## Facts

- U.S. Philips Corporation owned patents covering technology used to manufacture recordable and rewritable compact discs (CD-R and CD-RW) compliant with the “Orange Book” standard.
- Philips commercialized the portfolio through standardized “package” or “pool” licenses offered to disc manufacturers.
- The package license granted rights to a bundle of Philips and other patents that were necessary or useful for producing standard-compliant discs.
- Philips charged a fixed, uniform royalty per disc, and the royalty did not vary based on how many patents in the package were actually practiced.
- Philips did not offer separate licenses to individual patents outside the package.
- Certain manufacturers, including Princo-related entities and others, stopped paying royalties while continuing to import and sell recordable CDs in the United States.
- Philips filed a complaint at the International Trade Commission (ITC) under § 337 of the Tariff Act alleging unfair acts based on importation of products infringing Philips patents.
- Respondents asserted patent misuse, arguing Philips unlawfully tied “essential” patents to “nonessential” patents and foreclosed alternative technologies.

## Issues

1. Whether offering only a package license that includes both essential and allegedly nonessential patents constitutes per se patent misuse as unlawful tying.
2. Whether the package licensing program constitutes patent misuse under a rule-of-reason analysis based on alleged anticompetitive effects.
3. How 35 U.S.C. § 271(d)(5)’s market-power requirement applies to tying-based misuse and when market power must be assessed.

## Decision

- The Federal Circuit reversed the ITC’s determination that Philips’ asserted patents were unenforceable for patent misuse and remanded for further proceedings.
- The court held the package licensing policy was not per se patent misuse because the fixed, uniform royalty was not increased by including allegedly nonessential patents.
- The court held the arrangement was not misuse under the rule of reason because the record did not show anticompetitive effects such as coercive suppression of actual, commercially available alternative technologies.
- The court emphasized that licensees were not required to use every patent in the package and were not contractually barred from pursuing alternatives or obtaining other licenses.
- The court read § 271(d)(5) to require market power for tying-based misuse and treated market power as assessed at the time of the alleged infringement/misuse.

## Legal Principles

- Patent misuse is an equitable defense that applies when licensing conditions deriving their force from a patent impermissibly broaden the patent grant with anticompetitive effect.
- Per se condemnation is disfavored for licensing practices that can plausibly have procompetitive justifications; misuse analysis focuses on scope expansion and competitive effects, not licensing form alone.
- A package license that combines essential and nonessential patents for a fixed, uniform royalty is not per se misuse absent proof the inclusion of nonessential patents increased the royalty or otherwise reflected coercive leveraging of market power.
- Rule-of-reason misuse requires proof of actual anticompetitive effect; speculative or merely possible alternative technologies do not establish foreclosure of a commercial alternative.
- Under 35 U.S.C. § 271(d)(5), tying-based misuse requires market power in the relevant market, assessed at the time of the alleged infringement/misuse.

## Conclusion

The Federal Circuit held that Philips’ fixed-fee package licensing of CD-related patents did not constitute patent misuse under either per se or rule-of-reason analysis, reversed the ITC’s unenforceability finding, and remanded for further § 337 proceedings.


U.S. Philips Corp. v. Int'l Trade Comm'n, 424 F.3d 1179 (Fed. Cir. 2005)