Patent Misuse

If your company has been sued for patent infringement, it might avoid any liability if it can prove that it has been harmed because the patent holder (called the “patentee”) has misused its patent in a manner that has caused quantifiable harm to your company.  This affirmative defense is called “patent misuse.”  If successful, it can serve as a complete defense to a claim of patent infringement.

Many patented products are necessary inputs that lack reasonable substitutes.  The purchasers of these products require them in order to make their own products or operate their own businesses, and they must therefore purchase these products.  They have no other choice. This is particularly true where the patent in question covers a technology that has become an “essential standard” that has been adopted by a private standards-setting agency.

The patentees of these products, mindful of their value, sometimes overreach by making their products available only under licenses whose duration exceeds the remaining term of the patent.  Thus the customer must pay for a license to use the patentee’s product for a longer time than it would otherwise be required merely to purchase the patented product only from the patentee:  The patent would expire at a date certain, after which the customer could purchase the product from the patentee or any other company that decided to make the same product, whose manufacture by competitors would no longer be forbidden by the expired patent.  But if the patentee forces the customer to accept a license to use the patented product, and if the duration of the license exceeds the remaining term of the patent, then the patentee has extended its exclusive right to sell the product in question for a longer period than the patent laws allow.  Where this occurs, the patentee is said to misuse its patent in order to oblige its customer to accept a licensing agreement that has the effect of unlawfully prolonging the patentee’s exclusive right to make its patented product available to the customer.  This practice constitutes patent misuse.

Another kind of patent misuse arises when the patentee sells its patented product only on condition that the purchaser also buy other, non-patented products.  Since the purchasers typically require the patented product, they have no choice but also to purchase the other, non-patented products from the patentee.  Once again the patentee has misused its patent in order to become the compulsory seller not only of the patented product, but also of other, non-patented ones.  This practice likewise constitutes patent misuse, and it can also give rise to an antitrust claim called an unlawful tie-in agreement, which can sometimes constitute an unlawful restraint of trade under Section 1 of the Sherman Act and California’s Cartwright Act at Sections 16720 and 16726 of the California Business & Professions Code.

If your company has been sued for patent infringement, it may establish a complete affirmative defense that absolves it of liability by prevailing on the ground of patent misuse.  If you wish to confer with us about this matter, contact us in complete confidence to do so.