The past decade has seen an explosion of patent litigation in the United States and an increased role for antitrust claims and the use of antitrust analysis in patent cases. For intellectual property lawyers, it is important to anticipate the antitrust issues often presented by patentees’ licensing or other conduct and their patent enforcement activities. For antitrust lawyers, it is important to understand the analytical framework for patent misuse and the antitrust counterclaims that may be available.
Antitrust Analysis for Patent Misuse Defenses
Patent misuse can be a powerful defense to a claim of patent infringement. If the defendant prevails on a misuse defense, the patent is rendered unenforceable until the misuse is purged. Senza-Gel Corp. v. Seiffhart, 803 F.2d 661, 668 n.10 (Fed. Cir. 1986). This is true not only as to the defendant, but also as to all others against whom the patentee would try to enforce the patent. This makes the patent misuse defense a potent weapon.
Misuse frequently arises as a result of the patentee’s licensing practices. Several types of licensing conduct have been held to constitute patent misuse or have been alleged in reported cases to be misuse, including: tying patents to unpatented goods, tying patents to patents (package licenses), charging post-expiration royalties, demanding royalties under U.S. patents based on worldwide sales, anticompetitive grantback clauses and field-of-use restrictions, and certain horizontal arrangements that often arise in the context of patent pools and cross-licensing arrangements.
The Federal Circuit has described patent misuse as the patentee’s act of “impermissibly broaden[ing] the ‘physical or temporal scope’ of the patent grant with anticompetitive effect.” Windsurfing Int’l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986) (emphasis added). “To sustain a misuse defense involving a licensing arrangement not held to have been per se anticompetitive by the Supreme Court, a factual determination must reveal that the overall effect of the license tends to restrain competition unlawfully in an appropriately defined relevant market.” Id. at 1001-02 (emphasis added). In August 2010, the Federal Circuit affirmed that patent misuse requires proof of anticompetitive effects resulting from the misuse. Princo Corp. v. Int’l Trade Comm’n, 616 F.3d 1318 (Fed. Cir. 2010). Princo holds, however, that proof of an antitrust violation associated with the use of a patent is not sufficient to establish misuse. “What patent misuse is about, in short, is ‘patent leverage,’ i.e., the use of the patent power to impose overbroad conditions on the use of the patent in suit that are ‘not within the reach of the monopoly granted by the Government.’” Id. at 1331 (quoting Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 136-38 (1969)).
This emphasis on anticompetitive effects means that the traditional tools used for antitrust analysis are critical in the evaluation of a patent misuse defense. The only clear exception is when the patentee charges royalties based on post-expiration sales, which continues to be treated as per se unlawful under Brulotte v. Thys Co., 379 U.S. 29 (1964). Prevailing on a patent misuse defense typically requires the rule of reason analysis employed in antitrust cases.
Antitrust Counterclaims in Patent Infringement Cases
Defendants in infringement cases also commonly assert antitrust counterclaims in an effort to level the litigation playing field. The typical claim is a Sherman Act Section 2 claim for monopolization and attempted monopolization. The two main categories of antitrust counterclaims are Walker Process and Handgards claims. A Walker Process claim alleges that the patentee fraudulently procured the patent-in-suit. See Walker Process Equip. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965). A Walker Process claim is a complement to the inequitable conduct defense to an infringement claim. Rather than using misconduct before the Patent and Trademark Office (PTO) to invalidate a patent, the infringement defendant asserts the knowing enforcement of a fraudulently obtained patent as the predicate anticompetitive conduct supporting a Section 2 claim. Unlike the inequitable conduct defense, Walker Process always requires proof of “knowing and willful” fraud in prosecution. Id. at 177. Prevailing on a Walker Process claim requires not only demonstrating, by clear and convincing evidence, that the patent holder committed fraud on the PTO, but also proving, by a preponderance of the evidence, all of the other elements of a Section 2 claim.
A Handgards claim alleges that the patentee is seeking to enforce the patent even though the patentee learns that the patent is invalid or unenforceable after obtaining the patent. See Handgards, Inc. v. Ethicon, Inc., 601 F.2d 986 (9th Cir. 1979). Under Handgards, if the counterclaimant demonstrates by clear and convincing evidence that the patentee is enforcing the patent with actual knowledge that it is invalid, the sham litigation exception to the Noerr-Pennington immunity doctrine is satisfied. Some courts have applied to Handgards claims the two-part test for sham litigation claims adopted in Professional Real Estate Investors v. Columbia Pictures Industries, 508 U.S. 49 (1993) (PRE).
Under PRE, the counterclaimant must prove that the infringement suit is “objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits” and that by suing the patentee is attempting “‘to interfere directly with the business relationships of a competitor,’ through the ‘use [of] the governmental process – as opposed to the outcome of that process – as an anticompetitive weapon.’” 508 U.S. at 61 (citations omitted). Prevailing on a Handgards claim also requires proving all the other elements of a Section 2 claim.
In addition to Walker Process and Handgards claims, it is becoming common for defendants in infringement cases to assert Section 2 counterclaims, as well as other claims, based on misconduct before standards-setting organizations (SSO). There are two main categories of claims. In the first, an alleged infringer asserts that the patentee engaged in patent holdup by engaging in deceptive conduct in the SSO process so that its patented technology was incorporated into the industry standard, or competition was otherwise restrained. E.g., Rambus, Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008). In the second, the alleged infringer asserts that the patentee reneged on a commitment to license its patents on reasonable and non-discriminatory (RAND) terms. E.g., Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297 (3d Cir. 2007). When asserted under Section 2, both categories of claims require typical antitrust analysis and proof.
The assertion of patent misuses defenses and antitrust counterclaims is now routine in patent litigation. The antitrust issues associated with these defenses and counterclaims, often seen as subsidiary to the patent claims, are frequently at least as complicated and important as the underlying patent litigation. The antitrust-based claims and defenses require the same level of focus and diligence as the patent claims and other defenses.