Patent Misuse After Princo Corp. v. Int’l Trade Commission

On August 30, 2010, the Court of Appeals for the Federal Circuit issued an en banc decision in Princo Corporation v. International Trade Commission affirming the International Trade Commission’s (“ITC”) ruling that the U.S. Philips Corporation (“Philips”) was not precluded by patent misuse from asserting its patents against Princo Corporation (“Princo”).1 The decision effectively limits the scope of the patent misuse doctrine and may have implications in the licensing efforts of joint ventures.

Background

Philips and the Sony Corporation (“Sony”) worked together to develop standards for the technology associated with recordable compact discs (“CD-Rs”) and rewritable compact discs (“CD-RWs”). Those standards were collected in a publication entitled “Recordable CD Standard,” which is more commonly known as the “Orange Book.”

During the development process, both Philips and Sony found different solutions to the problem of encoding position information on the disc.2 Phil-ips’ solution was described in the Raaymakers patents, two of the patents at issue in this case. Sony’s approach was set forth in the Lagadec patent, which was not asserted against Princo.

For purposes of the Orange Book standard, Philips and Sony agreed to adopt the approach described in the Raaymakers patents. Philips and Sony engineers found that approach to be “‘simple and … work[] very well.’” In contrast, the solution described in the Lagadec patent was thought to be “‘prone to error’” and “‘very difficult’” to implement.3

To commercialize their technology, Philips and Sony offered various package licenses for the patents required to manufacture CDR/RW discs per the Orange Book standard. Included in the package licenses were both the Raaymakers and Lagadec patents. The licenses included a field of use provision that limited use of the patents to manufacturing Orange Book-compliant discs.

Despite entering into a license agreement with Philips in the late 1990s, Princo stopped paying the required licensing fees. This prompted Philips to file a complaint with the ITC alleging that Princo was importing infringing CD-Rs and CD-RWs.

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