Patent Misuse

If your company has been sued for patent infringement, it might avoid liability by showing that the patent holder (called the patentee) misused its patent. This affirmative defense is called patent misuse. If successful, it can serve as a complete defense to a claim of patent infringement.

Many patented products are necessary inputs that lack reasonable substitutes. Purchasers typically require them to make their own products or operate their own businesses. In particular, this circumstance arises when a patent covers a technology that is an “essential standard”—i.e., a standard issued by an industry’s private standards-setting organization and usually adopted by regulatory authorities that oversee the industry.   

The patentees of these products, mindful of their value, sometimes misuse their patents by extending their duration or scope beyond those afforded by their existing patent rights.

Patent misuse typically occurs when a patentee obliges its licensee to agree to an exclusive-dealing arrangement or requirements contract whose term exceeds the term of the patent, or when a patentee requires its customer to purchase a non-patented product when purchasing its must-have patented product. 

That is, a patentee might overreach by making its products available only under licenses whose duration exceeds the remaining term of its patent. The customer must therefore pay for a license to use the patentee’s product for a longer time than it would otherwise be required to purchase the patented product only from the patentee.[1]The patent would otherwise expire upon a specified date. Thereafter, the customer could purchase the patented product from the patentee or any other company that decided to make it. If before then the patentee forces the customer to accept a license to use the patented product, and if the duration of the license exceeds the remaining term of the patent, then the patentee has extended its exclusive right to sell the product for a longer period than the patent laws allow. Where this occurs, the patentee is said to misuse its patent by obliging its customer to accept a licensing agreement that unlawfully prolongs the patentee’s exclusive right to make and sell or license its patented product. This practice constitutes patent misuse.

Another kind of patent misuse arises when the patentee sells its patented product only on condition that the purchaser also buy another, non-patented product. Since the purchasers typically require the patented product, they have no choice but to purchase the other, non-patented product from the patentee. Where this occurs, the patentee is said to have misused its patent to become the compulsory seller not only of the patented product, but also of another, non-patented one. This practice likewise constitutes patent misuse. This practice can also give rise to an antitrust claim called unlawful tying, which sometimes constitutes an unlawful restraint of trade under Section 1 of the Sherman Act (15 U.S.C. § 1) or California’s Cartwright Act (Cal. Bus. & Prof. Code §§ 16700 et seq.

If your company has been sued for patent infringement, it may establish a complete affirmative defense by showing the patentee’s misuse of its misuse. If you wish to confer with us about this matter, please contact us in complete confidence.