U.S. Philips Corporation v. International Trade Commission

424 F.3d 1179 (2005)

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Nature of the Case

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Facts

P owns patents for manufacturing recordable compact discs ('CD-Rs') and rewritable compact discs ('CD-RWs'). P has been licensing those patents through package licenses. The agreements held that the same royalty was due for each disc manufactured regardless of how many of the patents were used. Anyone who sought to license patents to the technology was not allowed to license those patents individually and were not offered a lower royalty rate for licenses to fewer than all the patents in a package. Initially, P offered four different pools of patents for licensing. In the late 1990s, P entered into package licensing agreements with Ds. Almost immediately Ds stopped paying the licensing fees. P filed a complaint with the International Trade Commission that Princo, GigaStorage, and Linberg, among others, were violating section 337(a)(1)(B) of the Tariff Act of 1930, by importing certain CD-Rs and CD-RWs that infringed six of P's patents. In the proceedings before an administrative law judge, Ds raised patent misuse as an affirmative defense, alleging that P had improperly forced them, as a condition of licensing patents that were necessary to manufacture CD-Rs or CD-RWs, to take licenses to other patents that were not necessary to manufacture those products. Ds alleged that there were commercially viable alternative methods of manufacturing CD-Rs and CD-RWs that did not require the use of the technology covered by some of P's patents. The administrative law judge ruled that all six of the asserted patents were unenforceable because of patent misuse. The administrative law judge found that the package licensing arrangements constituted tying arrangements that were illegal under analogous antitrust law principles and thus rendered the subject patents unenforceable. P petitioned for review. The Commission affirmed the administrative law judge's ruling. The Commission concluded that four of the nonessential patents were impermissibly tied to patents that were essential to manufacturing CD-Rs and CD-RWs. The Commission ruled that P's licensing arrangement constituted per se patent misuse. It even held that if P's package licensing practice was not per se patent misuse, it constituted patent misuse under the rule of reason. P appealed.