The decline (and fall?) of the patent misuse doctrine in the federal circuit

Antitrust Law Journal

Volumn 69, Issue 3, 2001, Pages 669-685

  Hoerner, Robert J ^a  

^a NONE

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EID: 0036004354     PISSN: 00036056     EISSN: None     Source Type: Journal    
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References (77)

1. See, e.g., Hartford-Empire Co. v. United States, 323 U.S. 386, 415, 419 (1945) ("[S]o long as the patent owner is using his patent in violation of the antitrust laws, he cannot restrain infringement of it by others."). Obviously, before an antitrust-type misuse can be found, the degree of anticompetitive effect or unreasonable restraint of trade required to support the antitrust violation will also have to be found.
2. Use of the term "the monopoly of the patent" is frowned on by the Federal Circuit, Schenck v. Norton Corp., 713 F.2d 782, 786 n.3 (Fed. Cir. 1983). A patent provides only the right to exclude others from practicing its claims. See Crown Die & Tool Co. v. Nye Tool & Mach. Works, 261 U.S. 24, 34-35 (1923). "Extension of the monopoly" terminology will, however, be used herein for convenience.
3. As to purge, see Robert J. Hoerner, Patent Misuse, 53 ANTITRUST L.J. 641, 646-47 and nn.44 & 45 (1985); see generally ABA SECTION OF ANTITRUST LAW, INTELLECTUAL PROPERTY COMMITTEE, MONOGRAPH: INTELLECTUAL PROPERTY MISUSE: LICENSING AND LITIGATION (2000).
4. As to purge, see Robert J. Hoerner, Patent Misuse, 53 ANTITRUST L.J. 641, 646-47 and nn.44 & 45 (1985); see generally ABA SECTION OF ANTITRUST LAW, INTELLECTUAL PROPERTY COMMITTEE, MONOGRAPH: INTELLECTUAL PROPERTY MISUSE: LICENSING AND LITIGATION (2000).
5. For examples of extension of the monopoly misuse, see Robert J. Hoerner, Patent Misuse: Portents for the 1990s, 59 ANTITRUST L.J. 687, 704-11 (1991).
6. 314 U.S. 488 (1942).
7. Id. at 493.
8. Id. at 492, 494. Justice Roberts, however, did not participate.
9. Aesop, The Dog and His Reflection, in THE AESOP FOR CHILDREN 96 (1993): A Dog, to whom the butcher had thrown a bone, was hurrying home with his prize as fast as he could go. As he crossed a narrow footbridge, he happened to look down and saw himself reflected in the quiet waters as if in a mirror. But the greedy Dog thought he saw a real Dog carrying a bone much bigger than his own. If he had stopped to think he would have known better. But instead of thinking, he dropped his bone and sprang at the Dog in the river, only to find himself swimming for dear life to reach the shore. At last he managed to scramble out, and as he stood sadly thinking about the good bone he had lost, he realized what a stupid Dog he had been. It is very foolish to be greedy. (Emphasis by Aesop.)
10. Dubuit v. Harwell Enters., Inc., 336 F. Supp. 1184, 1187 (W.D.N.C. 1971).
11. Transparent-Wrap Mach. Corp. v. Stokes & Smith Co., 329 U.S. 637, 641 (1947); see also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 140 (1969).
12. Berlenbach v. Anderson & Thompson Ski Co., 329 F.2d 782, 784 (9th Cir. 1964).
13. Key Pharms., Inc. v. Lowey, 373 F. Supp. 1190, 1193 (S.D.N.Y. 1974) (citing Berlenbach).
14. Jack Winter, Inc. v. Koratron Co., 375 F. Supp. 1, 71 (N.D. Cal. 1974).
15. Sonobond Corp. v. Uthe Tech., Inc., 314 F. Supp. 878, 880 (N.D. Cal. 1970) (citing Morton Salt and Berlenbach).
16. Columbus Auto. Corp. v. Oldberg Mfg. Co., 264 F. Supp. 779, 783 (D. Colo. 1967), aff'd, 387 F.2d 643 (10th Cir. 1968).
17. Dubuit, 336 F. Supp. 1184, 1187.
18. 782 F.2d 995 (Fed. Cir. 1986).
19. Then-Chief Judge Markey did not cite or discuss Jack Winter, Inc. v. Koratron Co., 375 F. Supp. 1, 71-72 (N.D. Cal. 1974), where Judge Renfrew held: "the Court finds that Koratron has misused its patent in that it violated §1 of the Sherman Act . . . by tying the rights under [the] '432 [patent] to the use of Koratron's trademark" (citing Morton Salt).
20. 782 F.2d at 1001-02 (emphasis added.).
21. 402 U.S. at 343.
22. Mercoid v. Mid-Continent Inv. Co., 320 U.S. 661, 666 (1944).
23. Windsurfing, 782 F.2d at 1001-02. Other commentators, some writing after Windsurfing was decided, have also supported the rationale of Chief Judge Markey's footnote 9. Charles F. Rule, Remarks Before the Legal Conference sponsored by The World Trade Ass'n and the Cincinnati Patent Law Ass'n, The Antitrust Implications of International Licensing: After the Nine No-Nos 5 (Oct. 21, 1986); Patent Licensing Reform Act of 1988: Hearing Before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee of the Judiciary, House of Representatives on H.R. 4086 and S. 1200 (Title II) Patent Misuse Legislation, 100th Cong., 2d Sess. 8-9 (1988) (Statement of Charles F. Rule, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice); Donald F. Turner, Basic Principles of Formulating Antitrust and Misuse Constraints on the Exploitation of Intellectual Property Rights, 53 ANTITRUST L.J. 485, 487 (1984). See also infra text accompanying notes 67-69.
24. Windsurfing, 782 F.2d at 1001-02. Other commentators, some writing after Windsurfing was decided, have also supported the rationale of Chief Judge Markey's footnote 9. Charles F. Rule, Remarks Before the Legal Conference sponsored by The World Trade Ass'n and the Cincinnati Patent Law Ass'n, The Antitrust Implications of International Licensing: After the Nine No-Nos 5 (Oct. 21, 1986); Patent Licensing Reform Act of 1988: Hearing Before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee of the Judiciary, House of Representatives on H.R. 4086 and S. 1200 (Title II) Patent Misuse Legislation, 100th Cong., 2d Sess. 8-9 (1988) (Statement of Charles F. Rule, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice); Donald F. Turner, Basic Principles of Formulating Antitrust and Misuse Constraints on the Exploitation of Intellectual Property Rights, 53 ANTITRUST L.J. 485, 487 (1984). See also infra text accompanying notes 67-69.
25. Windsurfing, 782 F.2d at 1001-02. Other commentators, some writing after Windsurfing was decided, have also supported the rationale of Chief Judge Markey's footnote 9. Charles F. Rule, Remarks Before the Legal Conference sponsored by The World Trade Ass'n and the Cincinnati Patent Law Ass'n, The Antitrust Implications of International Licensing: After the Nine No-Nos 5 (Oct. 21, 1986); Patent Licensing Reform Act of 1988: Hearing Before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee of the Judiciary, House of Representatives on H.R. 4086 and S. 1200 (Title II) Patent Misuse Legislation, 100th Cong., 2d Sess. 8-9 (1988) (Statement of Charles F. Rule, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice); Donald F. Turner, Basic Principles of Formulating Antitrust and Misuse Constraints on the Exploitation of Intellectual Property Rights, 53 ANTITRUST L.J. 485, 487 (1984). See also infra text accompanying notes 67-69.
26. 803 F.2d 661, 665 n.5 (Fed. Cir. 1986) (emphasis added.).
27. The macerator was patented, but Senza-Gel did not assert that patent against Seiffhart, so the district court treated it as an unpatented staple.
28. 803 F.2d at 664 (brackets by the court).
29. It also said that it was "not here explicating all of the analytical parameters that may be applicable to patent misuse questions in future cases . . . ." Id. at 665. In addition, it recited some six issues it was not resolving because they had not been timely raised below. Id. at 668.
30. Id. at 669.
31. E.g., Adams v. Burke, 84 U.S. (17 Wall.) 453, 455-56 (1873); Bloomer v. McQuewan, 55 U.S. (14 How.) 539 (1852).
32. Hewlett-Packard Co. v. Repeat-O-Type Stencil Mfg. Corp., 123 F.3d 1445, 1452 (Fed. Cir. 1997); Intel Corp. v. ULSI Sys. Tech. Inc., 995 F.2d 1566, 1568 (Fed. Cir. 1993); Cyrix Corp. v. Intel Corp., 846 F. Supp. 522, 539 (E.D. Tex.), aff'd mem., 42 F.3d 1411 (Fed. Cir. 1994).
33. The Second, Third, and Fifth Circuits have all held that post-sale restrictions are a patent misuse. Ansul Co. v. Uniroyal, Inc., 448 F.2d 872, 879-80 (2d Cir. 1971); Baldwin-Lima-Hamilton Corp. v. Tatnall Measuring Sys. Co., 169 F. Supp. 1 (E.D. Pa.), aff'd per curiam, 268 F.2d 395 (3d Cir. 1959); Hensley Equip. Co. v. Esco Corp., 383 F.2d 252, 262-64 (5th Cir. 1967), amended, 386 F.2d 442 (5th Cir. 1967). Ansul and Hensley were decided, however, when Schwinn was controlling precedent, United States v. Arnold, Schwinn & Co., 388 U.S. 365 (1967), and were based at least in part on the theory that, since the post-sale restrictions were involved, these restraints on alienation were a per se antitrust violation which constitutes an antitrust-type patent misuse. After 1977, when Schwinn was overruled in Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977), the per se analysis of Schwinn was no longer possible. On the other hand, those court of appeals decisions could have been rested on the rationale of Boston Store v. American Graphophone Co., 246 U.S. 8, 23 (1918), where former law as set out below was followed: "[A] patentee could not use and exhaust the right to sell as to which a monopoly was given him by the patent law and yet by conditions and stipulations continue that law in effect so as to make it govern things which by his voluntary act were beyond its scope." In such a case the patent misuse doctrine would continue to apply to resale restraints following the demise of Schwinn. The Fifth Circuit in Hensley, for example, said: "Patent monopoly is 'exhausted' by the first authorized sale of the patented item, and the patent law does not protect attempts by the patentee or his licensees to control use of the product after such sale." 383 F.2d at 263 (citing United States v. Univis Lens, 316 U.S. 241 (1942)). In Baldwin-Lima-Hamilton, 169 F. Supp at 28-33, the patent misuse doctrine was applied before Schwinn existed, "whether plaintiffs' activities constituted a violation of the anti-trust laws" or not. Id. at 33.
34. See supra note 23.
35. 976 F.2d 700 (Fed. Cir. 1992).
36. Id. at 708 (emphasis added).
37. 124 F.3d 1419 (Fed. Cir. 1997).
38. Id. at 1426 (emphasis added).
39. See General Talking Pictures Corp. v. Western Elec. Co., 304 U.S. 175, 305 U.S. 124 (1938).
40. The first sale/exhaustion doctrine also implicates the repair/reconstruction distinction in patent law. The buyer of a patented article can safely "repair" and resell that same patented article and be protected from an infringement suit by the exhaustion doctrine, just as if the article had not been repaired. If, however, the buyer "reconstructs" the patented article, then such reconstructed article is regarded as a new infringement and if the buyer uses or resells the reconstructed article, he can be sued for infringement just as if it had never been purchased from the patent owner. Determining the line between "repair" and "reconstruction" is a much litigated issue. See, e.g., Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961), 377 U.S. 476 (1964). In Mallinckrodt, Medipart argued, and the district court found, that its reconditioning was mere "repair," which protected it under the "exhaustion" doctrine, while Mallinckrodt argued that the reconditioning was "reconstruction," which permitted Mallinckrodt to forbid a second use. The Federal Circuit held that the district court's holding "that the reconditioning was permissible repair is mooted, and is vacated," 976 F.2d at 709, apparently because the Federal Circuit's conditional sale rationale had already rendered the exhaustion doctrine inapplicable.
41. 316 U.S. 241, 249-52 (1942) (emphasis added). See also Boston Store v. American Graphophone Co., 246 U.S. 8, 23-27 (1918).
42. In one sense the question is not whether the sale was conditional or restricted, but whether the transfer (however it might be characterized) was such as to bring the exhaustion doctrine into play, especially when it is noted that the Supreme Court held that "the particular form or method by which the monopoly is sought to be extended is immaterial." Univis Lens, 316 U.S. at 251-52.
43. James B. Kobak, Contracting Around Exhaustion: Some Thoughts About the CAFC's Mallinckrodt Decision, 75 J. PAT. TRADEMARK OFF. SOC'Y. 550, 557-58, 561-62, 565 (1993). Is it permissible to ask how a sale subject to a post-sale restriction can be held not a sale for exhaustion purposes when the very purpose of the exhaustion doctrine is to render the patent ineffectual to justify the post-sale restriction? Recall that in Mercoid, quoted in Blonder-Tongue, Justice Douglas wrote: "The fact that the patentee has the power to refuse a license does not enable him to enlarge the monopoly of the patent by the expedient of attaching conditions to its use . . . . The method by which the monopoly is sought to be extended is immaterial." 402 U.S. at 344. Since the effect of the exhaustion doctrine is to limit "the monopoly of the patent" to the first level of distribution, holding that a sale subject to a use restriction permits control at a subsequent level of distribution does, indeed, enlarge the "monopoly of the patent," and would permit the patent owner to achieve a second tribute at that subsequent level.
44. 124 F.3d 1419, 1426 (Fed. Cir. 1997) (emphasis added).
45. See the reasoning of Judge L. Hand in United States v. Aluminum Co. of America, 148 F.2d 416, 425 (2d Cir. 1945). Moreover, resale restrictions could directly lessen competition which could otherwise be offered by the buyer of the patented article sold. For example, the article could be sold by the patent owner for less in the veterinarian market, which would permit the buyer of it to compete with the patent owner's first sale in the human market. The article might be sold for less for shipment overseas, which would permit it to compete if imported back into the United States. Repair, not constituting reconstruction, could well cost less than the patentee's original sale price, so that the repaired article on resale could compete with the patent owner's first-sale offering price. A reason underlying the exhaustion doctrine could well be to prevent such restraints on competition, which could be offered by the patented device after its first sale by the patent owner who had received consideration for it. Since he contracted for the consideration, it must be regarded as acceptable to him, whatever it was.
46. 124 F.3d at 1426-27.
47. 44 133 F.3d 860 (Fed. Cir. 1997). In Engel Indus., Inc. v. Lockformer Co., 96 F.3d 1398, 1408 (Fed. Cir. 1996), the court affirmed the magistrate judge's finding of no misuse, but the late Judge Rich said little about the conceptual framework in which the patent misuse inquiry was to be conducted.
48. Section 1498 provides a defense to an alleged infringer that has produced goods for the United States, and requires that suit be brought against the United States in the Court of Federal Claims for recovery of the patent owner's "reasonable and entire compensation." See Carter-Wallace, Inc. v. United States, 449 F.2d 1374, 1390-91 (Ct. Cl. 1971).
49. 133 F.3d at 868-69.
50. Id. 869.
51. Id. at 870. Accord Bissell, Inc. v. E.R. Wagner Mfg. Co., 204 F. Supp. 801, 814 (E.D. Wis. 1962).
52. Id. at 871. Accord Shop & Save Food Mkts. v. Pneumo Corp., 683 F.2d 27, 30-31 (2d Cir. 1982).
53. 157 F.3d 1340, 1372-73 (Fed. Cir. 1998), cert. denied, 526 U.S. 1130 (1999).
54. District courts have, since Windsurfing, included the "with anticompetitive effect" language in their statement of the requirements to invoke the doctrine. See, e.g., GFI, Inc. v. Franklin Corp., 88 F. Supp. 2d 619, 634 (N.D. Miss. 2000); Townshend v. Rockwell Int'l Corp., 55 U.S.P.Q.2d 1011, 1024 (N.D. Cal. 2000); Hunter Douglas, Inc. v. Comfortex Corp., 44 F. Supp. 2d 145, 156 (N.D.N.Y. 1999); Zeneca Ltd. v. Pharmachemie B.V., 37 F. Supp. 2d 85, 92 (D. Mass. 1999); Advanced Cardiovascular Sys. Inc. v. SciMed Sys. Inc., 40 U.S.P.Q.2d 1294 (N.D. Cal. 1996); CMI, Inc. v. Intoximeters, Inc., 866 F. Supp. 342, 347 (W.D. Ky. 1994); Keystone Retaining Wall Sys., Inc. v. Westrock, Inc., 792 F. Supp. 1552, 1559-60 (D. Or. 1991), appealed on other issues, 997 F.2d 1444 (Fed. Cir. 1993). In Texas Instruments Inc. v. Hyundai Electronics Industries, 49 F. Supp. 2d 893, 911 (E.D. Tex. 1999), the court refused to find T.I. guilty of patent misuse in part because Hyundai had not proved that T.I. had market power in a relevant market. Also, the Texas Instruments court held that, as to tying, the phrase "per se misuse" was a historical anachronism in view of 35 U.S.C. § 271 (d) (5), which required a finding of "market power" in a "relevant market" "in view of the circumstances." 49 F. Supp. 2d at 908-12. In PSC Inc. v. Symbol Technologies, Inc., 26 F. Supp. 2d 505 (W.D.N.Y. 1998), the court found an anticompetitive effect under the rule of reason and held that charging royalties on a licensed component and also on the end product into which the royalty-paid component was incorporated was patent misuse. (As of this writing an appeal apparently remains a possibility.)
55. 157 F.3d at 1370. Judge Gajarsa joined by Judge Clevenger (neither of whom was on the Bard panel) recited, in voting to deny a rehearing en banc, that the redesigned product was "within the proper scope of the claims" but that, because of defendant's tactics on appeal, "The question of whether or not a cause of action premised upon the antitrust laws exists when a patentee redesigns a patented product within the scope of the patent claims, awaits another day." C.R. Bard, Inc. v. M3 Systems, Inc., 161 F.3d 1380, 1381 (Fed. Cir. 1998).
56. 157 F.3d at 1382.
57. Id. at 1370.
58. See Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918); Standard Oil Co. v. United States, 221 U.S. 1, 66 (1911); ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 51-71 (4th ed. 1997) [hereinafter ANTITRUST LAW DEVELOPMENTS]. The Federal Circuit has not discussed the "quick look" branch of the rule. Id. at 56-57, nor has it stated when the per se rule, rather than the rule of reason, might be applied. See id. at 43-51, 974.
59. But see supra note 30.
60. By its use of italics in a recent case involving § 271 (d) (4), the Federal Circuit seemed to answer in the affirmative the question raised in Robert J. Hoerner, Is Activity Within the Subsections of 35 U.S.C. §271(d) Protected from a Finding of Antitrust Violation? 74 J. PAT. & TRADEMARK OFF. SOC'Y 283 (1992). In CSU, L.L.C. v. Xerox Corp., (In re Independent Serv. Orgs. Antitrust Litig.), 203 F.3d 1322, 1326 (Fed. Cir. 2000), cert. denied, 531 U.S. 1143 (2001), an antitrust case, Chief Judge Mayer wrote (for Judges Archer and Plager): The patentee's right to exclude is further supported by section 271 (d) of the Patent Act which states, in pertinent part, that 'no patent owner otherwise entitled to relief . . . shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having . . . (4) refused to license or use any rights to the patent . . . 35 U.S.C. § 271 (d) (1999).
61. See supra note 26.
62. (Emphasis added.) See supra note 57.
63. See quotation accompanying note 33, supra.
64. Chicago Prof'l Sports Ltd. v. NBA, 95 F.3d 593, 600 (7th Cir. 1996), and cases cited in ANTITRUST LAW DEVELOPMENTS, supra note 55, at 60-61 n.313.
65. United States v. Loew's Inc., 371 U.S. 38, 45 (1962).
66. Walker Process Equip. Co. v. Food Mach. & Chem. Corp., 382 U.S. 172, 178 (1965).
67. Abbott Labs. v. Brennan, 952 F.2d 1346, 1354 (Fed. Cir. 1991).
68. U.S. Dep't of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property § 5.3 (1995).
69. See cases cited in ANTITRUST LAW DEVELOPMENTS, supra note 55, at 966 n.290, and materials cited in Robert J. Hoerner, The Antitrust Significance of a Patent's Exclusionary Power, 60 ANTITRUST L.J. 867, 876, n.58 (1992).
70. See cases cited in ANTITRUST LAW DEVELOPMENTS, supra note 55, at 966 n.290, and materials cited in Robert J. Hoerner, The Antitrust Significance of a Patent's Exclusionary Power, 60 ANTITRUST L.J. 867, 876, n.58 (1992).
71. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 16 (Stevens, J.), & 37 n.7 (O'Connor, J., concurring, joined by Rehnquist, J.) (1984). No other participating Justices are still on the Court. See Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 466-67 (1992): "Legal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law."
72. See, e.g., James v. Campbell, 104 U.S. 356, 358 (1881); United States v. Dubilier Condenser Corp., 289 U.S. 178, 186-87, 189 (1933).
73. See Robert J. Hoerner, Patent Misuse, 53 ANTITRUST L.J. 641, 655-57 (1985); Strait v. National Harrow Co., 51 Fed. 819, 820 (C.C. N.D.N.Y. 1892).
74. United States v. United Shoe Mach. Co., 247 U.S. 32, 65 (1918).
75. U.S. Const, art. III, § 1: "The judicial Power of the United States, shall be vested in one supreme court, and in such inferior courts as the Congress may from time to time ordain and establish."
76. Senza-Gel, 803 F.2d 661, 665 n.5 (Fed. Cir. 1986).
77. Alternatively, the Federal Circuit could forthrightly state, since the patent misuse doctrine is concededly judge-made, that it believed a doctrine different from that of the Supreme Court should be applied, and then explain why it thought the doctrine it preferred was better patent policy under the Constitution. The Supreme Court would then be free to grant, or not, a petition for a writ of certiorari, were one filed, to consider the question. See Khan v. State Oil Co., 93 F.3d 1358, 1363 (7th Cir. 1996), where Judge Posner wrote: "Albrecht was unsound when decided, and is inconsistent with later decisions by the Supreme Court. It should be overruled. Someday, we expect, it will be." The Supreme Court took the case and overruled Albrecht in State Oil Co. v. Khan, 522 U.S. 3, 22 (1997).