Administrative Law Judg (ALJ) Lord at the U.S. International Trade Commission (ITC) recently issued an Order striking patent misuse claims against Philips Lighting (Philips) raised by WAC Lighting and other respondents that were premised on Philips filing its Complaint in the ITC without making a license available “on standard (reasonable) and non-discriminatory terms.” This ruling provides incremental guidance on the specificity needed to plead a competition law claim based on standard essential patents (SEPs), including allegations of specific facts showing the anticompetitive effect of alleged improper SEP licensing activity.
ALJ Lord described patent misuse as a narrow doctrine concerning impermissible broadening of the patent grant that has anticompetitive effect, stating:
Patent misuse requires that the alleged infringer show that the patentee has impermissibly broadened the physical or temporal scope of the patent grant with anticompetitive effect. The doctrine is narrow in scope and has largely been confined to a handful of specific practices by which the patentee seemed to be trying to extend his patent grant beyond its statutory limits. Patent misuse consists of leveraging the power of a patent to exact concessions from a licensee that are not fairly within the ambit of the patent right.
… Congress in section 271(d) of the Patent Act has enumerated five types of activities that cannot be deemed misuse. As construed by the Federal Circuit, section 271(d) confines patent misuse with respect to certain licensing practices, to conduct having anticompetitive effects. The anticompetitive effects must be related to the patent in suit. They must be shown to squeeze out viable potential competition from the relevant market. [Order at 10-11 (internal citations and quotations omitted)]
The referenced statute, 35 U.S.C. § 271(d), states as follows:
No patent owner otherwise entitled to relief for infringement or contributory infringement of a patent shall be denied relief or deemed guilty of misuse or illegal extension of the patent right by reason of his having done one or more of the following:
(1) derived revenue from acts which if performed by another without his consent would constitute contributory infringement of the patent;
(2) licensed or authorized another to perform acts which if performed without his consent would constitute contributory infringement of the patent;
(3) sought to enforce his patent rights against infringement or contributory infringement;
(4) refused to license or use any rights to the patent; or
(5) conditioned 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.
ALJ Lord identified three categories of the patent misuse defense:
- Tying arrangements in which a patentee conditions a license under the patent on the purchase of a separable, staple good, which are per se anticompetitive.
- Seeking to enforce patent rights against infringement or contributory infringement, which cannot constitute patent misuse under § 271(d)(3).
- A third set of practices that fall somewhere in the middle. [Order at 11]
The allegations in this case fall in the third category, which are not per se unlawful, but are subject to a rule of reason analysis. The distinction of per se unlawful and rule of reason “is that the latter does not compel the licensee to use any particular technology covered by any of the licensed patents.” [Order at 11-12] Under the rule of reason analysis, “package licensing arrangements do not constitute patent misuse unless … they broaden the scope of the patent by imposing an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint’s history, nature and effect.” [Order at 12]
ALJ Lord found that the conclusory allegations by Respondents in this case failed to raise specific allegations of anticompetitive effect:
- Feit Allegations: “Feit Electric is informed and believes, and based thereon, alleges that Philips uses its economic might to bully third parties to accept illegal patent licenses of the patents-in-suit, among others, upon the threat of expensive patent litigation. In doing so, Philips Lighting broadens the scope of the patent grant with anticompetitive effect.”
- WAC’s Allegations: “Does not contain even Feit’s barebones allegation of anticompetitive effect.
- Satco Allegations: “Complainants require licensees to pay royalties for the entire portfolio, regardless of whether products infringe with improper anti-competitive effect.”
ALJ Lord found that “respondents make no specific factual allegations concerning how the market has been restrained.” She rejected Feit’s excuse that information it needed to plead the defense was held by Philips, because Feit did not explain why such facts were not available to it. She also rejected Feit’s argument that Philips’ practices are “inherently anticompetitive,” because that argument “conflicts with case law.” [Order at 12-13]
ALJ Lord found that Satco’s broad allegation of patent misuse arising from standard setting activity lacked specificity, because it “identifies no particular patents, no particular standards to which those patents are relevant, no action by Philips declaring those patents to be essential, and no allegations that such standards-essential patents are at issue in this investigation.” [Order at 13]. She similarly found lacking WAC’s related allegations that it is entitled to a license on RAND terms “[t]o the extent that it has infringed a standards-essential patent.” Such allegation had “[n]o specific information as to any particular asserted patent in relation to any particular standard.” [Order at 13].
Even assuming that the general circumstances pled could raise a patent misuse defense, the pleadings fail to allege sufficient facts to satisfy ITC Rule 210.13(b), which states: “Affirmative defenses shall be pleaded with as much specificity as possible in the response.” In this case, the pleadings “lack factual content.”
ALJ Lord denied the respondents general request to re-plead with more specificity at this early stage of the investigation, because they had not shown what alternative theories or facts that they would re-plead could not have been included in their original response. Respondents may seek to do so later if they can meet the specificity required under ITC Rule 210.13(b).