9-1 Classical types of misuse (Janicke)

Classical types of patent misuse:

A number of patent licensing practices led to court holdings of patent misuse during the first eight decades of the twentieth century. All of them involved perceived overreaching by the patentee. The sanction for misuse is that the involved patent becomes unenforceable until such time as the misuse is cured by a relinquishing of the offending contractual covenant and waiting for a period of time for the anticompetitive effects to dissipate.

Misuse was a powerful defense, because anyone, not only the restrained licensee, could invoke it. Defendants in patent infringement litigation continue today to obtain discovery of licenses with other parties under the patent in suit, hoping they will find a misuse provision in one of them, and providing the defendant (a stranger to the license) a complete defense against the patent. None of the case law in this area has been explicitly overruled. However, an increasing emphasis by statutory amendment (35 U.S.C. § 271(d)) and in court decisions on reasonableness and market power has put much of the misuse doctrine under a rule of reason rather than a per se analysis. Most patents lack significant market power because their claims are fairly easy to avoid. It is possible that such patents cannot any longer be subject to misuse problems. However, the law in that regard is not yet settled, and hence it makes sense to remain cognizant of the main classical forms of misuse.

  1. Mandatory tying – patentee will sell patented product only if purchaser agrees to buy another product, or service, as well.
  1. Mandatory package licensing – patentee will license patent A only if licensee takes a license under patent B as well.
  1. Mandatory overbroad royalty base – patentee insists that royalties be set based on products beyond the patent’s coverage. E.g., patent covers painkiller XX; patentee insists on a royalty based on a percentage of licensee’s sales of all painkillers.
  1. Mandatory overlong royalty obligation – patentee insists on collecting royalties at times after expiration of the licensed patent
  1. Covenant not to deal in competitive non-patented goods. Most patents do not cover all goods of a similar kind and quality. Where a patent covers painkiller XX, it is a misuse, even in an exclusive license with best efforts obligations, to force a covenant that the licensee will not sell other painkillers during the term of the license.

Note that all of the above are coerced situations. There is no misuse where the licensee wants a package license, or for convenience wants to pay a lower royalty based on all goods of a certain type (all painkillers), or for financial reasons wants to pay royalties out over a longer period than the patent term, etc. Licensors in such situations take care to recite that more limited terms are available, but the licensee wants the ones in this agreement. For example, “Licenses under individual patents listed herein are available, but licensee has requested a license under all patents.” Or, “Royalty terms based on subsisting claims of the licensed patent are available, but licensee prefers to pay royalties on all goods of any type sold by licensee in each calendar quarter.”

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Seg. 9, item 1 (2007)