Princo America Corp.. v. Int'l Trade Comm'n

616 F.3d 1318

PRINCO CORPORATION and Princo America Corporation, Appellants,

v. INTERNATIONAL TRADE COMMISSION, Appellee,andU.S. Philips Corporation, Intervenor.

No. 2007-1386.

United States Court of Appeals,Federal Circuit.

Aug. 30, 2010.

COPYRIGHT MATERIAL OMITTED.

Eric L. Wesenberg, Orrick, Herrington & Sutcliffe LLP, of Menlo Park, CA, argued for appellants. With him on the brief were Robert E. Freitas, Cynthia Wickstrom Zuniga, Kenneth J. Halpern, Michael C. Ting, Matthew H. Poppe and Garret G. Rasmussen. Of counsel on the brief was John D. Vandenberg, Klarquist Sparkman, LLP, of Portland, OR.

Clara Kuehn, Attorney, Office of the General Counsel, United States International Trade Commission, of Washington, DC, argued for appellee. With her on the brief were James M. Lyons, General Counsel, and Wayne W. Herrington, Assistant General Counsel.

Edward C. Dumont, Wilmer Cutler Pickering Hale and Dorr LLP, of Washington, DC, argued for intervenor. With him on the brief were Jonathan G. Cedarbaum, Perry A. Lange, William J. Kolasky, Jr. and Sue-Yun Ahn.

Richard S. Taffet, Bingham McCutchen LLP, of New York, NY, for amicus curiae The American Intellectual Property Law Association on rehearing en banc. With him on the brief were David B. Salmons and Patrick Strawbridge, of Washington, DC. Of counsel on the brief was Alan J. Kasper, Sughrue Mion, PLLC, of Washington, DC.

Charles A. Weiss, New York Intellectual Property Law Association, of New York, NY, for amicus curiae New York Intellectual Property Law Association on rehearing en banc. With him on the brief were Mark J. Abate and David F. Ryan.

Herbert C. Wamsley, Intellectual Property Owners, of Washington, DC, for amicus curiae Intellectual Property Owners Association on en banc rehearing. On the brief were Steven W. Miller and Richard F. Phillips. Of counsel on the brief were Robert P. Taylor, Mintz, Levin, Cohen, Ferris, Glovsky and Pepo, P.C., of Palo Alto, CA; and Henry C. Su, Howrey LLP, of Palo Alto, CA.

Richard M. Brunell, American Antitrust Institute, of Washington, DC, for amicus curiae American Antitrust Institute on rehearing en banc. With him on the brief was Jonathan L. Rubin.

David L. Sieradzki, Attorney, Office of General Counsel, Federal Trade Commission, of Washington, DC, for amicus curiae Federal Trade Commission on rehearing en banc. With him on the brief were Willard K. Tom, General Counsel, and John F. Daly, Deputy General Counsel for Litigation.

Before RADER, Chief Judge, ^* NEWMAN, MAYER, LOURIE, BRYSON, GAJARSA, LINN, DYK, PROST, and MOORE, Circuit Judges.

Opinion for the court filed by Circuit Judge BRYSON, in which Chief Judge RADER and Circuit Judges NEWMAN, LOURIE, LINN, and MOORE join.

Concurring opinion filed by Circuit Judge PROST, in which Circuit Judge MAYER joins.

Dissenting opinion filed by Circuit Judge DYK, in which Circuit Judge GAJARSA joins.

BRYSON, Circuit Judge.

This case requires us to consider the scope of the doctrine of patent misuse. Patent misuse developed as a nonstatutory defense to claims of patent infringement. In the licensing context, the doctrine limits a patentee's right to impose conditions on a licensee that exceed the scope of the patent right. Because patent misuse is a judge-made doctrine that is in derogation of statutory patent rights against infringement, this court has not applied the doctrine of patent misuse expansively. In this case, we adhere to that approach, and we sustain the decision of the International Trade Commission that the doctrine of patent misuse does not bar the intervenor, U.S. Philips Corporation, from enforcing its patent rights against the appellants Princo Corporation and Princo America Corporation (collectively, “Princo”).

I

A

This case has a lengthy history, which we will recite only in pertinent part. The technology at issue concerns two types of digital storage devices-recordable compact discs (“CD-Rs”) and rewritable compact discs (“CD-RWs”). Those devices were developed in the 1980s and 1990s. The companies that developed the CD-R/RW technology generated technical standards to ensure that discs made by different manufacturers would be compatible and playable on machines that were designed to read the earlier generation compact discs (“CDs”) and “read-only” compact discs (“CD-ROMs”). The standards that were generated for CD-Rs and CD-RWs were collected in a publication entitled “Recordable CD Standard,” informally known as the “Orange Book.” The CD-R/RW technology was developed principally by Philips and Sony Corporation, working in collaboration. Philips and Sony also jointly developed the Orange Book standards.

One aspect of the CD-R/RW technology-and the corresponding Orange Book standards-is at issue in this case. In the course of their work, the Sony and Philips engineers had to address the problem of how to encode position information in the disc so that a consumer's CD reader/writer could maintain proper positioning while writing data to the disc. Philips and Sony proposed different solutions to that problem. Philips's solution was to use an analog method of modulating the frequency of the “groove” on the disc so as to add location codes to the disc. One of Sony's proposed solutions was to use a digital method to encode location codes into the disc groove. Philips's approach was later set forth in two of the patents at issue in this case, referred to as the “Raaymakers patents.” Sony's approach was set forth in one of its own patents, referred to as the “Lagadec patent.”

After reviewing the competing solutions, the Sony and Philips engineers agreed that they would use the Raaymakers approach to solving the problem, not the Lagadec approach. The engineers from both companies agreed that the Raaymakers approach “was simple and ... worked very well.” By contrast, as the Commission found in the course of this litigation, the Lagadec approach was “prone to error” and would have been “very difficult” to implement. Philips and Sony therefore incorporated the Raaymakers approach in the Orange Book as the standard for manufacturing CD-R/RW discs.

Philips and Sony sought to commercialize their technology by offering licenses to the patents that were required to manufacture CD-R/RW discs in accordance with the Orange Book standards. Administering the licensing program, Philips offered several different “package” licenses to the Philips and Sony patents (and those of several other patent holders). Philips included in the patent packages those patents that it regarded as potentially necessary to make Orange-Book-compliant CD-R or CD-RW discs, including the Raaymakers and Lagadec patents. The package licenses contained a “field of use” restriction, limiting the licensees to using the licensed patents to produce discs according to the Orange Book standards. After 2001, Philips offered additional package options, grouping the patents into two categories, denominated “essential” and “nonessential,” for producing compact discs that complied with the technology standards set forth in the Orange Book.

In the late 1990s, Princo sought to manufacture discs and import them into this country, and it entered into a package license agreement with Philips. Soon after entering the agreement, however, Princo stopped paying the licensing fees required by the agreement. Philips then filed a complaint with the International Trade Commission, alleging that Princo (along with several other parties) was violating section 337(a)(1)(B) of the Tariff Act of 1930, 19 U.S.C. § 1337(a)(1)(B), by importing CD-Rs and CD-RWs that infringed Philips's patents.

B

In the course of proceedings before an administrative law judge, Princo raised the affirmative defense of patent misuse. Among other arguments, Princo contended that Philips had improperly forced Princo and other licensees, 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.

The administrative law judge agreed with Philips that Princo had infringed various claims of the six asserted Philips patents and that the patents were not invalid. However, the administrative law judge denied relief to Philips on the ground that the Philips patents were unenforceable because of patent misuse. The administrative law judge found, inter alia, that the package licensing agreements offered by Philips constituted impermissible tying arrangements because they forced manufacturers to license extraneous patents in addition to the patents that the manufacturers wanted to license. That tying arrangement, according to the administrative law judge, rendered all of Philips's patents in suit unenforceable. The administrative law judge also held Philips's patents unenforceable based on price fixing, price discrimination, and restraint of trade.

On Philips's petition for review, the Commission affirmed the administrative law judge's ruling that Philips's package licensing practice constituted patent misuse for unlawfully tying patents that were essential for the Orange Book standard to licenses for other patents that were not essential. That practice was improper, according to the Commission, because it forced licensees to purchase licenses to patents that they did not want or need, and it did not allow them the option of licensing individual patents. The Commission did not address the administrative judge's ruling that the patent pooling arrangements between Philips and its co-licensors, including Sony, constituted price fixing and price discrimination, or the administrative judge's ruling that the royalty structure of the patent pools resulted in an unreasonable restraint of trade.

Philips appealed to this court, and we reversed. U.S. Philips Corp. v. Int'l Trade Comm'n (Philips I), 424 F.3d 1179 (Fed.Cir.2005). We rejected the Commission's theory that Philips's package licensing practice constituted patent misuse by improperly...