The Federal Circuit's Licensing Law Jurisprudence: Its Nature and Influence

• Publication year: 2021

THE FEDERAL CIRCUIT'S LICENSING LAW JURISPRUDENCE: ITS NATURE AND INFLUENCE

Robert W. Gomulkiewicz(fn*)

Abstract: The Federal Circuit serves as the central appellate court for U. S. patent law appeals. Outside of patent law, scholars have noted the Federal Circuit's distinct lack of influence on the law. Thus, unnoticed, the Federal Circuit has become one of the most influential actors in the creation of intellectual property licensing law. Its influence reaches across all areas of intellectual property, industries, and all federal circuits and state courts. But the Federal Circuit's influence on licensing law is more than just a matter of academic interest: licensing is critical to innovation in the information economy. Licenses underlie the creation and distribution of ideas, information, inventions, and works. Products as diverse as open source software and soybean seed rely on licensing.

The Federal Circuit's influence emerged out of failed attempts to create uniform statutory licensing law, which has left licensing law to develop as common law. Since its creation in 1982, the Federal Circuit has decided more cases involving licensing law than any other state or federal court. Many courts have looked to and followed the Federal Circuit's decisions. The Federal Circuit's general approach has been to uphold modern licensing models, which fosters both technological and business model innovation. This approach is consistent with the approach taken by most other courts, including the Supreme Court. At the urging of the U.S. Solicitor General and others, the Supreme Court probed the Federal Circuit's licensing law jurisprudence in a recent case, Quanta Computer, Inc. v. LG Electronics, Inc. While the Supreme Court reversed the Federal Circuit in a unanimous decision, upon close inspection, the reversal actually amounts to an affirmation of the Federal Circuit's core licensing-law jurisprudence.

I. THE EMERGENCE OF LICENSING AS A TRANSACTION MODEL AND ITS CRITICAL ROLE IN INNOVATION..........204

A. Technological Innovation: Licenses to Build Products......205

B. Technological Innovation: Licenses to Create Customer Solutions.............................................................................206

C. Business-Model Innovation: Licenses to Distribute Products..............................................................................207

D. Business-Model Innovation: Licenses to Use Products......207

II. EVOLUTION OF LICENSING LAW..........................................208

A. A Body of Law Takes Shape..............................................208

B. The UCC Article 2B and Uniform Computer Information Transactions Act (UCITA) Experiment.............................210

C. The 2003 Amendments to UCC 2......................................211

D. Retreat Back to the Common Law.....................................213

III. CREATION AND JURISDICTION OF THE FEDERAL CIRCUIT........................................................................................214

IV. THE FEDERAL CIRCUIT'S INFLUENCE IN THE DEVELOPMENT OF LICENSING LAW....................................215

A. Defining "Influence"..........................................................215

B. Number of Licensing-Law Cases Decided.........................216

C. Citations to Federal Circuit Cases......................................219

D. Final Observations on the Federal Circuit's "Influence" in Licensing Law....................................................................219

V. THE NATURE OF THE FEDERAL CIRCUIT'S JURISPRUDENCE........................................................................220

A. First Sale Cases...................................................................221

B. Analysis of the Federal Circuit's First Sale Jurisprudence: Comparison to Supreme Court Precedent ...........................225

1. From Mallinckrodt to Monsanto......................................225

2. The Monsanto Cases........................................................229

3. The Latest: Quanta Computer, Inc. v. LG Electronics, Inc. .........................................................232

i. The Federal Circuit's Decision ......................................232

ii. The Supreme Court's Decision......................................234

C. Analysis of the Federal Circuit's First Sale Jurisprudence: Comparison to Other United States Circuit Courts............237

1. Patent Exhaustion............................................................238

2. Copyright First Sale.........................................................239

VI. THE FEDERAL CIRCUIT'S STEWARDSHIP OF LICENSING LAW........................................................................242

A. Upholding the Use of Licenses in Technological and Business-Model Innovation................................................242

B. Future Licensing-Law Cases..............................................249

CONCLUSION. ...................................................................................250

APPENDIX I: COURTS CITING FEDERAL CIRCUIT CASES. .....251

INTRODUCTION

Congress created the Court of Appeals for the Federal Circuit in 1982 to decide patent-law appeals. (fn1) Congress hoped that the Federal Circuit would improve the climate for innovation(fn2) by giving inventors a uniform body of judicial interpretations of patent law decided by judges with patent expertise.(fn3) Recently, scholars have debated whether the net effect of the Federal Circuit's jurisprudence has been positive or not.(fn4) Adding fuel to that debate, lately the Supreme Court has decided an unusually large number of patent cases,(fn5) reversing the Federal Circuit each time,(fn6) and causing some observers to speculate that the Supreme Court is unhappy with the Federal Circuit's tendencies.(fn7)

The cases decided by the Federal Circuit typically involve familiar patent law issues such as patent validity(fn8) or the scope of patent claims. (fn9) Although other issues arise from time to time, the Federal Circuit's role is unremarkable except in one significant area of modern law-licensing law(fn10) Unnoticed, even in the recent hot spotlight focused on the Federal Circuit, is the fact that the Federal Circuit has become one of the most influential forces in the creation of licensing law.(fn11) On one level, this is not surprising; one would expect the court to handle cases involving patent licenses.(fn12) However, the Federal Circuit's influence now reaches beyond patent licensing, across all areas of intellectual property and industries, and across all federal circuits and state courts.

The Federal Circuit's influence emerged out of failed attempts to create uniform statutory licensing law. In the wake of these failed efforts, licensing law has developed as common law. Since its creation in 1982, the Federal Circuit has decided more cases involving licensing law than any other state or federal court. With licensing law evolving through the common law, other courts have looked to the Federal Circuit's case law for guidance in deciding licensing-related cases. More will undoubtedly do so in the future.

The Federal Circuit's licensing-law jurisprudence is more than just a matter of academic interest. Licensing is a critical transaction model in the information economy because it enables innovation.(fn13) Products as diverse as open source software and soybean seed rely on licensing. Consequently, the nature of the Federal Circuit's licensing-law jurisprudence, like its patent-law jurisprudence,(fn14) strongly influences the climate for innovation in the United States-for good or for ill. The Supreme Court undoubtedly understands this, as it recently reviewed a Federal Circuit case, Quanta Computer, Inc. v. LG Electronics, Inc.,(fn15) which lies at the heart of the Federal Circuit's licensing-law jurisprudence.

This Article begins by describing in Part I the emergence of licensing as the dominant transaction model in the information economy. It then explores in Part II the development of licensing law in the United States and how, in the wake of failed attempts to create uniform statutory licensing law, the law has evolved largely as common law. This Article then explains in Part III and Part IV how the Federal Circuit has begun to shape this common law by deciding more and more cases involving licenses, and how other courts now look to the Federal Circuit for guidance in deciding licensing-related cases. In Part V, this Article explores the nature of the Federal Circuit's licensing-law jurisprudence, focusing on its "first sale" jurisprudence. This Part also examines how the Federal Circuit's case law meshes with the decisions of other circuits and the Supreme Court, including the Supreme Court's recent Quanta Computer decision.

This Article concludes in Part VI that the Federal Circuit has been a good but sometimes imperfect steward of modern licensing practices. This is well illustrated by the Quanta Computer case. In that case, the Supreme Court unanimously overturned the Federal Circuit's ruling, yet left the Federal Circuit's core licensing-law jurisprudence relatively intact despite numerous urgings through amicus briefs and academic literature to send a stern corrective message to the Federal Circuit as...