade Commission,¹ the Federal Circuit's most recent patent misuse case, the Court further curtailed the doctrine. First, the opinion appears to establish an extremely high threshold for demonstrating anticompetitive effects. Second, it suggests that a successful misuse defense may require a direct and substantial nexus between the challenged conduct and the asserted anticompetitive effects. This article criticizes the Federal Circuit's misuse jurisprudence, up to and including Princo, as unsupported by Supreme Court precedent and as bad policy. The article not only questions the substantial evidentiary burdens Princo seems to impose on misuse claims, but also contends that Federal Circuit misuse cases have improperly incorporated antitrust principles into misuse. Part II provides a background on the misuse doctrine, including a summary of the major Supreme Court and Federal Circuit cases. Part III summarizes the Princo case. Part IV provides an analysis of the Princo decision and its potential implications. Finally, Part V provides a short conclusion.

II. Background

Patent misuse is an equitable doctrine that arose during the early twentieth century in response to conduct involving patents that courts found to be either anticompetitive, inequitable, and/or inconsistent with patent law's underlying policies and privileges. Although misuse lacks a specific and precise definition, it is typically referred to as conduct that impermissibly extends beyond the scope of the patent.² Patent misuse arose out of the "unclean hands" common law doctrine and was based on the policy that a patentee should not be able to abuse privileges conferred by a patent, or otherwise improperly obtain benefits not within the scope of the patent grant.³ It is an affirmative defense and does not permit damages.⁴ Rather, the typical remedy for misuse is that the courts will not enforce a patent until the misuse has been "purged."⁵

Conduct that has traditionally been found to constitute misuse is often referred to as "misuse per se."⁶ This conduct includes certain types of ties and exclusive dealing arrangements involving patents, licenses restricting the use of competing goods, and license provisions extending royalties beyond the term of the patent. As misuse is a flexible, equitable doctrine, other types of conduct have also been found to constitute misuse, including certain patent pools and grant-back licenses.⁷ As discussed infra, in more recent years, courts have tended to more carefully scrutinize practices that are not misuse per se, making it more difficult to successfully assert a misuse defense.⁸

Over the years, courts evaluating misuse claims have increasingly referenced and incorporated principles from antitrust law into misuse. Antitrust is concerned primarily with protecting unfettered competition in markets for the purpose of benefitting consumers by lowering prices and/or increasing output, as well as providing incentives to innovate.⁹ Antitrust thereby proscribes conduct that harms, or is likely to harm, competition or the competitive process. while antitrust and misuse share certain policy goals (e.g., innovation, preventing abuses of patent power to harm competition), their goals and concerns are not entirely coextensive.¹⁰ Nevertheless, it is not uncommon for defendants in infringement actions to assert both antitrust and misuse claims. In cases where both claims are asserted, courts have often either applied the same analysis to both claims, or failed to clarify the distinctions.¹¹ This has had the unfortunate effect of blurring the distinction between antitrust and misuse, and, as a result, some have claimed that these two areas of law have become "hopelessly entangled."¹² In recent years, the relationship between the doctrines has become even more intertwined with courts often directly and explicitly applying antitrust principles and analysis to misuse, causing some to argue that the two doctrines are, or should be, largely coterminous.¹³ Further confusing matters is how a violation of one law will affect a finding of liability on the other. Because misuse has been held to be broader than antitrust, conduct found to be misuse does not necessarily amount to an antitrust violation, whereas conduct that falls short of an antitrust violation may nevertheless constitute misuse.¹⁴ As discussed infra,¹⁵ recent case law, including Princo, will likely further exacerbate the confusion.

A. Principle Supreme Court Cases

The misuse doctrine was first defined and established by the Supreme Court in Morton Salt Co. v. G.S. Suppiger Co.¹⁶ Morton Salt involved a manufacturer of patented machines for salt tablets.¹⁷ The machines were leased to canneries for the purpose of adding salt to canned goods.¹⁸ The lease included a license to use the patented machine on the condition that licensees purchase all of their (unpatented) salt tablets from the manufacturer's subsidiary.¹⁹The manufacturer sued a competitor of similar machines for infringement.²⁰ Based on the public policy behind granting patents,²¹ the Supreme Court held that the patentee misused the privileges granted to it by suppressing competition outside of the patent's scope.²² Significantly, in creating the equitable defense of misuse, the Supreme Court expressly rejected the lower court's conclusion that conduct could not support a misuse defense if it did not also violate the antitrust laws.²³ As for the remedy, the Court deemed that the patents could not be enforced until the effects of its' unlawful conduct were purged.²⁴ The Court also held that the misuse defense was available regardless of whether the party asserting misuse was able to show harm to itself resulting from the alleged unlawful conduct.²⁵

The next misuse case decided by the Supreme Court was Mercoid Corp. v. Mid-Continent Investment Co.²⁶ Mercoid involved a combination patent for a domestic heating system comprised of various unpatented components.²⁷ The patentee set royalties based on sales of one of the components, and licenses to the patent were only granted when that component was used in the system.²⁸ Concluding that the license was improperly used to control the sale of unpatented components, the Court held that the restriction constituted both misuse and an antitrust violation.²⁹Mercoid was controversial and ultimately resulted in legislation limiting its application and force.³⁰

After Mercoid, the Supreme Court's next principal misuse case was Zenith Radio Corp. v. Hazeltine³¹ more than two decades later.³² Zenith Radio involved various interrelated misuse and antitrust allegations involving patent pools and conspiracies to deter entry in various markets.³³ Hazeltine Corporation and its subsidiary Hazeltine Research, Inc. (collectively referred to as "Hazeltine") held numerous domestic patents relating to radios and televisions.³⁴ Hazeltine licensed many of these together in a patent pool.³⁵ Zenith manufactured radios and televisions in the United States and had a license from Hazeltine.³⁶ Subsequently, Zenith declined to renew its license, leading to an infringement action by Hazeltine.³⁷ In response, Zenith contended that Hazeltine...