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This is an excerpt from Abusing
Intellectual Property Rights in Cyberspace: Patent Misuse Revisited (2002).
The
term "patent misuse" refers to specific types of prohibited
behavior engaged in by the owner of the patent rights. Patent misuse
is an affirmative defense that recognizes that it is possible for a
patent owner to abuse the exclusive right enjoyed as a result of the
issuance of a patent. As an affirmative defense, patent misuse cannot
be used as a sword, but can only be used by an alleged infringer if
and when the patent owner seeks to enforce the exclusive right of the
patent in a patent infringement suit. Once a patent infringement suit
is initiated, the alleged infringer, in order to successfully rely
upon the patent misuse defense, must "show that the patentee has
impermissibly broadened the 'physical or temporal scope' of the
patent grant with anticompetitive effect." If the alleged
infringer can demonstrate that the patent owner did engaged in
prohibited behavior, the patent will be unenforceable despite the
fact that it is valid. In this respect, patent misuse is similar to
the doctrine of inequitable conduct, which also works to make an
entire patent unenforceable.
The taint placed upon the patent by misuse, however, does not
necessarily require the patent be held unenforceable for all time.
Patent misuse merely prevents the owner of the patent from recovering
for infringement for the duration of the misuse. In this respect,
patent misuse is dissimilar to inequitable conduct. To be sure,
inequitable conduct may find itself at the foundation of the
underlying patent misuse defense, but inequitable conduct is unlike
patent misuse in that once it has been determined that there was
inequitable conduct during the prosecution of the patent, the patent
is irretrievably unenforceable.
Over the years courts have identified several prohibited practices
that constitute per se patent misuse, including: (1) tying
agreements, where the patent owner requires in the license agreement
that the licensee of the patent also purchase a separable, staple
good;and (2) arrangements that allow the patent owner to effectively
extends the term of the patent, thereby requiring royalty payments
after the patent term has expired. In 1988, however, Congress enacted
legislation that insulates certain behavior of the patent owner,
thereby making it impossible for patent misuse to apply. The behavior
Congress sought to legitimize and take from the reach of a patent
misuse defense were the refusal to license and tying arrangements in
the absence of market power. While at first glance these actions may
seem anticompetitive and deserving of the mantle of patent misuse,
this safe harbor provided for by Congress recognizes the essence of a
patent, which is the right to exclude. |
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Generally speaking, there are two separate types of prohibited
activity that can lead to a finding of patent misuse. First, if a
patent owner engages in conduct that violates the antitrust laws, and
the antitrust violation is sufficiently related to the patent in
question in the infringement action, the patent owner will be unable
to seek redress and the patent will be unenforceable as a result of
patent misuse. The second type of patent misuse occurs when the
patent owner seeks to extend the exclusive rights beyond those
guaranteed by the patent grant. This extension of rights theory is
sometimes referred to as the "extension of the monopoly"
doctrine, and will come into play when the patent owner engages in
conduct that impermissibly broadens the physical or temporal scope of
the patent rights granted. Calling this form of patent misuse an
extension of the monopoly, however, is dangerous because it
perpetuates a myth; namely that a patent is a monopoly. Chief Judge
Markey, the first Chief Judge of the Court of Appeals for the Federal
Circuit, time and time again reprimanded scholars, attorneys and
fellow judges for characterizing a patent grant as a conference of a
monopoly. In Carl Schenck, A.G. v. Nortron Corp., Judge Markey stated:
Nortron begins its file wrapper estoppel argument with "Patents
are an exception to the general rule against monopolies...". A
patent, under the statute, is property. 35 U.S.C. § 261. Nowhere
in any statute is a patent described as a monopoly. The patent right
is but the right to exclude others, the very definition of
"property." That the property right represented by a
patent, like other property rights, may be used in a scheme violative
of antitrust laws creates no "conflict" between laws
establishing any of those property rights and the antitrust laws. The
antitrust laws, enacted long after the original patent laws, deal
with appropriation of what should belong to others. A valid patent
gives the public what it did not earlier have. Patents are valid or
invalid under the statute, 35 U.S.C. It is but an obfuscation to
refer to a patent as "the patent monopoly" or to describe a
patent as an "exception to the general rule against
monopolies." That description, moreover, is irrelevant when
considering patent questions, including the question of estoppel
predicated on prosecution history.
Moreover, it is a simple truth that a monopoly can only exist if
there is an existing market. To characterize a patent as a monopoly
without first questioning whether there is a market for the patent is
to put the cart before the horse. To be sure, those patents that are
litigated are litigated because there is money at stake and,
therefore, a likely market. Nevertheless, there are undoubtedly a
large number of patents that could never possibly have any market and
could never be considered to yield a monopoly. It does no good to
perpetuate the myth that all patents are monopolies. It is simply not true.
Nevertheless, it is important to understand that if the patent
owner's conduct does rise to the level of an antitrust violation, it
will constitute patent misuse. A patent owner who brings an
infringement suit, however, may be subject to antitrust liability for
the anticompetitive effects of the suit if and only if the alleged
infringer is able to prove: (1) that the asserted patent was obtained
through knowing and willful fraud; or (2) that the infringement suit
was a mere sham.
In order to determine if a patent was obtained through knowing and
willful fraud one may be tempted to look for inequitable conduct. The
knowing and willful fraud that will rise to the level of an antitrust
violation is conduct that is far more severe than inequitable
conduct. This type of fraud is known as Walker Process fraud.
Consistent with the Supreme Court's analysis in Walker Process, as
well as Justice Harlan's concurring opinion, the Federal Circuit and
its predecessor, the CCPA, has distinguished inequitable conduct from
Walker Process fraud, explaining that inequitable conduct is a
broader, more inclusive concept than the common law fraud needed to
support a Walker Process fraud counterclaim. In Norton v. Curtiss,
the CCPA distinguished inequitable conduct from Walker Process fraud
by explaining that:
[T]he concept of "fraud" has most often been used by the
courts, in general, to refer to a type of conduct so reprehensible
that it could alone form the basis of an actionable wrong (e.g., the
common law action for deceit.).... Because severe penalties are
usually meted out to the party found guilty of such conduct,
technical fraud is generally held not to exist unless the following
indispensable elements are found to be present: (1) a representation
of a material fact, (2) the falsity of that representation, (3) the
intent to deceive or, at least, a state of mind so reckless as to the
consequences that it is held to be the equivalent of intent
(scienter), (4) a justifiable reliance upon the misrepresentation by
the party deceived which induces him to act thereon, and (5) injury
to the party deceived as a result of his reliance on the misrepresentation.
Inequitable conduct is indeed a lesser offense than common law fraud
and will not support antitrust liability. The net result of this is
that it is exceedingly difficult to demonstrate patent misuse under a
theory that relies upon the knowing and willful enforcement of an
otherwise invalid patent.
If the alleged infringer is not able to prove Walker Process fraud
they may attempt to demonstrate that the infringement suit was a mere
sham. In order to demonstrate that the litigation is a mere sham, the
alleged infringer will need to show that the lawsuit is objectively
baseless in the sense that no reasonable litigant could realistically
expect success on the merits. If an objective litigant could possibly
conclude that the suit is reasonably calculated to elicit a favorable
outcome, the suit cannot be considered a sham. It will likewise be
necessary for the alleged infringer to demonstrate that the
litigation was brought for no reason other than attempting to
directly interfere with the business relationships of a competitor.
Given this strict, unforgiving requiement, it is easy to see how
difficult, if not impossible, it is to demonstrate sham litigation.
Courts, however, have never required the defendant raising the patent
misuse defense to first establish that an antitrust violation has
occurred. Such a prerequisite is not envisioned by the defense. In
Morton Salt Co. v. Suppinger Co., the Supreme Court stressed that:
It is the adverse effect upon the public interest of a successful
infringement suit in conjunction with the patentee's course of
conduct which disqualifies him to maintain the suit, regardless of
whether the particular defendant has suffered from the misuse of the
patent.... It is unnecessary to decide whether respondent has
violated the Clayton Act, for we conclude that in any event the
maintenance of the present suit to restrain petitioner's manufacture
or sale of the alleged infringing machine is contrary to public policy.
The Supreme Court has echoed this understanding on several other
occasions, explaining each time that the condemnation of patent
misuse does not depend upon the showing of an antitrust violation in
the first instance.
Similarly, the alleged infringer who is seeking to rely upon the
defense of misuse does not need to establish standing in the
antitrust sense. This is true because the true focus of the misuse
inquiry is not personal in nature, but rather revolves around the
harm to the public interest created by the enforcement of patents
tainted by loathsome conduct. The patent misuse doctrine, as an
extension of the equitable doctrine of unclean hands, allows a court
of equity to refuse to lend its support to enforce of a patent that
has been misused. Patent misuse arose as an equitable defense
available to the accused infringer, from the desire to restrain
practices that did not in themselves violate any law, but that drew
anticompetitive strength from the patent right, and thus were deemed
to be contrary to public policy. This aspect of the patent misuse
defense differs significantly from the justifications upon which
antitrust laws are founded. Antitrust laws seek to level the playing
field by freeing the market from "unfair" competition. In
so doing, the antitrust laws work to increase competition, thereby
allowing free market economics to rule corporate behavior. The patent
grant, however, gives to the patent owner the right to exclude all
others from making, using, selling and importing. By its very nature
the patent grant provides a framework through which a patent owner
can frustrate a free and competitive market. Therefore, the question
with respect to patent misuse cannot be whether the free market
competition has been curtailed in a manner that is "unfair,"
but rather whether public policy forbids the patent owner from
engaging in conduct that stretches the granted patent rights beyond
what has been intended.
When an action alleged to constitute patent misuse is neither per se
patent misuse, nor specifically excluded from being misuse by 35
U.S.C. § 271(d), a court must determine if that practice is
"reasonably within the patent grant, i.e., that it relates to
subject matter within the scope of the patent claims." If the
alleged action is reasonably within the patent grant, the practice
cannot have the effect of broadening the scope of the patent claims
and is not patent misuse. If, on the other hand, the practice has the
effect of extending the patent owners exclusive rights, and does so
with an anticompetitive effect, the conduct must then be analyzed in
accordance with what is known as the "rule of reason."
Under the rule of reason, "the finder of fact must decide
whether the questioned practice imposes an unreasonable restraint on
competition, taking into account a variety of factors, including
specific information about the relevant business, its condition
before and after the restraint was imposed, and the restraint's
history, nature, and effect." The rule of reason, therefore,
seeks to determine whether the challenged action is one that promotes
competition or one that suppresses competition. As the Supreme Court
has explained, "the true test of legality is whether the
restraint imposed is such as merely regulates and perhaps thereby
promotes competition or whether it is such as may suppress or even
destroy competition." When rule of reason analysis is engaged,
however, it makes disposition of the case on summary judgment
difficult, which in turn ensures a long, expensive trial.
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