Practical Aspects of the Law of Misuse: Misuse in the Licensing Context

• Pages: 103-126

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CHAPTER IV

PRACTICAL ASPECTS OF THE LAW OF

MISUSE: MISUSE IN THE LICENSING CONTEXT

Licensing intellectual property rights to third parties in a position to

exploit such rights promotes many of the objectives underlying both the

intellectual property and antitrust laws. Licensing revenues stimulate

initial expenditures for innovation and authorship by enabling the licensor

to recover research and development costs. Licensing also accelerat es

follow-on inventions and expressions by permitting licensees to become

familiar with the licensed intellectual property. Finally, by placing new

creations and inventions into the hands of companies that can

commercialize, expand upon, and publicize them, licensing ensures the

dissemination of intellectual property to the public.

Licensing, when voluntarily agreed upon by the patent owner, also

supports the objectives of the antitrust laws. Courts, commentators, and

enforcement agencies have all recognized the significant procompetitive

benefits of licensing in introducing new products, furthering the

development of new technologies, and realizing efficiencies from some

combinations of complementary components of production.1

1. “Licensing, cross-lice nsing, or otherwise transferring intellectual property

(hereinafter ‘licensing’) can facilitate integration of the licensed property

with complementary factors of production, which include manufacturing

and distribution facilities, workforces, and other ite ms of intellectual

property rights. This integration can lead to more effic ient exploitation of

the intellectual property, benefiting consumers through the reduction of

costs and the introducti on of new products. Such a rrangements increase

the value of intellectual property to consumers and to the developers of

the technology. By po tentially increasing the expected returns from

intellectual property, licensing also can increase the incentive for its

creation and thus promote greater investment in research and

development. Licensing also may promote the coordinated development

of technologies that are in a blocking relationship.” U.S. DEP’T OF JUST ICE

& FED. TRADE COMM’N, ANTITRU ST GUIDELINES FOR THE LICENSING O F

INTELLECTUAL PROPERTY § 2.3 (2017); see also Princo Corp. v. ITC, 563

F.3d 1301 (Fed Cir. 2009) (noting procompetitive efficiencies of package

licenses); U.S. Philips Corp. v. ITC, 424 F.3d 1179, 1192-93 (Fed. Cir.

2005) (discussing pr ocompetitive benefits of package lice nsing).

104 Intellectual Property Misuse

In fact, licensing is playing a larger role in an increasingly connected

world. Interoperability standards requiring technical input from entire

industries have contributed to advances such as wireless

telecommunications. Even in more traditional industries where licensing

may remain the exception, the cost and scale of new product development

and other forces may demand joint projects with associated licensing.

While intellectual property licenses typically enable these objectives,

they also have the potential to discourage innovation or distort the

competitive process. And licenses may be used to exert some degree of

control over a licensee’s activities beyond the scope of the licensed

intellectual property. The law of misuse deters certain conduct involving

patent rights. When a licensor leverages its patent to impose conditions

beyond the scope of its patent rights, an accused infringer may seek to

render the “misused” patent unenforceable.

This chapter provides practical guidance to help licensors avoid

misusing their patents. It first discusses general considerations applicable

to the misuse analysis. It then proposes negotiation and drafting

techniques for limiting the risk of a misuse finding when licensing

patents.

A. General Misuse Considerations in Patent Licensing

Courts recognize that patents confer substantial rights on the patent

holder, including for example, to grant or refuse licenses, charge whatever

royalties the market will bear,2 and to limit the scope of the license to a

particular field of use.3 These rights, while expansive, are limited in part

by the doctrine of misuse—a patentee may not leverage the patent to

impose licensing conditions that broaden the patent’s physical or temporal

scope with anticompetitive effect.4 Thus, to avoid a finding of misuse,

2. See, e.g., Kimble v. Marvel Entm’t, 135 S. Ct. 2401, 2407 (2015) (“[T]he

patentee possesses exclusive rights to the patented article—rights he may

sell or license for royalty payments if he so chooses.”); Brulotte v. Thys

Co., 379 U.S. 29, 33 (1964) (“A patent empowers the owner to exact

royalties as high as he can negotiate with the leverage of that monopoly.”);

Princo Corp. v. ITC, 616 F.3d 1318, 1327 (Fed. Cir. 2010) (en banc)

(citing Brulotte, 379 U.S. at 33).

3. See, e.g., Princo Corp., 616 F.3d at 1328 (citing General Talking Pictures

Corp. v. Western Elec. Co., 304 U.S. 175, 181 (1938)).

4. See Princo Corp., 616 F.3d at 1327 (quoting Transparent-Wrap Mach.

Corp. v. Stokes & Smit h Co., 329 U.S.637, 643 (1947)).