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Patent misuse is when patent owners abuse their patent rights in a way that prevents normal commerce and trade. It is the first defense in infringement cases. 5 min read
What Is Patent Misuse?
Patent misuse occurs when patent owners abuse their patent rights, typically for utility patents, in a way that prevents normal commerce and trade. It is the first line of defense for people who are accused of patent infringement. When faced with a lawsuit from a patent holder, the goal of the alleged infringer is to prove that the patent owner is using his or her patent privileges to stifle competition.
Over the last decade, the courts have tried multiple times to define patent misuse and how to prove it. While they have made strides, there are still a few gray areas.
Patent Misuse: A Closer Look
Patent misuse means that patent owners try to use their patent beyond what the patent allows. If a judgement is made that this has occurred, the patent becomes unenforceable — even if it is otherwise valid.
Jim Singer at IP Spotlight mentions that patent misuse is actually one of the most "misused" terms in law. For example, when a company is accused of infringing on a patent, it might counter that the patent owner is going beyond his or her legal rights and that this is a case of patent misuse. In order to prove patent misuse, the defendant must show that the owner's actions have an "anti-competitive effect" that will diminish the defendant's business. In some cases, even this isn't enough. The defendant must also show the exact expected damage to the business because of the patent owner's actions.
Why Is Patent Misuse Important?
Timothy J. Barron and Olivia T. Luk explained that the patent misuse defense is a way to prevent patent owners from adding extra rules in their patents that harm other companies that are licensed to use them. These might include excess royalties, outrageous limits on what they can do with the patent, and forced partnerships with other companies. Basically, the courts don't want companies to use patents as a way to bully others in the industry.
When a company accuses a patent owner of misuse, it needs to prove two elements:
The valid patent was used as a way to change business outcomes
The anti-competitive effects extended outside of the patent's scope
Together, these prove that the patent was used in a way that it shouldn't have been to cause harm to a business. According to Finnegan, this definition went into effect in 2010 after Princo Corp. v. Int'l Trade Comm'n as a way to narrowly define patent misuse.
Reasons to Consider Not Using Patent Misuse
While the 2010 Princo case helped the courts define patent misuse, it also helped defend other parts of patent law. The team at Kaufman & Canoles explained what patent misuse is not, as a way to remind patent owners what their rights are. Patent misuse does not include:
Enforcing a patent against infringement
Refusing to license a patent to someone in particular
Licensing a patent under the condition that the buyer also buy another product or patent license
Using one's own invention in a way that would make other people infringe upon a patent
While this list might not include the most honest business practices, they're not considered patent misuse and the term can't be used to take a patent owner to trial.
It's also important to note that patent misuse isn't meant to be a weapon. Companies aren't supposed to go after patent owners for misuse. According to Arnold B. Silverman, patent misuse is typically used as a defense in patent infringement cases. While the patent owner believes his or her patent was infringed upon, the defense believes the owner is extending beyond the scope of his or her patent.
Reasons to Consider Using Patent Misuse
Once you understand what patent misuse is not, it's easier to identify what patent misuse is. Glen P. Belvis explained that patent misuse happens when the scope or term of the patent is over-extended.
The scope includes the area that the patent should cover
The term includes the length of time that the patent should cover
With this definition, there are four immediate examples of patent misuse, according to PatentEducation.com.
Requiring a patent licensee to buy other products as part of the patent license
Trying to collect royalties after the patent expires
Requiring a licensee to pay a portion of revenue from sales that the patent doesn't cover
Filing a baseless patent infringement lawsuit
Even small acts, like filing a baseless lawsuit, can cost a competitor thousands in legal fees and tie them up for months. Baseless lawsuits are also a problem for the courts, so they are considered patent misuse.
Belvis also explains that charges for patent misuse can be both civil and criminal. This depends on whether they're based on patent misuse, antitrust, or "inequitable conduct."
Examples of Patent Misuse
It's hard to find examples of patent owners who have been accused of patent misuse. Fortunately, many patent lawyers publish explanations of cases to review why the courts made their decisions — and why they could have been different.
The origin of the idea of patent misuse was the 1917 decision Motion Picture Patents. A projector company would only license a its projector technology if the licensee also bought unpatented film through the company. The court ruled that this was an overly broad use of the company's patent.
Dennis Crouch at Patently-O highlighted a key example of a patent misuse allegation. In 2010, Philips and Sony chose one method of encoding CDs while suppressing a different technology for CD creation. While the court decided this wasn't patent misuse, it's an important example of how something like it could be misuse. In fact, many lawyers have argued that this case should have been considered misuse, despite what the court said. Crouch also notes that Sony and Philips could have also been found guilty of antitrust (monopoly prevention) laws. The idea that these two concepts go hand-in-hand helps explain patent misuse.
Another example was Dawson Chemical in 1980. According to Cyber.Harvard.Edu, the patent owner wanted to tie the right to use a patent with an agreement to buy a non-staple, non-patented product. The court decided this was not patent misuse, because the inventor was protected by patent law. For further reading, this section falls under 35 USC 271(d) in the patent rule book.
If your company licenses a patent and has been accused of patent misuse, you might be able to argue against it. Consider posting a job to get free custom quotes from the top 5% of patent attorney through UpCounsel. From talking to patent lawyers, you can then consider your options to determine if you have a strong case and what your rights are.