Princo, Patent Pools, and the Risk of Foreclosure: A Framework for Assessing Misuse

• Author: Phillip W. Goter
• Position: J.D. Candidate, The University of Iowa College of Law
• Pages: 699-735

699

Princo, Patent Pools, and the Risk of

Foreclosure: A Framework for

Assessing Misuse

Phillip W. Goter

ABSTRACT: This Note explores various theories of patent misuse as they

relate to patent pools. Taking into account varying ideological

underpinnings of misuse, this Note proposes a framework for rule of reason

analysis of anticompetitive foreclosure of alternative technologies. The

framework offers a phased analysis, borrowed from antitrust law, to focus

the inquiry on the harms patent misuse seeks to deter in patent-pool

licensing practices. The goal of the proposed framework is to increase

operational clarity to modern, innovative firms and provide guidance to

courts when applying rule of reason analysis to determine whether

anticompetitive foreclosure could result from a challenged use of a patent

pool.

I. INTRODUCTION ...................................................................................... 701

II. PATENT MISUSE ..................................................................................... 704

A. DOCTRINAL FOUNDATIONS OF PATENT MISUSE .................................. 704

B. TYING .............................................................................................. 709

C. FORECLOSURE AS A THEORY OF PATENT MISUSE ................................ 710

1. Package Licensing and Patent Pools ..................................... 711

2. Standard-Setting Organizations ............................................ 714

III. THE PRINCO DISPUTE ............................................................................. 717

A. THE POOLED PATENTS ..................................................................... 717

B. EVOLUTION OF PRINCO’S PATENT-MISUSE CLAIMS ............................. 718

C. ON APPEAL (AGAIN) ......................................................................... 722

 J.D. Candidate, The University of Iowa College of Law, 2011; M.B.A., The University of

Iowa Tippie School of Management, 2008; M.S., The University of North Dakota, 2005; B.S.,

The University of North Dakota, 2001. To Renae and Jack for their constant inspiration and

limitless patience. I am grateful to Professors Christina Bohannan and Herbert Hovenkamp for

their mentorship, guidance, and comments. Any errors and omissions are my own.

700 IOWA LAW REVIEW [Vol. 96:699

IV. A FRAMEWORK FOR A RULE OF REASON ANALYSIS IN CASES OF

ALTERNATIVE-TECHNOLOGY FORECLOSURE .......................................... 724

A. IDENTIFYING THE SPECIFIC RESTRAINT AT ISSUE ................................ 725

B. DETERMINING LIKELY ANTICOMPETITIVE EFFECTS OF THE

RESTRAINT ...................................................................................... 727

C. EVALUATING OFFSETTING PROCOMPETITIVE JUSTIFICATIONS .............. 731

D. SUFFICIENT MARKET POWER IN A RELEVANT MARKET TO MAKE A

DIFFERENCE ..................................................................................... 732

E. ARGUMENTS FOR SUCH A FRAMEWORK .............................................. 733

F. POTENTIAL ARGUMENTS AGAINST SUCH A FRAMEWORK ..................... 734

V. CONCLUSION ......................................................................................... 735

2011] A FRAMEWORK FOR ASSESSING MISUSE 701

I. INTRODUCTION

Following the Bush Administration’s enthusiastic pursuit of cartels, the

Obama Administration intends to exercise greater scrutiny of alleged

anticompetitive conduct and to “updat[e] antitrust for the digital age”1

while simultaneously pledging to reinvigorate American innovation.2 As

President Obama recently commented, “There’s nothing wrong with other

people using our technologies. We just want to make sure that it’s licensed

and you’re getting paid.”3 With repeated calls for modernization of patent

misuse theory to fit current modes of innovation,4 the Princo controversy5

offered the Federal Circuit an opportunity to demystify the licensing

practice of patent pooling and to provide clear boundaries of competitive

conduct for innovative, intellectual-property-oriented firms engaged in

modern business practices.6

The Princo controversy centered on patent infringement by former

licensees of patents relating to compact disc (“CD”) technology. Over the

past decade, CD technology pertaining to recording (“CD-R”), rewriting

(“CD-RW”), and playback pervaded personal computer, software, and audio-

system markets. With industry adoption of a standard occurring early on,

consumers benefited because CD-R and CD-RW media (the discs) were

interoperable with modern CD hardware (the drives and players). This

industry standard, the Orange Book, arose out of intra-industry cooperation

between Philips Corporation (“Philips”), Sony Corporation (“Sony”), and

others, and it spared consumers the inconvenience and wasted expense of

betting on another losing standard—e.g., HD-DVD, Laserdisc, or Betamax.

1. Return of the Trustbusters, ECONOMIST, Aug. 29–Sept. 4, 2009, at 53.

2. NAT’L ECON. COUNCIL OFFICE OF SCI. & TECH. POLICY, EXEC. OFFICE OF THE

PRESIDENT, A STRATEGY FOR AMERICAN INNOVATION: DRIVING TOWARDS SUSTAINABLE GROWTH

AND QUALITY JOBS 6 (2009) [hereinafter A STRATEGY FOR AMERICAN INNOVATION], available at

http://www.whitehouse.gov/assets/documents/SEPT_20__Innovation_Whitepaper_FINAL.pdf.

3. President Barack Obama, Remarks During Town Hall Meeting in Elyria, Ohio (Jan.

22, 2010), available at http://www.whitehouse.gov/the-press-office/remarks-president-during-

town-hall-meeting-elyria-ohio.

4. See Christina Bohannan, IP Misuse as Foreclosure, 96 IOWA L. REV. 475, 478 (2011)

(advocating that misuse be refocused on foreclosure of “competition, future innovation or

access to the public domain” in order to further the goals of intellectual property policy) ; Robin

C. Feldman, The Insufficiency of Antitrust Analysis for Patent Misuse, 55 HASTINGS L.J. 399, 400–01

(2003) (arguing that because of the antitrust prerequisite of market power, applying antitrust

rules to test for patent misuse may “blind [us] to significant concerns [of] patent policy” that

“threaten[] the overall efficiency of the patent system”).

5. Princo Corp. v. Int’l Trad e Comm’n, 583 F.3d 1380 (Fed. Cir. 2009), reh’g en banc, No.

2007-1386, 2010 WL 3385953 (Fed. Cir. Aug. 30, 2010).

6. See generally Alan Murray, The End of Management, WALL ST. J., Aug. 21–22, 2010, at W3

(suggesting that rapidly diminishing transaction costs and the prospect of “disruptive

innovation” encourage firms to engage in mass collaboration in order to adequat ely prepare for

coming innovations).