Lead Opinion
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.
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
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 CDR/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
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 colicensors, 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),
We also reversed the Commission’s ruling that Philips had engaged in patent misuse under the rule of reason. As to that issue, we held that the Commission’s conclusion that Philips’s patent package licensing program was anticompetitive was predicated on legal errors and on factual findings that were not supported by substantial evidence. We remanded the case to the Commission for further proceedings because the Commission had not addressed all the grounds on which the administrative law judge had based his ruling.
C
On remand, the Commission rejected Princo’s remaining theories of patent misuse. The Commission first rejected Princo’s argument that Philips committed patent misuse by combining with its horizontal competitors to fix the price of patent licenses in the relevant market, i.e., the market for licensing CD-R/RW patents. The Commission found that there was no evidence in the record that the patents in the joint package licenses covered technologies that were close substitutes, or that the pool licensors would have competed in the technology licensing market absent the pooling arrangements. Consequently, the Commission found that the joint package licenses had not been shown to constitute horizontal price fixing.
In particular, the Commission rejected Princo’s argument that Sony’s Lagadec patent should not have been included in the patent packages. The Commission noted Philips’s contention that claim 6 of the Lagadec patent covered a portion of the Orange Book standard and therefore was technically a “blocking patent.” The Commission explained that if Philips was correct that Lagadec was a necessary part of the Orange Book patent package, then “no misuse flows from including the [Lagadec] patent in the joint licenses.” Even if a license to the Lagadec patent was not necessary to manufacture Orange-Book-compliant discs, the Commission stated, there was no merit to Princo’s theories of patent misuse based on the Lagadec patent, because “there has been no showing that the Lagadec ... patent competes with another patent in the pool, no showing that the pool licensors would have competed in the technology licensing market absent the pooling arrangement, and no showing of the anticompetitive effect required under a rule of reason analysis.”
After an extensive analysis of the evidence presented to the administrative law judge, the Commission concluded that the record “does not support a finding that the Lagadec '565 patent competes with the [Raaymakers] patents,” and that Princo “failed to identify evidence demonstrating that, absent the pooling arrangements, the pool licensors would have competed in the technology licensing market.” The Commission noted that the administrative law judge had found that testimony at the hearing indicated that the Lagadec patent “constitutes completely different technology that does not work well according to the Orange Book standards” and that Lagadec was therefore “extraneous to the Orange Book.” In particular, the administrative law judge had found that Lagadec constituted “at best, a substitute technology” that could not be used to manufacture Orange-Book-compliant discs, and “at worst, an extraneous, nonworking add-on to the patent pool.” Under those circum
With respect to the contention that including the Lagadec patent in the license packages enabled Philips to secure Sony’s adherence to the Orange Book standards and thereby foreclose competition, the Commission found that theory speculative and unsupported by the evidence in the record. Because there was no evidence that Sony would have entered the CDR/RW market with a system based on the Lagadec technology and no evidence that such a system would have become a significant competitive force in that market, the Commission held that theory insufficient to support a finding of patent misuse.
D
On Princo’s appeal, a divided panel of this court ruled against the Commission and Philips. Princo Corp. v. Int’l Trade Comm’n,
At the outset, the panel unanimously rejected Princo’s argument that Philips had engaged in patent misuse through improper “tying” by including the Lagadec patent in the Orange Book license packages. The court noted that while grouping patents together in package licenses has anticompetitive potential, it “also has potential to create substantial procompetitive efficiencies” such as clearing possible blocking patents, integrating complementary technology, and avoiding litigation.
The panel also unanimously rejected Princo’s argument that Philips had violated the principle of Zenith Radio Corp. v. Hazeltine Research, Inc.,
On one issue, however, the panel majority ruled against Philips. The panel noted that Philips I did not consider whether Philips and Sony agreed to suppress the Lagadec technology and “whether an agreement that would prevent the development of alternatives [to the licensed technology] would constitute misuse under a theory of elimination of competition or price fixing.”
The dissenting judge would have affirmed the Commission. With respect to the suggestion that Sony and Philips had suppressed Lagadec as a platform for manufacturing discs that would compete with Orange-Book-compliant discs, the dissenting judge would have rejected that theory of patent misuse as a factual matter based on the Commission’s findings that the Lagadec technology did not work well and would not have competed with the Orange Book technology.
Philips, Princo, and the Commission all filed petitions for rehearing en banc. The court granted the petitions filed by Philips and the Commission, but denied the petition filed by Princo. Although Philips and the Commission have raised a number of issues in their petitions and in their briefs on rehearing en banc, we address only one — Philips’s argument that regardless of whether Philips and Sony agreed to suppress the technology embodied in Sony’s Lagadec patent, such an agreement would not constitute patent misuse and would not be a defense to Philips’s claim of infringement against Princo. For the reasons set forth below, we conclude that the conduct alleged in this ease is not the type of conduct that could give rise to the defense of patent misuse and we therefore affirm the Commission’s orders granting relief against Princo.
II
A
The doctrine of patent misuse has its origins in a series of Supreme Court cases, beginning with the 1917 decision in Motion Picture Patents Co. v. Universal Film Manufacturing Co.,
a film is obviously not any part of the invention of the patent in suit; because it is an attempt, without statutory warrant, to continue the patent monopoly in this particular character of film after it has expired, and because to enforce it would be to create a monopoly in the manufacture and use of moving picture films, wholly outside of the patent in suit and of the patent law as we have interpreted it.
Fourteen years later, in Carbice Corp. of America v. American Patents Development Corp.,
In a third case, Morton Salt Co. v. G.S. Suppiger Co.,
In those cases, and several others in the same line of authority, the Supreme Court established the basic rule of patent misuse: that the patentee may exploit his patent but may not “use it to acquire a monopoly not embraced in the patent.” Transparent-Wrap Mach. Corp. v. Stokes & Smith Co.,
The Court applied the same reasoning to licenses requiring the payment of licensing fees after the expiration of the licensed patent and thus having the effect of extending the life of the patent beyond the statutory period. In Brulotte v. Thys Co.,
As applied to patent licensing agreements, the Supreme Court put the matter succinctly in Zenith,
[Tjhere are established limits which the patentee must not exceed in employing the leverage of his patent to control or limit the operations of the licensee.*1328 Among other restrictions upon him, he may not condition the right to use his patent on the licensee’s agreement to purchase, use, or sell, or not to purchase, use, or sell, another article of commerce not within the scope of his patent monopoly.
In our cases applying the Supreme Court’s patent misuse decisions, we have characterized 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.,
In B. Braun Medical, Inc. v. Abbott Laboratories,
The doctrine of patent misuse is thus grounded in the policy-based desire to “prevent a patentee from using the patent to obtain market benefit beyond that which inheres in the statutory patent right.” Mallinckrodt,
In determining whether a particular licensing condition has the effect of impermissibly broadening the patent grant, courts have noted that the patentee begins with substantial rights under the patent grant — “includ[ing] the right to suppress the invention while continuing to prevent all others from using it, to license others, or to refuse to license, ... to charge such royalty as the leverage of the patent monopoly permits,” and to limit the scope of
Recognizing the narrow scope of the doctrine, we have emphasized that the defense of patent misuse is not available to a presumptive infringer simply because a patentee engages in some kind of wrongful commercial conduct, even conduct that may have anticompetitive effects. See C.R. Bard, Inc. v. M3 Sys., Inc.,
Although patent misuse has been mainly a judicially created defense, Congress has not been entirely silent about the doctrine. However, instead of saying what patent misuse is, Congress has said what it is not. Thus, section 271(d) of the Patent Act sets forth five types of conduct that may not provide the basis for finding “misuse or illegal extension of the patent right.” The last two of the five, which were added in 1988, are
(4) refusing] to license or use any rights to the patent; or (5) conditioning] the license of any rights to the patent or the sale of the patented product on the acquisition of a license to rights in another patent or purchase of a separate product, unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product on which the license or sale is conditioned.
35 U.S.C. § 271(d).
Importantly, Congress enacted section 271(d) not to broaden the doctrine of
The dissent argues that the 1988 amendment to section 271(d) makes it “quite clear that Congress intended that the patent misuse doctrine could extend to a refusal to license patented technologies by parties acting in concert.” That, however, is not how we interpret the statute or its legislative history. The statute itself contains no mention of concerted action. In the legislative history, Representative Kastenmeier described various licensing provisions that had been held to constitute patent misuse, including price fixing, covenants not to compete, resale price maintenance, and grantback licenses. 134 Cong. Rec. 32,295 (1988). The dissent points to the inclusion of “covenants not to compete” in Representative Kastenmeier’s list, and interprets that statement as an endorsement of the proposition that a concerted refusal to license a patent constitutes patent misuse. But Representative Kastenmeier described the listed practices as “patent licensing arrangements.” Id. Moreover, his catalog of unlawful practices corresponded to the list of proscribed practices set forth in the House bill, the “Patent Licensing Reform Act of 1988,” to which he alluded in his remarks. Id. at 32,294. Each of the prohibited practices listed in that bill was a condition on granting licenses, including the imposition of “covenants not to compete.” 134 Cong. Rec. 3261 (1988) (statement of Rep. Robert Kastenmeier); H.R. 4086, 100th Cong. (1988) (“unreasonably imposing as a condition of granting a license for a patent that the licensee may not produce or sell competing goods.”). From the context, it is clear that Representative Kastenmeier’s reference to “covenants not to compete” on which the dissent relies was an allusion to non-compete clauses in patent licenses, not to concerted refusals to license among horizontal competitors. Nor is there anything
Section 271(d) is not directly implicated in this case because the conduct here at issue does not fall within any of the five statutorily defined categories. Nonetheless, the statute is pertinent because, as both the text and the legislative history of the 1988 amendment to section 271(d) make clear, Congress was concerned about the open-ended scope of the doctrine and sought to confine it to anticompetitive conduct by patentees who leverage their patents to obtain economic advantages outside the legitimate scope of the patent grant.
B
This case presents a completely different scenario from the eases previously identified by the Supreme Court and by this court as implicating the doctrine of patent misuse. Philips is not imposing restrictive conditions on the use of the Raaymakers patents to enlarge the physical or temporal scope of those patents. Instead, the alleged act of patent misuse that the panel focused on was the claimed horizontal agreement between Philips and Sony to restrict the availability of the Lagadec patent — an entirely different patent that was never asserted in the infringement action against Princo. Even if such an agreement were shown to exist, and even if it were shown to have anticompetitive effects, a horizontal agreement restricting the availability of Sony’s Lagadec patent would not constitute misuse of Philips’s Raaymakers patents or any of Philips’s other patents in suit.
Reduced to its simplest elements, the question in this case comes down to this: When a patentee offers to license a patent, does the patentee misuse that patent by inducing a third party not to license its separate, competitive technology? Princo has not pointed to any authority suggesting that such a scenario constitutes patent misuse, and nothing in the policy underlying the judge-made doctrine of patent misuse would support such a result.
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.” Zenith,
Princo makes several arguments in its effort to bring this case within the scope of the traditional patent misuse doctrine. First, Princo contends that Philips “leveraged” its patents, as that term has been used in patent misuse cases, because it used the proceeds of its highly successful licensing program to fund royalty payments to Sony and because those payments gave Sony the incentive to enter into the alleged agreement to suppress the Lagadec patent. However, the use of funds from a lawful licensing program to support other, anticompetitive behavior is not the kind of “leveraging” that the Supreme Court and this court have referred to in discussing the leveraging of a patent that constitutes patent misuse. See C.R. Bard,
Princo also argues that the Supreme Court has not required conventional “leveraging” of a patent in order to establish patent misuse. For that proposition, however, Princo relies on antitrust cases in which the Court stated that a patentee is not immunized against an antitrust violation by the privilege of a patent; those cases did not involve patent misuse or the enforceability of the defendants’ patents. See United States v. U.S. Gypsum Co.,
In theory, the reason an agreement with Sony has value to Philips is because suppressing potential competition with the Raaymakers technology makes the Philips licenses more valuable. But that value does not derive from the fact that Sony is a co-licensor with Philips or the fact that the Lagadec patent is included in the package licenses. If the Lagadec patent were owned by an independent third party and not included in the Philips-Sony package licenses at all, an agreement between Philips and the third party to suppress the Lagadec technology would have exactly the same economic impact on Philips and Princo as the hypothesized agreement with Sony. That agreement might be vulnerable to challenge under the antitrust laws, but it could not reasonably be characterized as misuse of the Raaymakers patents. Thus, it does not follow from the possible existence of an antitrust violation with respect to Sony’s Lagadec patent that Philips is guilty of patent misuse with respect to the Raaymakers patents.
The dissent does not find fault with the terms of the licensing agreements between Philips and its licensees, but instead focuses its full attention on the purported hori
The purported agreement between Philips and Sony has none of the features that courts have characterized as constituting patent misuse. In particular, it does not leverage the power of a patent to exact concessions from a licensee that are not fairly within the ambit of the patent right. Although the dissent contends that using the leverage of a patent against licensees is not a necessary component of patent misuse, every one of the “patent misuse” cases cited by the dissent for that proposition have that very fact pattern (except for the Compton case, discussed above, in which the patentee agreed to place restrictions on his own right to compete). If the purported agreement between Philips and Sony not to license the Lagadec technology is unlawful, that can only be under antitrust law, not patent misuse law; nothing about that agreement, if it exists, constitutes an exploitation of the Raaymakers patents against Philips’s licensees.
The Morton Salt case, which the dissent cites in support of its broad characterization of the doctrine of patent misuse, is a typical “tying” case in which the patentee leveraged its patent to a machine by insisting that its licensees purchase unpatented goods, to be used in connection with the machine, from the patentee. It was because of the unlawful condition on the patent license that the Court in Morton Salt declined to enforce the patent. Significantly, the Court explained that its ruling was based on the use of the patent “as a means of restraining competition with the patentee’s sale of an unpatented product,” and that the successful prosecution of an infringement action “is a powerful aid to the maintenance of the attempted monopoly of the unpatented product,” thus “thwarting the public policy underlying the grant of the patent.”
C
Apart from Princo’s failure to show that Philips unlawfully leveraged its Raaymakers patents, a finding of patent misuse is unwarranted in this case because Princo failed to establish that the alleged agreement to suppress the Lagadec technology had anticompetitive effects. Whether viewed as a matter of patent misuse or in light of general antitrust principles, Princo’s claim regarding the alleged agreement fails because Philips and Sony acted legitimately in choosing not to compete against their own joint venture. Princo also failed to show that the asserted agreement had any anticompetitive effects because, as the Commission found, the Lagadec technology was not a viable potential competitor to the technology embodied in the Raaymakers patents.
At the outset, Princo urges us to overrule the line of authority in this court holding that patent misuse requires a showing that the patentee’s conduct had anticompetitive effects. We decline to do so. This court has observed that “[t]o 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.” Windsurfing,
Turning from patent misuse law to antitrust principles, Princo contends that the hypothesized agreement between Philips and Sony not to license the Lagadec technology for non-Orange-Book purposes was a naked restraint of trade with no procompetitive justification, and that Philips’s conduct in entering into that agreement should render its Orange Book patents unenforceable. For the reasons set forth below, we disagree.
Although joint ventures can be used to facilitate collusion among competitors and are therefore subject to antitrust scrutiny, see NCAA v. Bd. of Regents of the Univ. of Okla.,
Collaboration for the purpose of developing and commercializing new technology can result in economies of scale and integrations of complementary capacities that reduce costs, facilitate innovation, eliminate duplication of effort and assets, and share risks that no individual member would be willing to undertake alone, thereby “promot[ing] rather than hinder[ing] competition.” Dep’t of Justice & FTC, Antitrust Guidelines for the Licensing of Intellectual Property §§ 5.1, at 24; 5.5, at 28 (Apr. 6, 1995); see also Herbert Hovenkamp, Antitrust Law ¶ 2115a, at 110 (“[J]oint innovation often produces significant social benefits in relation to costs.”); FTC & Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors § 2.1, at 6 (Apr.2000); Thomas A. Piraino, Jr., The Antitrust Analysis of Joint Ventures After the Supreme Court’s Dagher Decision, 57 Emory L.J. 735, 767-68 (2008); Joseph Kattan, Antitrust Analysis of Technology Joint Ventures: Allocative Efficiency and the Rewards of Innovation, 61 Antitrust L.J. 937, 938 (1993).
In particular, as we explained in Philips I, research joint ventures that seek to develop industry-wide standards for new technology can have decidedly procompetitive effects. The absence of standards for new technology can easily result in a “Tower of Babel” effect that increases costs, reduces utility, and frustrates consumers. As a leading treatise has noted, cooperation by competitors in standard-setting “can provide procompetitive benefits the market would not otherwise provide, by allowing a number of different firms to produce and market competing products compatible with a single standard.” Herbert Hovenkamp et al., IP & Antitrust § 35.2b (2010). Those benefits include greater product interoperability, including the promotion of price competition among interoperable products; positive network effects, including an increase in the value of products as interoperable products become more widely used; and incentives to innovate by establishing a technical baseline for further product improvements. See Patrick D. Curran, Comment, Standard-Setting Organizations
The “ancillary restraints” that are often important to collaborative ventures, such as agreements between the collaborators not to compete against their joint venture, are also assessed under the rule of reason. See Rothery Storage & Van Co. v. Atlas Van Lines, Inc.,
Princo does not contend that the selection of the Raaymakers technology, rather than the Lagadec technology, for the Orange Book standard was a violation of the public policy in favor of free competition, nor did the panel so find. Instead, the panel focused on whether Sony and Philips agreed to suppress competition between the technology represented by the Orange Book standard and technology that
The Commission found that “there has been no showing that the Lagadec '565 patent competes with another patent in the pool, no showing that the pool licensors would have competed in the technology licensing market absent the pooling arrangement, and no showing of the anti-competitive effect required under a rule of reason analysis.” The Commission supported that general finding with a series of specific findings based on the record before it.
First, the Commission noted that the evidence before the administrative law judge showed that the Lagadec technology “does not work well according to the Orange Book standards.” The Commission added that the administrative law judge “credited testimony that the Lagadec approach is prone to errors and ‘did not provide a scheme that would work and was reliable.’” Those findings were not limited to the unsuitability of using Lagadec to produce Orange-Book-compliant discs, as Princo argues. Instead, as is clear from the testimony on which those findings were based, the findings applied more generally to the technical problems presented by the Lagadec technology. The administrative law judge referred to testimony by Philips’s expert explaining that there is “a real problem” with the Lagadec digital approach and that “it is very difficult to carry out a decoding of this particular approach.” The expert added that “[a]s a result, Philips and Sony dismissed the Lagadec approach because this is a very difficult problem to solve and Lagadec just did not provide a scheme that would work and was reliable.... [F]rom basic physics, you can just see that this is not a good solution, and it really wouldn’t work well.”
The Commission also noted that Princo had not pointed to any evidence “that the Lagadec approach is a commercially viable technological alternative to the technology of [the Raaymakers patents].” By way of explanation, the Commission commented that “the commercial viability of a method that is prone to errors, unreliable, and unworkable is doubtful.” Based on the Commission’s use of the term “commercial viability,” Princo argues that the Commission used the wrong standard in evaluating the Lagadec technology. According to Princo, instead of addressing the commercial viability of that technology, the Commission should have limited its inquiry to whether Lagadec had “the technical potential to develop as a workable alternative.” The Commission, however, addressed both technical feasibility and commercial potential, and it found the Lagadec approach lacking in both respects.
Second, the Commission rejected the argument that Philips “included Sony in the [patent] pool not because Sony brought anything necessary to the CD-R/RW technology, but rather because Sony is a major player in the industry, whose cooperation Philips wanted.” The Commission found that assertion to be baseless and contrary to the testimony of several witnesses that Philips “partnered with Sony for technical reasons.” Thus, although Princo argues at length that the pooling arrangement was. not designed as a joint technical project between Philips and Sony, but rather as a means of allowing Philips to share its royalties with Sony in exchange for Sony’s
Finally, with respect to Princo’s related argument that including the Lagadec patent in the package licenses enabled Philips to avoid competition from non-Orange-book discs, the Commission stated that Princo had “not identified evidence establishing that, if Sony’s [Lagadec patent] were not included in the licenses, Sony likely would have developed technologies that competed against the Orange Book standard in a relevant market.” The Commission added that there was no evidence in the record that Sony “would have entered and survived to become a significant competitive force” in the CD-R/RW market with the Lagadec technology or that, absent the pooling arrangements, the pool licensors would have competed with the Orange Book technology.
Likewise, there was no evidence that any potential licensee might develop the Lagadec technology to compete with the Orange Book discs. Princo did not show that any potential disc manufacturer had ever been refused a license to the Lagadec patent for purposes of producing non-Orange-Book discs, or had even sought to explore that possibility. Nor has Princo pointed to any evidence that the Lagadec patent was anything more than a theoretical solution, or that the unavailability of a separate license to Lagadec for non-Orange-Book purposes resulted in some realistic foreclosure of competition.
While the suppression of nascent threats can be construed as anticompetitive behavior under certain circumstances, see United States v. Microsoft Corp.,
What Princo had to demonstrate was that there was a “reasonable probability” that the Lagadec technology, if available for licensing, would have matured into a competitive force in the storage technology market. See United States v. Penn-Olin Chem. Co.,
The dissenting opinion seeks to sidestep the Commission’s adverse factual findings by arguing that the burden of proof should have been placed on Philips, not Princo. The dissent acknowledges that an agreement among joint venturers who would otherwise be competitors is judged by the rule of reason. Within that framework, however, the dissent advocates a “quick look” rule of reason analysis on the ground that any agreement not to compete is inherently suspect and that competitive harm therefore should be presumed.
Quick-look analysis applies to “naked restraints] on price and output” where a detailed market analysis is unnecessary to conclude that the arrangements in question have anticompetitive effects. Cal. Dental,
[B]efore a theoretical claim of anticompetitive effects can justify shifting to a defendant the burden to show empirical evidence of procompetitive effects, as quick-look analysis in effect requires, there must be some indication that the court making the decision has properly identified the theoretical basis for the anticompetitive effects and considered whether the effects actually are anticompetitive. Where, as here, the circumstances of the restriction are somewhat complex, assumption alone will not do.
Cal. Dental,
A quick-look approach might be justified if the joint venture in this case were a sham, or if the alleged agreement were a naked restraint, i.e., not reasonably necessary to achieve the efficiency-enhancing benefits of the joint venture. See Major League Baseball Props., Inc. v. Salvino, Inc.,
Accordingly, we conclude that even if Philips and Sony engaged in an agreement not to license the Lagadec patent for non-Orange-Book purposes, that hypothesized agreement had no bearing on the physical or temporal scope of the patents in suit, nor did it have anticompetitive effects in the relevant market. The asserted agreement between Philips and Sony therefore did not constitute patent misuse and cannot justify rendering all of Philips’s Orange Book patents unenforceable.
AFFIRMED
Notes
. The en banc court has not addressed Princo’s arguments that the panel rejected. Accordingly, those portions of the panel's opinion are reinstated.
. Some courts and commentators have questioned the continuing need for the doctrine of patent misuse, which had its origins before the development of modem antitrust doctrine. See USM Corp.,
. The dissent refers on several occasions to the Supreme Court’s statement in Independent Ink that it "would be absurd to assume that Congress intended to provide that the use of a patent that merited punishment as a felony would not constitute ‘misuse.’ ”
. Princo relies on a single case with unusual facts, Compton v. Metal Products, Inc.,
. The dissent suggests in passing that the Sony-Philips agreement also constitutes misuse of the Lagadec patent. How a patent that is not enforced can be misused is not explained, nor is it clear why misuse of the Lagadec patent should be a defense against infringement of different patents. The dissent cites language from a Second Circuit case, SCM Corp. v. Xerox Corp.,
. The dissenters argue that antitrust law is not adequate to protect victims of anticompetitive conduct by patentees and that the doctrine of patent misuse must be interpreted expansively to fill that gap. Antitrust law, however, provides robust remedies including both public and private enforcement. An accused infringer can raise a Sherman Act claim as a counterclaim in an infringement action or as an affirmative claim, and is eligible for treble damages and attorney's fees. As to the doctrinal limitations that apply to antitrust plaintiffs generally, such as the standing requirement, there is no reason to believe
. Princo argues that the alleged agreement between Philips and Sony was not “ancillary'' to a collaborative joint venture, based on its factual contention that the Lagadec technology "was not the product of a joint venture, but rather was independently developed by Sony.” The panel opinion, however, rejected that argument, noting that "[t]he Lagadec and Raaymakers patents stem from the joint efforts of Philips and Sony engineers to develop recordable CDs in the late 1980s.... Philips and Sony ultimately chose to define the Orange Book standard using the analog Raaymakers ... approach, not the digital Lagadec method.” Princo,
. In positing that the asserted agreement between Philips and Sony was unlawful, the
Concurrence Opinion
with whom MAYER, Circuit Judge joins, concurring-in-part.
I agree that a finding of patent misuse is unwarranted on this record because Prineo failed to meet its burden of showing that any agreement regarding the Lagadec patent had anticompetitive effects. Princo’s failure to make this threshold showing resolves this case. I therefore join Parts I and II-C of the majority’s opinion. As Part II-C explains, the Commission’s factual findings on this issue are supported by substantial evidence. I part ways with the majority and dissent, however, over the other contours of the patent misuse doctrine. I doubt that the doctrine is as narrow or expansive as each respectively suggests.
This case arises at the uneasy intersection of antitrust and patent law, in essence posing the novel question of whether (and if so, to what extent) patentee competitors may enter an agreement regarding the licensing of their patents. In my view, what distinguishes this case from Motion Picture Patents, Carbice Corp., Morton Salt and their progeny is that the alleged agreement concerns patents and was entered into by the patents’ respective owners. The putative agreement does not cover an unpatented product over which a patent owner is exercising control by virtue of market power or a patent licensing agreement. See Dawson Chem. Co. v. Rohm & Haas Co.,
While I find it significant that the putative agreement concerned patents rather than unpatented technology, I do not share the majority’s apparent view that antitrust considerations are an entirely “different issue,” separate and apart from the question of whether there has been patent misuse. See Maj. Op. at 1330-31. Whether use of a patent runs afoul of antitrust law seems in itself probative of whether the patent owner has also abused, or “misused,” the limited monopoly granted by Congress. See U.S. Gypsum Co. v. Nat’l Gypsum Co.,
Because we need not reach the issue, I would thus reserve judgment on the precise metes and bounds of the patent misuse doctrine.
Dissenting Opinion
with whom GAJARSA, Circuit Judge, joins, dissenting.
This case presents important questions concerning the scope of the doctrine of patent misuse. The critical question is whether the existence of an antitrust violation — in the form of an agreement to suppress an alternative technology designed to protect a patented technology from competition — constitutes misuse of the protected patents. The majority holds that it does not. This seems directly contrary to the Supreme Court’s view of pat-, ent misuse in its recent Illinois Tool Works decision, where the Court concluded that “[i]t would be absurd to assume that Congress intended to provide that the use of a patent that merited punishment as a felony [under the Sherman Act] would not constitute ‘misuse.’ ” Ill. Tool Works Inc. v. Indep. Ink, Inc.,
I
U.S. Philips Corporation (“Philips”) commenced this proceeding alleging that Princo Corporation and Princo America Corporation (collectively, “Princo”) had infringed Philips’ Raaymakers patents.
The majority’s first holding — that the agreements cannot infect the Raaymakers patents — rests on the resolution of an issue that apparently never occurred to Philips nor the International Trade Commission (“ITC”) and was never briefed nor argued before the panel. When this case was before the panel, neither Philips nor the ITC urged that the failure to assert infringement of the Lagadec patent in the ITC proceedings barred a finding of patent misuse. The leading treatise on the interrelationship between patent law and antitrust law viewed the panel opinion here, holding the misuse doctrine applicable to agreements to suppress alternative technology, “as standing for the unexceptional proposition that patent licensing schemes are illegal where they are used as part of a broader effort to fix prices and restrict competition.” Herbert Hovenkamp et al., IP and Antitrust § 3.3g, at 3-
The majority’s second holding — that there is no misuse unless the accused infringer shows that the technology was, or would probably have become, commercially viable — is contrary to established patent misuse doctrine. That doctrine recognizes that antitrust violations may constitute misuse; that a presumption of anticompetitive effect flows from an agreement not to compete; and that the burden rests on the patent holder to justify such an agreement. Philips did not even attempt to make the required showing here.
II
At the outset, it is important to understand the extent to which the Raaymakers technology, incorporated into the so-called “Orange Book” standard and covered by the asserted patents, dominates the multibillion dollar market for recordable compact discs (“CD-Rs”) and rewritable compact discs (“CD-RWs”). The first compact disc (“CD”) was developed in the 1970s. Consumers could use the original CDs to play music and other recorded material, but they could not record data on the CDs. There was therefore a substantial demand for more advanced technologies that would enable the user to record and store data on reusable CDs. Philips initially acted alone in attempting to develop a technology for recordable CDs. Eventually Philips developed the CDR/RW technology with some assistance from a few of its competitors. CD-R technology allows consumers to purchase blank discs that they can fill with data. Similarly, CD-RW technology enables consumers to record, erase, and re-record data on discs. A key feature of CD-Rs and CDRWs is that they are compatible on all CD audio players and CD-ROM drives.
Philips created a patent pool for the CD-R/RW technology with its competitors and offered joint licenses for their patents. Although Sony Corp., Taiyo Yuden Co. Ltd., Ricoh, and Yamaha all contributed patents to the Orange Book patent pool, Philips has been the sole company responsible for administering the CD-R/RW licensing programs and for entering agreements to license the packages. Philips has charged a very substantial royalty to companies using the Orange Book standard. The royalty rate has ranged from one-half to two-thirds the manufacturers’ selling price for the discs. This has enabled Philips and the other members of the patent pool to collectively secure hundreds of millions, if not billions, of dollars in revenue from the sale of those discs.
Despite the high licensing fees for the Orange Book standard, Philips’ Orange Book standard achieved market dominance. The CD-R and CD-RW technologies have revolutionized the storage, use, and transfer of computer data, rapidly replacing the previous storage technology. In re Certain Recordable Compact Discs & Rewritable Compact Discs, No. 337-TA-474, slip op. at 386 (Int’l Trade Comm’n Oct. 24, 2003) (“Initial Determination”). By 2003 more than 100 manufacturers had received licenses to patents under the Orange Book standard. Billions of discs manufactured in accordance with this standard have been sold each year. Every CD-R or CD-RW disc now manufactured is produced according to the Orange Book standard. See id. at 390 (“All CD-Rs and CD-RWs sold in the marketplace must
However, Sony did in fact develop a potential alternative to a key aspect of the Orange Book technology covered by the Raaymakers patents. This technology is reflected in the Lagadec patent. Both the Raaymakers and Lagadec technologies are directed to solving a known problem necessary to record data on CDs. Specifically, during the course of developing the CD-R standard, Philips and Sony engineers realized they needed to identify ways to encode position data on the “blank” or unrecorded CD-R/RWs so that the recorder could determine where along the spiral pregroove track its laser was positioned at any given time, or “absolute time” position data.
Although the parties recognized that the Lagadec patented digital method had the potential to compete with the patented Raaymakers technology, Philips and Sony determined not to license the Lagadec patent as an alternative to the Raaymakers patents. Instead, they agreed as part of the overall Orange Book agreement not to license the Lagadec patent as a competitive technology. At the same time, the Philips licensing agreement for the Orange Book patent pool, which included the Lagadec patent, prohibited licensees (CD manufacturers) from using any of the patents for non-Orange Book purposes, thus precluding the licensees from developing alternatives to the Orange Book. Initial Determination, slip op. at 370 (“All of Philips’ CD-R and CDRW licenses contain a field of use provision limiting the license grant to use of the patents to manufacture ... CD-R or CD-RW discs that comply with the Orange Book Standard.”).
The rewards flowing to Sony from this series of agreements were considerable. In return for a minimal contribution to the Orange Book patent pool, Sony was rewarded a substantial portion of the royalties. For example, the Lagadec patent was the only essential Sony patent in the CD-RW pool.
The effect of these agreements was to protect the Philips Raaymakers technology from any actual or potential competition. As no one could license the Lagadec patent outside of the Orange Book patent pool, the patent was rendered useless as an alternative technology.
III
Princo manufactures CDs covered by the Raaymakers and Orange Book patents. It declined to pay royalties on those patents. Philips initiated a proceeding before the ITC seeking to exclude Princo’s products from the United States pursuant to section 337(a)(1)(B) of the Tariff Act of 1930, 19 U.S.C. § 1337(a)(1)(B). Princo asserted a misuse defense. The ITC initially found misuse because of patent tying by Philips — the practice of tying patents essential to practicing the Orange Book to those that were not essential. Final Determination, slip op. at 4-5. We concluded that there had been no unlawful tying with respect to the patents then in question, and remanded for a determination of whether Philips had engaged in other activities that constituted misuse. U.S. Philips Corp. v. Int’l Trade Comm’n,
IV
The majority first holds that even if the anticompetitive behavior alleged here constitutes patent misuse (an issue addressed in the next section), this conduct does not
Patent misuse is defined as extending the scope of a patent beyond the monopoly conferred by the patent laws. See Zenith Radio Corp. v. Hazeltine Research, Inc.,
As the majority points out, see Majority Op. at 1327-28, many of the misuse cases have involved assertions that the asserted patent was used to gain a broader monopoly by tying the licensing of patent rights to the purchase of an unpatented product or by agreeing to extend the patent term. See, e.g., Brulotte v. Thys Co.,
The Supreme Court in Ethyl Gasoline Corp. v. United States,
no support for a patentee, acting in concert with all members of an industry, to issue substantially identical licenses to*1347 all members of the industry under the terms of which the industry is completely regimented, the production of competitive unpatented products suppressed, a class of distributors squeezed out, and prices on unpatented products stabilized.
Id. at 400,
A number of courts have followed Gypsum and held that license agreements suppressing the manufacture or sale of competing goods constitute misuse of the licensed patents — whether the non-compete agreement binds the licensees or the licensor. One of these decisions is Compton v. Metal Products, Inc.,
the agreement falls outside the limited monopoly granted by the patent laws, because in exclusively licensing his patents, the patentee himself could neither require non-competition beyond the term of the patents nor as to items not covered by the patents. We think that by agreeing to restrictions on his own competition which he could not compel of others, the patentee has extended the monopoly granted by the patent laws beyond its legal bounds ....
Id. at 44-45 (citation omitted). Contrary to the majority, Compton does not represent an “expansive patent misuse theory,” see Majority Op. at 1331 n.4, but is consistent with the Supreme Court’s Gypsum case as well as other court of appeals cases that hold that license agreements not to compete constitute misuse of the licensed patents. See Berlenbach v. Anderson & Thompson Ski Co.,
The same approach has been taken in copyright law where courts have found copyright misuse based on suppression of competing products. For example, in Lasercomb America, Inc. v. Reynolds, the Fourth Circuit held that the plaintiffs requirement in its standard licensing agreement forbidding the licensee and all its employees from developing any kind of software competitive with the plaintiffs application constituted misuse and rendered the copyrighted software unenforceable.
The majority attempts to distinguish Gypsum and apparently also its progeny by suggesting that they involve a single agreement, whereas here the non-compete agreements with respect to the Lagadec patent were independent of or collateral to the agreements with respect to the Raaymakers patents. See Majority Op. at 1332.
What the majority ignores is that the non-compete agreements here, as in Gypsum and the court of appeals misuse cases, are part and parcel of the agreements governing the asserted patents (here, the Raaymakers patents). The agreement between Philips and Sony with respect to the suppression of the Lagadec technology appears in the same letter agreement between Philips and Sony that provided for the pooling of their patents, including the Raaymakers patents, and the division of royalties.
The majority alternatively suggests that the existence of an antitrust violation involving an agreement not to compete and the extension of the patent monopoly are not enough to establish misuse. Rather, misuse can only exist if there is an improper leveraging of the patent. In the majority’s view, “[w]hat patent misuse is about ... 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.’ ” Majority Op. at 1331. While the misuse cases cited by the majority refer to patent leveraging, that is simply because leveraging of the patent — in tying and patent term extension cases — is a necessary part of the antitrust violation. Those cases do not suggest that leveraging is a necessary element where there is an agreement not to compete with the asserted patent. With one exception, Gypsum and the other court of appeals patent misuse cases discussed above did not rest on any finding of patent leveraging, but rather on the existence of an agreement not to compete that protected the asserted patents from competition. The one concerted action case that does mention leveraging simply assumes that leveraging is established by proof that the non-compete agreement was secured by compensating the licensee with a patent license. See Nat’l Lockwasher,
The majority suggests that asserting a patent misuse defense against the patent covering the suppressed technology (here, Lagadec) or an antitrust suit would provide a remedy for anticompetitive behavior. See Majority Op. at 1331, 1332, 1333-34 n.6. The clear ineffectiveness of both of these remedies demonstrates the importance of a misuse defense against the protected patents (here, the Raaymakers patents). There is no realistic prospect of securing a misuse determination with respect to the suppressed patent. This is because there is no need for Philips to assert the Lagadec patent and open itself to a misuse defense. The mere threat of an infringement suit is typically sufficient to prevent a potential competitor from devoting the resources necessary to develop an alternative technology; the technology is thus suppressed at the outset. So too a potential competitor (wishing to secure an advance determination of invalidity) has no remedy by way of declaratory judgment to secure a determination that the patent for the alternative technology is unenforceable given our jurisprudence demanding a showing of a concrete plan to enter the market as the condition for testing patent validity and enforceability. See, e.g., Benitee Austl., Ltd. v. Nucleonics, Inc.,
The antitrust laws also provide no adequate remedy for the suppression of competition. Private enforcement of the antitrust laws in this context is virtually impossible. Potential purchasers of the alternative product have no remedy.
Contrary to the majority, the enactment of amendments to 35 U.S.C. § 271 in 1988 does not support the majority’s position. While the majority is correct that the legislation was designed to cabin the misuse doctrine, it did so only by making clear that some practices that did not constitute antitrust violations did not amount to misuse.
Congressman Kastenmeier, the author of this amendment, explained that “the underlying policy for [the misuse] doctrine has been an effort by the courts to prevent a person who has obtained a Government granted right to exclude competition from overreaching the scope of the patent.” 134 Cong. Rec. 32,294 (1988). He noted in particular that the misuse “doctrine has been applied to a wide variety of circumstances including ... use of covenants not to compete.” Id. at 32,294-95 (emphasis added).
Kastenmeier also stated that “Modification of the ‘refusal to use or license’ as not constituting patent misuse is consistent with the current caselaw and makes sense as a matter of public policy.” 134 Cong. Rec. at 32,295. He cited SCM in support of this proposition. Id. Significantly, the court in SCM explained that “[w]hile ... a concerted refusal to license patents is no less unlaroful than other concerted refusals to deal, in such cases [where the parties act in concert] the patent holder abuses his patent by attempting to enlarge his monopoly beyond the scope of the patent granted him.”
As noted above, in Illinois Tool Works the Supreme Court in interpreting § 271(d) concluded that it would be “absurd” to suggest that Congress intended that agreements violating the Sherman Act would not constitute patent misuse. See Ill. Tool Works,
V
I turn next to the majority’s second holding that “even if Philips and Sony engaged in an agreement not to license the Lagadec patent for non-Orange-Book purposes, that hypothesized agreement ... did [not] have anticompetitive effects in the relevant market.” Majority Op. at 1340. This is so, according to the majority, because “[w]hat Princo had to demonstrate was that there was a ‘reasonable probability’ that the Lagadec technology, if available for licensing, would have matured into a competitive force in the storage technology market.” Id. at 1338. In addressing the issue of anticompetitive effects, we look to antitrust authorities. As the Chisum treatise recognizes, “[i]f a practice does rise to the level of an antitrust violation, it will also constitute misuse.” 6 Chisum, supra, § 19.04[2], at 19-442.
Significantly, neither the ITC nor Philips argued that the agreement would not violate the antitrust laws. See En Banc Oral Arg. at 27:03 — :08 (counsel for the ITC) (“Your honor ... that wasn’t an issue before the Commission.”); id. at 43:35 — :39 (counsel for Philips) (conceding that an arrangement between two companies to pool their patents, which were developed independently, and to set a standard “could be [an antitrust violation] under a particular [set of] facts or circumstances”).
Under antitrust analysis, an agreement such as that between Philips and Sony to suppress the Lagadec patent may appropriately be evaluated under the rule of reason. But even under the rule of reason, agreements between competitors not to compete are classic antitrust violations. See, e.g., United States v. New Wrinkle, Inc.,
Such anticompetitive behavior designed to foreclose competition from other technologies or increase prices has been a particular problem in the patent area because patents give competitors the legal right to foreclose competition. But while it is perfectly lawful for the owner of a patent to refuse to license it for any reason or no reason at all, see 35 U.S.C. § 271(d), this right does not extend to agreements among competitors. The Supreme Court recently confirmed that agreements between separate actors with respect to intellectual property licensing are invalid if they fail the rule of reason analysis. See Am. Needle, Inc. v. Nat’l Football League, -U.S.-,
Despite this long history of condemning agreements to suppress competitive technologies, the majority holds that there was no misuse here. The majority recognizes that the Lagadec technology provided an alternative to the Raaymakers technology,
First, the majority errs in holding that the burden rests on the alleged infringer, Princo, to show anticompetitive effects. While the burden rests on Princo to show patent misuse in general and an antitrust violation in particular, Princo’s initial burden is satisfied by establishing the existence of an agreement to suppress a competitive technology. Where an agreement is considered “inherently suspect,” courts apply a “quick look” rule of reason analysis. An agreement is inherently suspect “[i]f, based upon economic learning and the experience of the market, it is obvious that a restraint of trade likely impairs competition.” Polygram Holding Inc. v. Fed. Trade Comm’n,
Such justification “may consist of plausible reasons why practices that are competitively suspect as a general matter may not be expected to have adverse consequences in the context of the particular market in question, or ... may consist of reasons why the practices are likely to have beneficial effects for consumers.” Polygram,
Second, the majority appears to suggest that the “quick look” analysis should not apply and that Princo had the burden of demonstrating that the agreement to suppress the Lagadec technology could not be justified as part of the Philips/Sony joint venture agreement. See Majority Op. at 1334-37, 1339-40. While in theory procompetitive benefits from a joint venture could justify certain ancillary restraints in some circumstances, the burden remains on the party seeking to justify the restraint to establish precompetitive benefits. In fact, “joint ventures have no immunity from the antitrust laws.” NCAA
Rather, a non-compete agreement arising out of a joint venture must still pass the rule of reason by providing some Mnd of justification, such as “where the agreement ... is necessary to market the product at all.” See Broad. Music, Inc. v. Columbia Broad. Sys., Inc.,
The majority asserts that the agreement in question did no more than prevent Sony from competing with the joint venture, an agreement that the majority views as a legitimate ancillary restraint. See Majority Op. at 1334, 1336-37, 1339. There was no overall agreement that prevented Sony from competing with the joint venture, and the apparent agreement in 1993 to suppress Lagadec came well after the development of the Lagadec technology and its rejection for the Orange Book in 1987. There was, in short, no showing that suppression of Lagadec was necessary to achieve the joint venture’s legitimate goals. Moreover, the majority ignores the fact that the Raaymakers patents and the Lagadec patent in combination prevented others from competing without a patent license. The Philips agreement with its licensees barred all CD manufacturers from using Lagadec as a competitive technology, and the Philips/Sony agreement not only barred Sony from competing, but also barred Sony from authorizing others to do so. It is one thing for Philips and Sony to agree that Sony would not compete; it is quite another to use the patent monopoly to prevent anyone from utilizing a competitive technology to compete with the joint venture and thus to preserve Phillips’ virtual monopoly on recordable CD technology. Such agreements cannot be justified simply by relying on the legitimacy of non-compete agreements with the joint venture participants.
While it may be that proof by Philips that the Lagadec technology could never become commercially viable might be sufficient to defeat an antitrust violation, neither Philips’ proof nor the ITC’s findings reach that far. While Philips’ witness suggested that commercial development of the Lagadec technology could be difficult, he did not testify that these difficulties could not be overcome. Indeed, the record appears to contain some evidence of Lagadec’s potential. A 1986 Sony memorandum described the Lagadec proposal and indicated that potential solutions existed to some of the problems identified by Philips’ expert. The Lagadec patent as issued reflected these solutions. See, e.g., Lagadec patent col.6 11.47-52, col.7 11.54-58 (discussing band-limitation to eliminate disturbance at high and low frequencies). The ITC found only that the commercial viability of the Lagadec technology was “doubtful,” not that Philips had established that it could not be made commercially viable.
The majority’s strict standard fails to provide adequate protection against the suppression of nascent technology, and allows patent holders free rein to prevent the development of potentially competitive technologies except in the most extreme and unlikely circumstances. I respectfully dissent.
. U.S. Patent Nos. 4,999,825 and 5,023,856.
. U.S. Patent No. 4,942,565.
. I, like the majority, assume the existence of such an agreement between Philips and Sony, which is not denied by Philips. The agreement with the licensees was specifically found by the ITC. In the following discussion, for convenience, I treat both agreements as established fact. The majority misreads the dissent and the original panel opinion as limited to concerns about the Philips/Sony agreement. See Majority Op. at 1331, 1332, 1336-37.
. "Absolute time” refers to the fact that the laser’s location is expressed in terms of the time required to scan the spiral groove from the start of the disc to the current position.
. As explained in the panel opinion, the Lagadec patent was included in the patent pool because there was a concern that it might cover aspects of the Raaymakers technology, not because the Orange Book standard utilized the basic Lagadec technology. As noted, licensees were prohibited from using the Lagadec technology in competition with the Orange Book standard.
. The ALJ found that the Ogawa patent was improperly classified as essential given that economically viable alternatives to this patented technology existed outside the pool. Initial Determination, slip op. at 212-13. In its review, the ITC took no position on the ALJ's analysis of this patent. Final Determination, slip op. at 50-51.
. The majority does not disturb the original panel opinion’s ruling that the inclusion of the Lagadec patent in the patent pool did not constitute unlawful patent tying. The permissibility of including Lagadec in the pool does not answer the question of whether Philips could secure agreements from Sony and the licensees not to use the Lagadec technology for non-Orange Book purposes.
.While a remand to determine the existence of the Philips/Sony agreement under my view would still be necessary, even though Philips has not disputed the existence of that agreement, based on the subsequent briefing I am now convinced that there is no need for a remand on the issue of anticompetitive effects, as I discuss below.
. The parties entered into the letter agreement on September 7, 1993 (the "1993 agreement”). The 1993 agreement gave Philips an "exclusive right to license such Patent Rights ... for use in Articles listed in Appendix 2.” J.A. 3319. Appendix 2 lists "CD-WO” (i.e., CD-R) "Disc” and "Recorder.” Id. at 3321. That agreement further noted that "we confirm with respect to the aforementioned Patent Rights ... that we will license such Patent Rights outside the jointly agreed upon system standards only in cases which can reasonably be considered exceptional.” Id. at 3320. As noted earlier, both the majority and I assume for the purposes of this appeal that the agreement obligated Sony to refrain from licensing the Lagadec patent for any non-Orange Book purpose.
. Indeed, a similar issue was specifically addressed in Morton Salt Co. v. G.S. Suppiger Co.,
. The concurrence suggests that “at first blush there seems little difference between the agreement allegedly entered into here and Sony granting an exclusive license to Philips on the Lagadec patent, which Philips then decides not to practice." Concurring Op. at 1341. The difference here is two-fold: Philips did not on its own simply decide not to practice the Lagadec patent in competition with the Orange Book; Philips agreed with Sony that it would not do so. Philips and Sony also agreed not to grant manufacturers licenses to practice Lagadec in competition with the Orange Book. Thus, it was an agreement to suppress a potentially competitive technology from ever reaching the market. Such a license agreement clearly lies outside the bounds of the patent owner’s right to exclude others from using his or her invention.
. See generally Ill. Brick Co. v. Illinois,
. The one possible exception is the provision in § 271(d)(5) providing that tying is not misuse without a showing of market power. But the Supreme Court in Illinois Tool Works changed antitrust law to make it consistent with § 271(d). See
. As the ITC has recognized here, our court "has indicated that the rule of reason standard to be applied is that developed in antitrust law.” In the Matter of Certain Recordable Compact Discs and Rewritable Compact Discs, Inv. No. 337-TA-474, slip op. at 52 (Int’l Trade Comm'n Feb. 5, 2007) ("February 2007 ITC Determination ”); see also Hovenkamp et al., supra, § 3.2d, at 3-11 (explaining that the misuse analysis is "largely coextensive with antitrust doctrine”).
. See Zenith Radio,
. See also Febmary 2007 ITC Determination, slip op. at 24 ("Lagadec constitutes, at best, a substitute technology....”).
. An inherently suspect restraint on competition requires no showing by the plaintiff of market power. See Cal. Dental,
. The majority relies on various cases to support its theory that "Princo had the burden of showing that the hypothesized agreement had an actual adverse effect on competition in the relevant market.” See Majority Op. at 1338-39. However, none of these cases involved an agreement not to compete or suggested there is a burden on the challenging party to establish that inherently suspect agreements had actual anticompetitive effects in the marketplace under the "quick look” rule of reason analysis. For example, the majority relies on California Dental,
. Nor is this a situation in which the Lagadec technology was jointly developed by Philips and Sony, as the majority suggests. See Majority Op. at 1334-36. In fact, the record is clear that the Lagadec technology was separately developed by Sony. See J.A. 943 (describing solutions for encoding position data developed by Sony and presented to Philips, including the Lagadec solution). Even after the Lagadec technology was rejected for the Orange Book standard, Sony continued to
. En Banc Br. of Amicus Fed. Trade Comm’n 23 ("[H]ere Princo need not prove that a licensee attempting to develop new technology using the Lagadec methodology actually would have succeeded in creating a technically and commercially viable technology that could have competed successfully against Philips' and Sony's Orange Book standard. Such a 'showing * * * is not an essential step in establishing that the [defendants'] attempt to thwart its achievement * * * was an unreasonable restraint of trade.' ” (quoting Ind. Fed'n, 476 U.S. at 461,
. See, e.g., Standard Oil Co. (Cal.) v. United States,
.Christopher Cerf & Victor S. Navasky, The Experts Speak: The Definitive Compendium of Authoritative Misinformation 225-27 (Villard Books 1998) (1994). For instance, in 1878 the British Parliamentary Committee concluded that Thomas Edison’s electric light bulb was "good enough for our transatlantic friends ... but unworthy of the attention of practical or scientific men.” Id. at 225.