Princo Corp. v. International Trade Commission

United States Court of Appeals
for the Federal Circuit
__________________________

PRINCO CORPORATION AND PRINCO AMERICA
CORPORATION,
Appellants,

v.
INTERNATIONAL TRADE COMMISSION,
Appellee,

AND

U.S. PHILIPS CORPORATION,
Intervenor.
__________________________

2007-1386
__________________________

On appeal from the United States International Trade
Commission in Investigation No. 337-TA-474.
___________________________

Decided: August 30, 2010
___________________________

ERIC L. WESENBERG, Orrick, Herrington & Sutcliffe
LLP, of Menlo Park, California, argued for appellants.
With him on the brief were ROBERT E. FREITAS, CYNTHIA
WICKSTROM ZUNIGA, KENNETH J. HALPERN, MICHAEL C.
TING, MATTHEW H. POPPE and GARRET G. RASMUSSEN. Of
PRINCO CORPORATION v. ITC 2

counsel on the brief was JOHN D. VANDENBERG, Klarquist
Sparkman, LLP, of Portland Oregon.

CLARA KUEHN, Attorney, Office of the General Coun-
sel, United States International Trade Commission, of
Washington, DC, argued for appellee. With her on the
brief were JAMES M. LYONS, General Counsel, and WAYNE
W. HERRINGTON, Assistant General Counsel.

EDWARD C. DUMONT, Wilmer Cutler Pickering Hale
and Dorr LLP, of Washington, DC, argued for intervenor.
With him on the brief were JONATHAN G. CEDARBAUM,
PERRY A. LANGE, WILLIAM J. KOLASKY, JR. and SUE-YUN
AHN.

RICHARD S. TAFFET, Bingham McCutchen LLP, of New
York, New York, for amicus curiae The American Intellec-
tual Property Law Association on rehearing en banc.
With him on the brief were DAVID B. SALMONS and
PATRICK STRAWBRIDGE, of Washington, DC. Of counsel on
the brief was ALAN J. KASPER, Sughrue Mion, PLLC, of
Washington, DC.

CHARLES A. WEISS, New York Intellectual Property
Law Association, of New York, New York, for amicus
curiae New York Intellectual Property Law Association on
rehearing en banc. With him on the brief were MARK J.
ABATE and DAVID F. RYAN.

HERBERT C. WAMSLEY, Intellectual Property Owners,
of Washington, DC, for amicus curiae Intellectual Prop-
erty Owners Association on en banc rehearing. On the
brief were STEVEN W. MILLER and RICHARD F. PHILLIPS.
Of counsel on the brief were ROBERT P. TAYLOR, Mintz,
Levin, Cohen, Ferris, Glovsky and Pepo, P.C., of Palo
3 PRINCO CORPORATION v. ITC

Alto, California; and HENRY C. SU, Howrey LLP, of Palo
Alto, California.

RICHARD M. BRUNELL, American Antitrust Institute,
of Washington, DC, for amicus curiae American Antitrust
Institute on rehearing en banc. With him on the brief
was JONATHAN L. RUBIN.

DAVID L. SIERADZKI, Attorney, Office of General Coun-
sel, Federal Trade Commission, of Washington, DC, for
amicus curiae Federal Trade Commission on rehearing en
banc. With him on the brief were WILLARD K. TOM, Gen-
eral Counsel, and JOHN F. DALY, Deputy General Counsel
for Litigation.
__________________________

Before RADER, Chief Judge, * NEWMAN, MAYER, LOURIE,
BRYSON, GAJARSA, LINN, DYK, PROST, and MOORE, Circuit
Judges.
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.

* Randall R. Rader assumed the position of Chief
Judge on June 1, 2010. Judge Mayer took senior status
on June 30, 2010. Judge Michel, who retired on May 31,
2010, did not participate in this decision.
PRINCO CORPORATION v. ITC 4

BRYSON, Circuit Judge.

This case requires us to consider the scope of the doc-
trine of patent misuse. Patent misuse developed as a non-
statutory 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 Trade Commission that the doctrine of
patent misuse does not bar the intervenor, U.S. Philips
Corporation, from enforcing its patent rights against the
appellants Princo Corporation and Princo America Corpo-
ration (collectively, “Princo”).

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 CD-R/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
5 PRINCO CORPORATION v. ITC

was developed principally by Philips and Sony Corpora-
tion, working in collaboration. Philips and Sony also
jointly developed the Orange Book standards.

One aspect of the CD-R/RW technology—and the cor-
responding 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 pat-
ents 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 Raay-
makers 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 stan-
dard for manufacturing CD-R/RW discs.

Philips and Sony sought to commercialize their tech-
nology by offering licenses to the patents that were re-
quired to manufacture CD-R/RW discs in accordance with
PRINCO CORPORATION v. ITC 6

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 poten-
tially 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, de-
nominated “essential” and “nonessential,” for producing
compact discs that complied with the technology stan-
dards set forth in the Orange Book.

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
7 PRINCO CORPORATION v. ITC

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 administra-
tive 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 ar-
rangement, 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 af-
firmed 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 administra-
tive judge’s ruling that the patent pooling arrangements
between Philips and its co-licensors, 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.
PRINCO CORPORATION v. ITC 8

Philips appealed to this court, and we reversed. U.S.
Philips Corp. v. Int’l Trade Comm’n (Philips I), 424 F.3d
1179 (Fed. Cir. 2005). We rejected the Commission’s
theory that Philips’s package licensing practice consti-
tuted patent misuse by improperly tying nonessential
patents to essential ones. We explained that Philips gave
its licensees the option of using any of the patents in the
package at the licensee’s option, and that Philips charged
a uniform fee to permit the manufacture of discs covered
by the patented technology regardless of which patents
the licensee used in its manufacturing process. Philips
did not require the licensee to use any particular technol-
ogy in any of the patents, including the patents that
Princo complained were “nonessential.” In effect, we
concluded, Philips was simply charging a fixed licensing
fee for licensees to manufacture discs under the Orange
Book standard. We noted that including additional
patents in the package was the functional equivalent of
promising not to sue licensees on any of the patents in the
group, which had the advantages of minimizing transac-
tion costs and ensuring against the risk of post-agreement
disputes as to whether those additional patents were
required to practice the patented technology.

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 conclu-
sion 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.
9 PRINCO CORPORATION v. ITC

C

On remand, the Commission rejected Princo’s remain-
ing 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 Commis-
sion found that there was no evidence in the record that
the patents in the joint package licenses covered tech-
nologies 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 argu-
ment 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 there-
fore 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 anti-
competitive effect required under a rule of reason analy-
sis.”
PRINCO CORPORATION v. ITC 10

After an extensive analysis of the evidence presented
to the administrative law judge, the Commission con-
cluded 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 ad-
ministrative 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 La-
gadec 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, non-
working add-on to the patent pool.” Under those circum-
stances, the Commission explained, licensees who wished
to make Orange-Book-compliant discs were, at most,
required to accept something they did not want and would
not otherwise have sought to obtain from other sellers.

With respect to the contention that including the La-
gadec 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 CD-R/RW market with a system
based on the Lagadec technology and no evidence that
such a system would have become a significant competi-
tive force in that market, the Commission held that
theory insufficient to support a finding of patent misuse.
11 PRINCO CORPORATION v. ITC

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, 563 F.3d 1301 (Fed. Cir. 2009). Although
the panel rejected several of Princo’s arguments, it va-
cated the Commission’s remedial orders and remanded
the case for further proceedings on one issue.

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 comple-
mentary technology, and avoiding litigation. 563 F.3d at
1308. The court explained that the inclusion in a package
license of the patents that are necessary to enable the
practice of the particular technology “is not tying of the
type that patent misuse doctrine seeks to prevent.” Id.
Because the court concluded that it would have been
reasonable for a manufacturer to believe that a license
under the Lagadec patent was necessary to practice the
Orange Book technology, and because “one of the major
potential efficiencies of package licensing in the context of
innovative technology is the avoidance of ‘uncertainty
that could only be resolved through expensive litigation,’”
the court ruled that the “inclusion of the Lagadec patent
in the patent pool did not give rise to an illegal tying
arrangement.” Id. at 1310-11.

The panel also unanimously rejected Princo’s argu-
ment that Philips had violated the principle of Zenith
Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135
PRINCO CORPORATION v. ITC 12

(1969), that “conditioning the grant of a patent license
upon payment of royalties on products which do not use
the teaching of the patent [is] misuse.” Because, at the
time the package licenses were executed, “it appeared
that Lagadec reasonably might be necessary to manufac-
ture Orange Book compact discs,” the panel concluded
that “it cannot fairly be said on these facts that a royalty
is paid on products which do not use the teaching of the
Lagadec patent.” Princo, 563 F.3d at 1312-13.

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.” 563
F.3d at 1314. The panel then stated that, in contrast to
package licenses, “there are no benefits to be obtained
from an agreement between patent holders to forego
separate licensing of competing technologies,” and that
such agreements are “not within the rights granted to a
patent holder” and can constitute an antitrust violation.
Id. at 1315-16. The panel recognized that “the burden of
proving misuse, and the corresponding risk of having
made an insufficient record, lies with Princo.” Id. at 1321.
Nonetheless, the panel directed the Commission to reex-
amine the record to determine whether “Philips and Sony
agreed not to license Lagadec in a way that would allow a
competitor ‘to develop, use or license the [Lagadec] tech-
nology to create a competing product,’” i.e., a product that
would compete with the technology of the Raaymakers
patents, id. at 1313, and whether, if there was such an
agreement, the suppressed technology “could not have
been viable,” which would “negate a charge of misuse,” id.
at 1318-19.
13 PRINCO CORPORATION v. ITC

The dissenting judge would have affirmed the Com-
mission. With respect to the suggestion that Sony and
Philips had suppressed Lagadec as a platform for manu-
facturing 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 Com-
mission 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 case 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. 1

II

A

The doctrine of patent misuse has its origins in a se-
ries of Supreme Court cases, beginning with the 1917
1 The en banc court has not addressed Princo’s ar-
guments that the panel rejected. Accordingly, those
portions of the panel’s opinion are reinstated.
PRINCO CORPORATION v. ITC 14

decision in Motion Picture Patents Co. v. Universal Film
Manufacturing Corp., 243 U.S. 502 (1917). In that case,
which involved a patent on a motion picture projector, the
Court addressed whether a patentee could require that
the projector be used only with certain films, by “pre-
scrib[ing] by notice attached to a patented machine the
conditions of its use and the supplies which must be used
in the operation of it, under pain of infringement of the
patent.” Id. at 509. The Court concluded that such a
restriction imposed on the purchasers of the patented
projectors was invalid because

a film is obviously not any part of the invention of
the patent in suit; because it is an attempt, with-
out statutory warrant, to continue the patent mo-
nopoly 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 inter-
preted it.

Id. at 518. Since the Court regarded the requirement to
use particular films as beyond the legitimate scope of the
patent, it held that the patent could not be enforced
against a purchaser who used the patented projector with
unsanctioned films.

Fourteen years later, in Carbice Corp. of America v.
American Patents Development Corp., 283 U.S. 27 (1931),
the Court held that it was improper for the owner of a
patent on “refrigerating transportation packages” for
transporting and storing dry ice to insist that licensees of
that patent purchase their dry ice from the patent owner
or its affiliates. The Court stated that the patentee “may
not exact as the condition of a license that unpatented
15 PRINCO CORPORATION v. ITC

materials used in connection with the invention shall be
purchased only from the licensor.” 283 U.S. at 31. The
seller of dry ice, the Court stated, “has no right to be free
from competition in the sale of solid carbon dioxide.
Control over the supply of such unpatented material is
beyond the scope of the patentee’s monopoly.” Id. at 33.
Accordingly, the Court ruled that the party that had
supplied dry ice to one of the patentee’s licensees could
not be held liable for contributory infringement of the
patent.

In a third case, Morton Salt Co. v. G.S. Suppiger Co.,
314 U.S. 488 (1942), the patentee owned a patent on a
machine used to add salt to canned foods. The patented
machines were leased to canners on the condition that the
canners would use salt tablets purchased from the pat-
entee. When one of the patentee’s lessees used the ma-
chine with its own salt tablets, the patentee sued for
infringement. The Supreme Court held that the patent
was unenforceable on the ground that the patentee had
unlawfully used the patent “to secure an exclusive right
or limited monopoly not granted by the Patent Office and
which it is contrary to public policy to grant.” Id. at 492.

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., 329 U.S. 637, 643 (1947). As for the most
common form of patent misuse—requiring the purchase of
an unpatented product as a condition for obtaining a
license to the patent, the Court observed, “He who uses
his patent to obtain protection from competition in the
sale of unpatented materials extends by contract his
patent monopoly to articles as respects which the law
PRINCO CORPORATION v. ITC 16

sanctions neither monopolies nor restraints of trade.” Id.
at 644.

The Court applied the same reasoning to licenses re-
quiring the payment of licensing fees after the expiration
of the licensed patent and thus having the effect of ex-
tending the life of the patent beyond the statutory period.
In Brulotte v. Thys Co., 379 U.S. 29 (1964), the Court
explained that a patent “empowers the owner to exact
royalties as high as he can negotiate with the leverage of
that monopoly. But to use that leverage to project those
royalty payments beyond the life of the patent is analo-
gous to an effort to enlarge the monopoly of the patent by
tieing the sale or use of the patented article to the pur-
chase or use of unpatented ones.” Id. at 33.

As applied to patent licensing agreements, the Su-
preme Court put the matter succinctly in Zenith, 395 U.S.
at 136:

[T]here are established limits which the patentee
must not exceed in employing the leverage of his
patent to control or limit the operations of the li-
censee. 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 mo-
nopoly.

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., 782 F.2d 995, 1001 (Fed. Cir. 1986). When the
17 PRINCO CORPORATION v. ITC

patentee has used restrictive conditions on licenses or
sales to broaden the scope of the patent grant, we have
held that an accused infringer may invoke the doctrine of
patent misuse to defeat the patentee’s claim. See Mon-
santo Co. v. McFarling, 363 F.3d 1336, 1341 (Fed. Cir.
2004); Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860,
870 (Fed. Cir. 1997); Senza-Gel Corp. v. Seiffhart, 803
F.2d 661 (Fed. Cir. 1986).

In B. Braun Medical, Inc. v. Abbott Laboratories, 124
F.3d 1419 (Fed. Cir. 1997), and Mallinckrodt, Inc. v.
Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), we ex-
plained the rationale underlying the doctrine. As a gen-
eral matter, the unconditional sale of a patented device
exhausts the patentee’s right to control the purchaser’s
use of the device thereafter, on the theory that the pat-
entee has bargained for, and received, the full value of the
goods. That “exhaustion” doctrine does not apply, how-
ever, to a conditional sale or license, where it is more
reasonable to infer that a negotiated price reflects only
the value of the “use” rights conferred by the patentee.
Thus, express conditions accompanying the sale or license
of a patented product, such as field of use limitations, are
generally upheld. See Gen. Talking Pictures Corp. v. W.
Elec. Co., 304 U.S. 175, 181 (1938) (“Patent owners may
grant licenses extending to all uses or limited to use in a
defined field.”). When those contractual conditions violate
public policy, however, as in the case of price-fixing condi-
tions and tying restraints, the underlying patents become
unenforceable, and the patentee loses its right to sue for
infringement or breach of contract. B. Braun, 124 F.3d at
1426; Mallinckrodt, 976 F.2d at 706.

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 in-
PRINCO CORPORATION v. ITC 18

heres in the statutory patent right.” Mallinckrodt, 976
F.2d at 704. It follows that the key inquiry under the
patent misuse doctrine is whether, by imposing the condi-
tion in question, the patentee has impermissibly broad-
ened the physical or temporal scope of the patent grant
and has done so in a manner that has anticompetitive
effects. B. Braun, 124 F.3d at 1426. Where the patentee
has not leveraged its patent beyond the scope of rights
granted by the Patent Act, misuse has not been found.
See Monsanto, 363 F.3d at 1341 (“In the cases in which
the restriction is reasonably within the patent grant, the
patent misuse defense can never succeed.”); Virginia
Panel, 133 F.3d at 869 (particular practices by the pat-
entee “did not constitute patent misuse because they did
not broaden the scope of its patent, either in terms of
covered subject matter or temporally”).

In determining whether a particular licensing condi-
tion 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 lever-
age of the patent monopoly permits,” and to limit the
scope of the license to a particular “field of use.” United
States v. Studiengesellschaft Kohle, m.b.H., 670 F.2d
1122, 1127, 1133 (D.C. Cir. 1981). Given that the patent
grant entitles the patentee to impose a broad range of
conditions in licensing the right to practice the patent, the
doctrine of patent misuse “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.” USM Corp. v. SPS Techs., Inc., 694
F.2d 505, 510 (7th Cir. 1982).
19 PRINCO CORPORATION v. ITC

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., 157 F.3d
1340, 1373 (Fed. Cir. 1998) (“Although the defense of
patent misuse . . . evolved to protect against ‘wrongful’
use of patents, the catalog of practices labelled ‘patent
misuse’ does not include a general notion of ‘wrongful’
use.”). Other courts have expressed the same view. See
Kolene Corp. v. Motor City Metal Treating, Inc., 440 F.2d
77, 84-85 (6th Cir. 1971) (There is no such thing as “mis-
use in the air. The misuse must be of the patent in suit.
An antitrust offense does not necessarily amount to
misuse merely because it involves patented products or
products which are the subject of a patented process.”
(citations omitted)); McCullough Tool Co. v. Well Surveys,
Inc., 395 F.2d 230, 238-39 (10th Cir. 1968) (the defense of
patent misuse has been allowed “only where there had
been a misuse of the patent in suit”). While proof of an
antitrust violation shows that the patentee has committed
wrongful conduct having anticompetitive effects, that
does not establish misuse of the patent in suit unless the
conduct in question restricts the use of that patent and
does so in one of the specific ways that have been held to
be outside the otherwise broad scope of the patent grant. 2

2 Some courts and commentators have questioned
the continuing need for the doctrine of patent misuse,
which had its origins before the development of modern
antitrust doctrine. See USM Corp., 694 F.2d at 511
(“Since the antitrust laws as currently interpreted reach
every practice that could impair competition substan-
tially, it is not easy to define a separate role for a doctrine
also designed to prevent an anticompetitive practice—the
PRINCO CORPORATION v. ITC 20

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 “mis-
use or illegal extension of the patent right.” The last two
of the five, which were added in 1988, are

(4) refus[ing] to license or use any rights to the
patent; or (5) condition[ing] 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 patent misuse, but to cabin it. See
Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176,
201 (1980) (addressing the role of section 271(d) in nar-
rowing the scope of patent misuse). The 1988 amendment
in particular was designed to confine patent misuse, with
respect to certain licensing practices, to conduct having
anticompetitive effects. See Ill. Tool Works Inc. v. Indep.

abuse of a patent monopoly.”); Mark A. Lemley, The
Economic Irrationality of the Patent Misuse Doctrine, 78
Cal. L. Rev. 1599, 1614-20 (1990). The Supreme Court’s
patent misuse cases have not been overruled, however,
and we therefore apply the principles of patent misuse as
that Court’s decisions and our own prior precedents
direct. Senza-Gel, 803 F.2d at 665 n.5.
21 PRINCO CORPORATION v. ITC

Ink, Inc., 547 U.S. 28, 41 (2006); S. Rep. No. 100-492, at 9
(1988) (explaining that purpose of the amendment was to
narrow the patent misuse doctrine, which “punish[es]
innovators engaged in procompetitive distribution and
licensing practices”); id. at 14 (“The lack of clarity and
predictability in application of the patent misuse doctrine
and that doctrine’s potential for impeding procompetitive
arrangements are major causes for concern.”); 134 Cong.
Rec. 32,471 (1988) (statement of Sen. Patrick Leahy)
(“Reform of patent misuse will ensure that the harsh
misuse sanction of unenforceability is imposed only
against those engaging in truly anticompetitive con-
duct.”); id. at 32,295 (statement of Rep. Robert Kasten-
meier) (“[T]he proposed modifications should have a pro-
competitive effect, insofar as they require some linkage
between patent licensing practice and anti-competitive
conduct.”). 3

The dissent argues that the 1988 amendment to sec-
tion 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 con-

3 The dissent refers on several occasions to the Su-
preme 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.’” 547 U.S. at 42.
In that statement, however, the Court was simply making
the point that Congress’s decision to require proof of
market power to establish patent misuse was powerful
evidence that Congress intended proof of market power to
be similarly required to establish a criminal antitrust
violation for the same conduct. The Court was not sug-
gesting that every antitrust violation committed by a
patentee constitutes patent misuse.
PRINCO CORPORATION v. ITC 22

tains 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 li-
censes. 134 Cong. Rec. 32,295 (1988). The dissent points
to the inclusion of “covenants not to compete” in Repre-
sentative Kastenmeier’s list, and interprets that state-
ment 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 else in the legislative history that sup-
ports the dissent’s interpretation of Congress’s intent.

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
23 PRINCO CORPORATION v. ITC

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 cases 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 induc-
ing a third party not to license its separate, competitive
technology? Princo has not pointed to any authority
suggesting that such a scenario constitutes patent mis-
use, and nothing in the policy underlying the judge-made
doctrine of patent misuse would support such a result. 4

4 Princo relies on a single case with unusual facts,
Compton v. Metal Products, Inc., 453 F.2d 38 (4th Cir.
1971), as support for its expansive patent misuse theory.
In that case, the patentee agreed, as part of a patent
PRINCO CORPORATION v. ITC 24

Such an agreement would not have the effect of increas-
ing the physical or temporal scope of the patent in suit,
and it therefore would not fall within the rationale of the
patent misuse doctrine as explicated by the Supreme
Court and this court.

What patent misuse is about, in short, is “patent lev-
erage,” i.e., the use of the patent power to impose over-
broad conditions on the use of the patent in suit that are
“not within the reach of the monopoly granted by the
Government.” Zenith, 395 U.S. at 136-38. What that
requires, at minimum, is that the patent in suit must
“itself significantly contribute[] to the practice under
attack.” Kolene Corp., 440 F.2d at 85. Patent misuse will
not be found when there is “no connection” between the
patent right and the misconduct in question, see Republic
Molding Corp. v. B.W. Photo Utils., 319 F.2d 347, 351 (9th
Cir. 1963), or no “use” of the patent, see Virginia Panel,
133 F.3d at 870. In this case, there is no such link be-
tween the putative misconduct and the Raaymakers
patents.

Princo makes several arguments in its effort to bring
this case within the scope of the traditional patent misuse

licensing agreement, not to compete with the licensee for
a period of 20 years. The court held that the non-compete
agreement violated “the common law prohibition against
agreements in restraint of trade as well as Section 1 of
the Sherman Act,” and it further held that the agreement
constituted patent misuse that rendered the underlying
patents unenforceable against any third-party infringers.
Id. at 44. That case is distinguishable on its facts, but to
the extent the court in that case held the patents unen-
forceable based on the patentee’s agreement to limit his
own freedom of action, we find the court’s conclusion that
there was patent misuse to be unsupported by precedent
or reasoning.
25 PRINCO CORPORATION v. ITC

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, 157
F.3d at 1373 (“Although the law should not condone
wrongful commercial activity, the body of misuse law and
precedent need not be enlarged into an open-ended pitfall
for patent-supported commerce.”). Even if such use of
funds were to be deemed misconduct, it does not place any
conditions on the availability of Philips’s patents to any
potential licensees, so it is not the power of Philips’s
patent right that is being misused.

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 defen-
dants’ patents. See United States v. U.S. Gypsum Co., 333
U.S. 364, 396-400 (1948) (finding unlawful price fixing
and control of distribution of gypsum board); Standard
Oil Co. (Ind.) v. United States, 283 U.S. 163, 174 (1931)
(“[T]he limited monopolies granted to patent owners do
not exempt them from the prohibitions of the Sherman
Act.”). That is a different issue altogether from the issue
before us, which is whether an infringing party can obtain
immunity against a valid charge of patent infringement
PRINCO CORPORATION v. ITC 26

by showing an unrelated antitrust violation. Although
the Lagadec patent and the Raaymakers patents were all
included together in the Orange Book package licenses
offered by Philips, those package licenses are independent
of the antitrust violation that is now being alleged, i.e., a
separate agreement between Philips and Sony to suppress
the availability of the Lagadec technology.

In theory, the reason an agreement with Sony has
value to Philips is because suppressing potential competi-
tion 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 inde-
pendent 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 character-
ized 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
horizontal agreement between Philips and Sony to sup-
press the Lagadec technology. The dissent then charac-
terizes that agreement as invoking the doctrine of patent
misuse because it is “part and parcel” of the licensing
agreements between Philips and its licensees. That
27 PRINCO CORPORATION v. ITC

characterization, however, is incorrect. The Orange Book
licensing agreements control what the licensees may do;
the purported agreement between Philips and Sony
controls what Sony may do. At bottom, Princo’s complaint
is not that its license to the Raaymakers patents is unrea-
sonably conditioned, but that the Lagadec patent has not
been made available for non-Orange-Book uses. And that
is not patent misuse under any court’s definition of the
term.

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. 5

5 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 differ-
ent patents. The dissent cites language from a Second
Circuit case, SCM Corp. v. Xerox Corp., 645 F.2d 1195,
1204 (2d Cir. 1981), which stated that “a concerted refusal
to license patents” is unlawful and that “in such cases the
PRINCO CORPORATION v. ITC 28

The Morton Salt case, which the dissent cites in sup-
port 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 con-
nection 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 re-
straining 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 main-
tenance of the attempted monopoly of the unpatented
product,” thus “thwarting the public policy underlying the
grant of the patent.” 314 U.S. at 493. There is no such
exploitation of the Raaymakers patents in this case. 6

patent holder abuses his patent by attempting to enlarge
his monopoly beyond the scope of the patent granted
him.” The court’s point was that such conduct could
violate the antitrust laws; as such, we interpret the
court’s reference to “abus[ing] his patent” simply as a
shorthand way of making that point, and not as a state-
ment about the law of patent misuse.
6 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 infringe-
ment 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 those limitations are inappropriate simply be-
cause a party is seeking relief against a patentee.
29 PRINCO CORPORATION v. ITC

In sum, this is not a case in which conditions have
been placed in patent licenses to require licensees to
agree to anticompetitive terms going beyond the scope of
the patent grant. Rather, in this case the assertion of
misuse arises not from the terms of the license itself but
rather from an alleged collateral agreement between Sony
and Philips. In that setting, the doctrine of patent misuse
does not immunize Princo against the legal effect of its
acts of infringement.

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 technol-
ogy was not a viable potential competitor to the technol-
ogy embodied in the Raaymakers patents.

At the outset, Princo urges us to overrule the line of
authority in this court holding that patent misuse re-
quires a showing that the patentee’s conduct had anti-
competitive 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 anti-
competitive by the Supreme Court, a factual determina-
tion must reveal that the overall effect of the license tends
to restrain competition unlawfully in an appropriately
PRINCO CORPORATION v. ITC 30

defined relevant market.” Windsurfing, 782 F.2d at 1001-
02. We have consistently adhered to that requirement.
See, e.g., Philips I, 424 F.3d at 1184; Monsanto, 363 F.3d
at 1341; Virginia Panel, 133 F.3d at 868; B. Braun, 124
F.3d at 1426; Mallinckrodt, 976 F.2d at 708. Our position
is consistent with the traditional characterization of the
defense of patent misuse by the Supreme Court, see Ill.
Tool Works, 547 U.S. at 38 (describing the patent misuse
doctrine as applying “when a patentee uses its patent ‘as
the effective means of restraining competition with its
sale of an unpatented article’” (citation omitted); the
decisions of other circuits, see County Materials Corp. v.
Allan Block Corp., 502 F.3d 730, 736 (7th Cir. 2007);
Carpet Seaming Tape Licensing Corp. v. Best Seam Inc.,
616 F.2d 1133, 1142 (9th Cir. 1980); and the 1988
amendment to 35 U.S.C. § 271(d), which makes clear that
Congress intended to limit patent misuse to practices
having anticompetitive effects.

Turning from patent misuse law to antitrust princi-
ples, 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 collu-
sion among competitors and are therefore subject to
antitrust scrutiny, see NCAA v. Bd. of Regents of the Univ.
of Okla., 468 U.S. 85, 113 (1984), research joint ventures
such as the one between Philips and Sony can have sig-
nificant procompetitive features, and it is now well settled
that an agreement among joint venturers to pool their
research efforts is analyzed under the rule of reason. See
31 PRINCO CORPORATION v. ITC

Addamax Corp. v. Open Software Found., Inc., 152 F.3d
48, 52 (1st Cir. 1998) (Joint venture research enterprises,
“unless they amount to complete shams, are rarely sus-
ceptible to per se treatment. Where the venture is pro-
ducing a new product . . . there is patently a potential for
a productive contribution to the economy, and conduct
that is strictly ancillary to this productive effort . . . is
evaluated under the rule of reason.”); see generally Am.
Needle, Inc. v. Nat’l Football League, 130 S. Ct. 2201,
2007 (2010) (rule of reason generally applied to joint
venture agreements); Texaco Inc. v. Dagher, 547 U.S. 1, 5-
6 (2006); Broad. Music, Inc. v. Columbia Broad. Sys., Inc.,
441 U.S. 1, 23 (1979); Copperweld Corp. v. Independence
Tube Corp., 467 U.S. 752, 768 (1984); 15 U.S.C. § 4302
(conduct of research joint ventures is “not deemed illegal
per se,” but is “judged on the basis of its reasonableness,
taking into account all relevant factors affecting competi-
tion”); FTC & Dep’t of Justice, Antitrust Guidelines for
Collaborations Among Competitors § 3.31(a), at 14 (2000)
(most research joint venture agreements “are procompeti-
tive, and they typically are analyzed under the rule of
reason”); ABA, Antitrust Law Developments 445-46 (6th
ed. 2007) (“joint research ventures are typically analyzed
under the rule of reason”).

Collaboration for the purpose of developing and com-
mercializing 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
PRINCO CORPORATION v. ITC 32

benefits in relation to costs.”); FTC & Dep’t of Justice,
Antitrust Guidelines for Collaborations Among Competi-
tors § 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 stan-
dards for new technology can have decidedly procompeti-
tive effects. The absence of standards for new technology
can easily result in a “Tower of Babel” effect that in-
creases costs, reduces utility, and frustrates consumers.
As a leading treatise has noted, cooperation by competi-
tors 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 competi-
tion 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: Patents, Price
Fixing, and Per Se Legality, 70 U. Chi. L. Rev. 983, 985-90
(2003). Congress has recognized those procompetitive
features and has directed that the activities of a “stan-
dards development organization while engaged in a
standards development activity” is subject to the rule of
reason. See Standards Development Organization Ad-
33 PRINCO CORPORATION v. ITC

vancement Act of 2004, Pub. L. No. 108-237 § 104, 118
Stat. 661, 663.

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., 792 F.2d 210,
214, 223-30 (D.C. Cir. 1986) (unlike a naked horizontal
restraint that does not accompany a contract integration,
“an ancillary horizontal restraint, one that is part of an
integration of the economic activities of the parties and
appears capable of enhancing the group’s efficiency, is to
be judged according to its purpose and effect”); Polk Bros.,
Inc. v. Forest City Enters., Inc., 776 F.2d 185, 189 (7th Cir.
1985) (“A restraint is ancillary when it may contribute to
the success of a cooperative venture that promises greater
productivity and output.”); Engine Specialties, Inc. v.
Bombardier Ltd., 605 F.2d 1, 11 (1st Cir. 1979) (agree-
ment that “neither of the parties to the joint venture will
compete with it” is “not offensive in and of itself”); United
States v. Addyston Pipe & Steel Co., 85 F. 271, 280 (6th
Cir. 1898), aff’d, 175 U.S. 211 (1899) (“Restrictions in the
articles of partnership upon the business activity of the
members, with a view of securing their entire effort in the
common enterprise were, of course, only ancillary to the
main end of the union, and were to be encouraged.”);
Hovenkamp, Antitrust Law ¶ 2115b1, at 113 (agreements
between firms engaged in joint innovation not to innovate
in the same area outside the context of the joint venture
“are to be regarded as ancillary rather than naked re-
straints and are thus subject to the usual proof of power
and anticompetitive effects”). Moreover, those ancillary
restraints are not viewed in isolation, but in the context of
the joint venture or other collaborative effort. Thus,
agreements not to compete that might be suspect stand-
PRINCO CORPORATION v. ITC 34

ing alone are regarded as reasonable when they are
ancillary to “a larger endeavor whose success they pro-
mote.” Polk Bros., 776 F.2d at 189. 7

Princo does not contend that the selection of the
Raaymakers technology, rather than the Lagadec tech-
nology, 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 fell outside the Orange Book standard,
i.e., the Lagadec digital encoding technology. The Com-
mission did not answer that question because the ques-
tion was never squarely presented to it. Nor do we need
to decide whether there was any such agreement between
Sony and Philips. That is because the Commission’s
factual findings make it clear that even if there was such

7 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 ven-
ture, 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, 563 F.3d at 1305-06.
The panel’s opinion was supported by the administrative
law judge’s findings, and by evidence that Sony advanced
the proposal that ultimately was incorporated into the
Lagadec patent as part of an extended course of collabora-
tion with Philips during the 1980s. See Hearing Tr. 372-
409 (June 10, 2003). Nothing in Princo’s en banc presen-
tation persuades us that the panel’s description of the
development of the Lagadec technology was incorrect.
35 PRINCO CORPORATION v. ITC

an agreement, it did not have the effect of suppressing
potentially viable technology that could have competed
with the Orange Book standards.

The Commission found that “there has been no show-
ing 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 find-
ing 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 admin-
istrative 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 pro-
duce 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 particu-
lar approach.” The expert added that “[a]s a result,
Philips and Sony dismissed the Lagadec approach be-
cause 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
PRINCO CORPORATION v. ITC 36

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 com-
mercial 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 stan-
dard 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 com-
mercial 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 tech-
nology, but rather because Sony is a major player in the
industry, whose cooperation Philips wanted.” The Com-
mission found that assertion to be baseless and contrary
to the testimony of several witnesses that Philips “part-
nered 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
agreement not to compete against the Orange Book
standard, the Commission found to the contrary.
37 PRINCO CORPORATION v. ITC

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 li-
censee 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 theo-
retical 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 con-
strued as anticompetitive behavior under certain circum-
stances, see United States v. Microsoft Corp., 253 F.3d 34,
79 (D.C. Cir. 2001) (en banc), Princo had the burden of
showing that the hypothesized agreement had an actual
adverse effect on competition in the relevant market. See
Cal. Dental Ass’n v. FTC, 526 U.S. 756, 775 n.12 (1999);
In re Ciprofloxacin Hydrochloride Antitrust Litig., 544
F.3d 1323, 1332 (Fed. Cir. 2008) (noting that an antitrust
PRINCO CORPORATION v. ITC 38

plaintiff bears the initial burden of showing an actual
adverse effect on competition); see also Clorox Co. v.
Sterling Winthrop, Inc., 117 F.3d 50, 60 (2d Cir. 1997)
(antitrust plaintiff required to produce evidence that the
challenged agreement could “significantly affect competi-
tion”); U.S. Healthcare, Inc. v. Healthsource, Inc., 986
F.2d 589, 596 (1st Cir. 1993) (no rule of reason violation
“[a]bsent a compelling showing of foreclosure [of competi-
tion] of substantial dimensions”); Bhan v. NME Hosps.,
Inc., 929 F.2d 1404, 1413 (9th Cir. 1991) (antitrust plain-
tiff must show restraint is likely “to impair competition
significantly”); DeLong Equip. Co. v. Wash. Mills Abrasive
Co., 887 F.2d 1499, 1507 (11th Cir. 1989) (antitrust
plaintiff in rule of reason case bears the burden of show-
ing that the challenged agreement had a “significant
anticompetitive effect”); Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law ¶ 1507c (antitrust plaintiff
must introduce evidence that defendants “have restrained
trade significantly” and have “impair[ed] competition” in
a relevant market).

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 com-
petitive force in the storage technology market. See
United States v. Penn-Olin Chem. Co., 378 U.S. 158, 175-
76 (1964) (requiring a finding that there was a reasonable
probability that the competing companies would have
“entered the market” or “remained a significant potential
competitor”). It was not enough that there was some
speculative possibility that Lagadec could have overcome
the barriers to its technical feasibility and commercial
success and become the basis for competing disc technol-
ogy. The Commission found that Princo failed to show
that the Lagadec technology had technical or commercial
prospects that could enable it to compete with the Orange
39 PRINCO CORPORATION v. ITC

Book technology. Those findings wholly undermine
Princo’s contention that this is a case in which the pat-
ents in suit have been used as part of an overall horizon-
tal agreement with the effect of keeping a viable
competitor out of the relevant market.

The dissenting opinion seeks to sidestep the Commis-
sion’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 analy-
sis 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 restraint[s] on
price and output” where a detailed market analysis is
unnecessary to conclude that the arrangements in ques-
tion have anticompetitive effects. Cal. Dental, 526 U.S. at
769-70. In those circumstances, only a quick look is
necessary because the arrangement is “so plainly anti-
competitive that courts need undertake only a cursory
examination before imposing antitrust liability.” Dagher,
547 U.S. at 7 n.3; see also Cal. Dental, 526 U.S. at 781
(“The object is to see whether the experience of the mar-
ket has been so clear, or necessarily will be, that a confi-
dent conclusion . . . will follow from a quick (or at least
quicker) look, in place of a more sedulous one.”). How-
ever, the Supreme Court has cautioned that presumptions
of anticompetitiveness should not be lightly invoked.
Broad. Music, 441 U.S. at 8-9. Rather, the Court has
stated:
PRINCO CORPORATION v. ITC 40

[B]efore a theoretical claim of anticompetitive ef-
fects can justify shifting to a defendant the burden
to show empirical evidence of procompetitive ef-
fects, as quick-look analysis in effect requires,
there must be some indication that the court mak-
ing the decision has properly identified the theo-
retical basis for the anticompetitive effects and
considered whether the effects actually are anti-
competitive. Where, as here, the circumstances of
the restriction are somewhat complex, assumption
alone will not do.

Cal. Dental, 526 U.S. at 775 n.12.

A quick-look approach might be justified if the joint
venture in this case were a sham, or if the alleged agree-
ment were a naked restraint, i.e., not reasonably neces-
sary to achieve the efficiency-enhancing benefits of the
joint venture. See Major League Baseball Props., Inc. v.
Salvino, Inc., 542 F.3d 290, 338 (2d Cir. 2008) (So-
tomayor, J., concurring). The Commission, however,
rejected the contention that the joint venture between
Philips and Sony was a sham. And, as we have discussed,
an agreement among joint venturers not to compete
against the joint venture is not a naked restraint, because
it provides assurance that the resources invested by one
joint venturer will not be undermined or competitively
exploited to the sole benefit of the other. See id. at 340
(noting that exclusivity and profit-sharing provisions are
reasonably necessary to prevent the free-rider problem).
Particularly when the purpose of the joint venture is to
set standards for an industry, and choices must be made
as to which technologies to promote and which to sup-
press, those choices must be supported equally by all
participants to the standard-setting body in order to
achieve successful creation and adoption of the standard.
41 PRINCO CORPORATION v. ITC

See generally Rambus Inc. v. Infineon Techs. AG, 318 F.3d
1081 (Fed. Cir. 2003). 8

In sum, Princo has failed to show that the putative
agreement between Sony and Philips not to license the
Lagadec technology for non-Orange-Book purposes had
any market effect at all—actual or prospective. The
record, and the findings of the Commission, make clear
that the Lagadec technology lacked both the technical and
the commercial prospects that would have made it a
possible basis for a product that could compete with
Orange-Book-compliant discs in the data storage market.
For that reason, Princo failed to demonstrate that any
agreement not to license Lagadec would have had the
anticompetitive effects necessary to condemn that agree-
ment under rule-of-reason analysis.

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 anticompeti-
tive effects in the relevant market. The asserted agree-
ment between Philips and Sony therefore did not

8 In positing that the asserted agreement between
Philips and Sony was unlawful, the dissent draws a
distinction between an agreement that Sony would not
compete with the joint venture and an agreement that
Sony would not license the Lagadec patent to compete
with the joint venture. That distinction is illusory. It
would make no difference whether Sony developed the
alternative technology itself or whether Sony facilitated
the development of that technology by licensing a third
party to do so; either way, Sony would be profiting at the
expense of the joint venture.
PRINCO CORPORATION v. ITC 42

constitute patent misuse and cannot justify rendering all
of Philips’s Orange Book patents unenforceable.

AFFIRMED
 United States Court of Appeals
for the Federal Circuit
__________________________

PRINCO CORPORATION AND PRINCO AMERICA
CORPORATION,
Appellants,

v.
INTERNATIONAL TRADE COMMISSION,
Appellee,

AND

U.S. PHILIPS CORPORATION,
Intervenor.
__________________________

2007-1386
__________________________

On Appeal from the United States International
Trade Commission in Investigation No. 337-TA-474.
__________________________

PROST, Circuit Judge, with whom MAYER, Circuit Judge
joins, concurring-in-part.

I agree that a finding of patent misuse is unwar-
ranted on this record because Princo 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.
PRINCO CORPORATION v. ITC 2

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 re-
spectively suggests.

This case arises at the uneasy intersection of anti-
trust and patent law, in essence posing the novel question
of whether (and if so, to what extent) patentee competi-
tors 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 un-
patented 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.,
448 U.S. 176, 202 (1980) (holding that the linkage of “two
protected activities” in a single transaction does not
constitute patent misuse); cf. Motion Picture Patents, 243
U.S. at 515-18; Carbice Corp., 283 U.S. at 31-33; Morton
Salt, 314 U.S. at 491-92. Here, Philips owned the Raay-
makers patents, Sony the Lagadec patent. Philips and
Sony were thus presumably free to license their patents to
everyone—or no one. In asserting that the precedent of
the Supreme Court and our court compel a finding of
patent misuse, the dissent does not address how a patent
owner’s right to exclude others from using the invention
could, and possibly should, affect the calculus in the
antitrust and patent misuse contexts. Indeed, at first
blush there seems little difference between the agreement
allegedly entered into here and Sony granting an exclu-
sive license to Philips on the Lagadec patent, which
Philips then decides not to practice.
3 PRINCO CORPORATION v. ITC

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 22-23. Whether use of a
patent runs afoul of antitrust law seems in itself proba-
tive 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., 352 U.S. 457,
468, 472 (1957); Mercoid Corp. v. Mid-Continent Inv. Co.,
320 U.S. 661, 667 (1944); cf. Zenith Radio Corp. v. Ha-
zeltine Research, Inc., 395 U.S. 100, 134-35 (1969) (asking
whether there had been patent misuse in determining
whether the patentee had violated antitrust law); Trans-
parent-Wrap Mach. Corp v. Stokes & Smith Co., 329 U.S.
637, 640-41 (1947). Moreover, I do not read Supreme
Court precedent as necessarily foreclosing a finding of
patent misuse based at least in part on finding an anti-
trust violation. As the Supreme Court explained in
United States v. United States Gypsum Co., 333 U.S. 364,
400 (1948), patents “grant no privilege to their owners of
organizing the use of those patents to monopolize an
industry through price control.” The majority’s limited
focus on the Raaymakers patents seems to ignore that the
challenged agreement could just as easily be framed as a
decision to license some patents (Raaymakers) and an
affirmative refusal to license another (Lagadec). By
asking only whether the Raaymakers patents has been
“leveraged,” see Maj. Op. at 15, the majority may have
unnecessarily narrowed the patent misuse inquiry—
particularly when one can readily argue that the com-
bined effect of an agreement to license the Raaymakers
patents, but not license the Lagadec patent, enabled
Philips to obtain the type of “market benefit beyond that
which inheres in the statutory patent right” of either
PRINCO CORPORATION v. ITC 4

patent, amounting to misuse. Mallinckrodt, 976 F.2d at
704; cf. Hartford-Empire Co. v. United States, 323 U.S.
387, 406-07 (1945).

Because we need not reach the issue, I would thus re-
serve judgment on the precise metes and bounds of the
patent misuse doctrine.
 United States Court of Appeals
for the Federal Circuit
__________________________

PRINCO CORPORATION AND PRINCO AMERICA
CORPORATION,
Appellants,

v.
INTERNATIONAL TRADE COMMISSION,
Appellee,

AND

U.S. PHILIPS CORPORATION,
Intervenor.
__________________________

2007-1386
__________________________

On Appeal from the United States International Trade
Commission in Investigation No. 337-TA-474.
__________________________

DYK, Circuit Judge, 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 competi-
PRINCO CORPORATION v. ITC 2

tion—constitutes misuse of the protected patents. The
majority holds that it does not. This seems directly contrary
to the Supreme Court’s view of patent 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., 547 U.S.
28, 42 (2006).

The majority declines to give the patent misuse doctrine
significant scope because it “is in derogation of statutory
patent rights against infringement.” Majority Op. at 4.
Evidently the majority thinks it appropriate to emasculate
the doctrine so that it will not provide a meaningful obstacle
to patent enforcement. Outside of unlawful tying arrange-
ments and agreements extending the patent term, the
majority would hold that antitrust violations are not patent
misuse and would leave to private and government antitrust
proceedings the task of preventing abuse of patent monopo-
lies, enforcement that is likely inadequate to the task.
Indeed, the majority goes so far as to suggest that the
misuse doctrine be eliminated entirely. Id. at 19 n.2. I read
the relevant Supreme Court cases and congressional legisla-
tion as supporting a vigorous misuse defense, clearly appli-
cable to agreements to suppress alternative technology. The
majority cabins the doctrine in contravention of this Su-
preme Court authority. I respectfully dissent.

I

U.S. Philips Corporation (“Philips”) commenced this
proceeding alleging that Princo Corporation and Princo
America Corporation (collectively, “Princo”) had infringed
3 PRINCO CORPORATION v. ITC

Philips’ Raaymakers patents. 1 Princo asserted a misuse
defense. The overall issue is whether Philips has misused
the asserted Raaymakers patents by (1) agreeing with Sony
Corporation (“Sony”) to jointly license the Raaymakers
patents together with the Lagadec patent2 and providing, as
part of that agreement, that the alternative technology
embodied in the Lagadec patent will not be licensed in
competition with the Raaymakers technology, and (2) secur-
ing an agreement from the licensees of the Raaymakers and
Lagadec patents barring them from using the Lagadec
patent to develop an alternative technology that would
compete with the Raaymakers technology. 3 The majority
holds that there is no patent misuse because the Lagadec
patent has not itself been asserted in this proceeding, see id.
at 23, and, alternatively, because “Princo also failed to show
that the asserted agreement had any anticompetitive effects
because . . . the Lagadec technology was not a viable poten-
tial competitor to the technology embodied in the Raaymak-
ers patents,” id. at 29.

The majority’s first holding—that the agreements can-
not 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

1 U.S. Patent Nos. 4,999,825 and 5,023,856.
2 U.S. Patent No. 4,942,565.
3 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 conven-
ience, 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 23, 26, 34.
PRINCO CORPORATION v. ITC 4

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 3-42 to -43 (2d ed. 2010); see Princo Corp.
v. Int’l Trade Comm’n, 563 F.3d 1301, 1314–15 (Fed. Cir.
2009). Now the court en banc holds that such agreements
cannot constitute patent misuse. Contrary to the majority,
the Supreme Court cases establish that license agreements
that suppress alternative technologies can constitute misuse
of the patents for the protected technology, and the regional
circuits have agreed.

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 doc-
trine 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 re-
5 PRINCO CORPORATION v. ITC

cordable compact discs (“CD-Rs”) and rewritable compact
discs (“CD-RWs”). The first compact disc (“CD”) was devel-
oped 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 CD-
R/RW technology with some assistance from a few of its
competitors. CD-R technology allows consumers to pur-
chase 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 CD-
RWs is that they are compatible on all CD audio players and
CD-ROM drives.

Philips created a patent pool for the CD-R/RW technol-
ogy 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 revo-
lutionized the storage, use, and transfer of computer data,
PRINCO CORPORATION v. ITC 6

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 comply
with Orange Book standards.”). All of the manufacturers in
the United States, as well as in many other countries, are
effectively required to license the Orange Book technology.
As the ITC recognized in its Initial Determination, “[n]o one
can manufacture or sell CD-R or CD-RW discs legally in the
United States without taking a license to the Philips pat-
ents.” Id. And, “Philips has the power to exclude a com-
pany from entering the CD-R or CD-RW market.” Id. at
393. “Philips has market power in the United States mar-
ket for licensing essential US patents for the manufacture of
CD-R/RWs according to Orange Book standards because . . .
there are no close substitutes for CD-R/RWs . . . .” In re
Certain Recordable Compact Discs & Rewritable Compact
Discs, Inv. No. 337-TA-474, slip op. at 27 (Int’l Trade
Comm’n Mar. 25, 2004) (“Final Determination”). No com-
petitive alternative to either the CD-R or CD-RW disc has
been developed to the point of commercial viability.

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 tech-
nologies 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
7 PRINCO CORPORATION v. ITC

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. 4 Like the Lagadec technology, the
Raaymakers technology encodes position data. The Lagadec
and Raaymakers technologies differ in that Philips’ technol-
ogy employs “frequency modulation,” an analog method of
encoding information, whereas Sony’s technology employs a
digital method.

Although the parties recognized that the Lagadec pat-
ented digital method had the potential to compete with the
patented Raaymakers technology, Philips and Sony deter-
mined 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 La-
gadec 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 licen-
sees (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 CD-
RW 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 Stan-
dard.”).

The rewards flowing to Sony from this series of agree-
ments were considerable. In return for a minimal contribu-
tion to the Orange Book patent pool, Sony was rewarded a
substantial portion of the royalties. For example, the La-

4 “Absolute time” refers to the fact that the laser’s lo-
cation is expressed in terms of the time required to scan the
spiral groove from the start of the disc to the current posi-
tion.
PRINCO CORPORATION v. ITC 8

gadec patent was the only essential Sony patent in the CD-
RW pool. 5 For this contribution Sony received 36 % of the
royalties under the CD-RW patent pool. Philips’ employees
conceded that Sony employees “were more observers than
real active developers of” the CD-RW format. J.A. 1830
(testimony of Dr. Jacques Heemskerk); see also J.A. 3254
(explaining that the CD-RW format was “written in close c-
operation [sic] with Ricoh and with the passive support of
Sony.”). The situation was not much different with respect
to the CD-R pool where, out of eleven supposedly essential
patents, only two of these were Sony patents, the Lagadec
patent and Patent No. 5,126,994 (the “Ogawa” patent). 6
See, e.g., J.A. 3534–65, J.A. 6592–6636.

The effect of these agreements was to protect the Philips
Raaymakers technology from any actual or potential compe-
tition. As no one could license the Lagadec patent outside of
the Orange Book patent pool, the patent was rendered
useless as an alternative technology.

5 As explained in the panel opinion, the Lagadec pat-
ent 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 competi-
tion with the Orange Book standard.
6 The ALJ found that the Ogawa patent was improp-
erly 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 re-
view, the ITC took no position on the ALJ’s analysis of this
patent. Final Determination, slip op. at 50–51.
9 PRINCO CORPORATION v. ITC

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, 424 F.3d
1179, 1197–99 (Fed. Cir. 2005). The ITC rejected Princo’s
contention that including the Lagadec patent in the patent
pool constituted improper tying (an issue not originally
addressed) and that agreements not to license the Lagadec
patent in competition with the Orange Book technology
were also not misuse. The original panel opinion agreed
that the ITC had properly rejected the Lagadec tying claim,
but erred in rejecting the misuse claim based on the agree-
ment not to license the Lagadec patent as an alternative
technology. The panel remanded to determine whether such
an agreement existed and whether there was an anticom-
petitive effect. The en banc court holds that the agreements
not to license the Lagadec patent do not constitute misuse. 7
I disagree. 8

7 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 agree-
PRINCO CORPORATION v. ITC 10

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 involve
misuse of the asserted Raaymakers patents, but only of the
Lagadec patent. The Raaymakers patents can thus be
enforced. However, it is clear that if the Philips/Sony
agreement and the Philips agreements with licensees con-
stituted misuse, they constituted misuse of the Raaymakers
patents. The agreements to suppress the Lagadec technol-
ogy were not separate or collateral agreements, as the
majority suggests, but were part and parcel of the same
course of conduct designed to protect the Raaymakers
patents from competition from the alternative Lagadec
technology. That constitutes misuse of the Raaymakers
patents.

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., 395 U.S.
100, 136 (1969). As the Supreme Court stated in United
States v. Univis Lens Co., “the particular form or method by
which the monopoly is sought to be extended is immaterial.”
316 U.S. 241, 251–52 (1942).

ments from Sony and the licensees not to use the Lagadec
technology for non-Orange Book purposes.
8 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 exis-
tence 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.
11 PRINCO CORPORATION v. ITC

As the majority points out, see Majority Op. at 15–16,
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., 379 U.S. 29, 33 (1964);
Transparent-Wrap Mach. Corp. v. Stokes & Smith Co., 329
U.S. 637, 644 (1947). The issue here is whether licensing
agreements that are designed to protect patented technolo-
gies from competition and thereby extend their monopoly
should fare any better. In holding that such licensing
agreements do not constitute patent misuse, the majority
ignores binding Supreme Court precedent.

The Supreme Court in Ethyl Gasoline Corp. v. United
States, 309 U.S. 436, 456–57 (1940), made clear that patent
misuse occurs when patent licensing agreements are used
“to control conduct by the licensee not embraced in the
patent monopoly.” In United States v. United States Gyp-
sum, 333 U.S. 364 (1948), the Court explicitly held that the
use of license agreements to fix prices and suppress compe-
tition from alternative technologies constituted patent
misuse. There, U.S. Gypsum, which produced gypsum and
gypsum products, found itself in a situation similar to
Philips. It had acquired the “most significant” patents
covering so-called closed edge boards. Id. at 368. It ac-
quired additional significant patents from co-conspirators
and licensed those patents to virtually the entire industry.
The patented, closed edge boards competed with unpat-
ented, open edge boards. U.S. Gypsum, companies that had
assigned patents to U.S. Gypsum, and the other manufac-
turers licensed by U.S. Gypsum agreed to suppress competi-
tion from open edge boards and maintain higher prices by
concertedly entering into industry-wide patent licensing
agreements that effectively eliminated open edge boards
from the market. The Court held that these licensing
PRINCO CORPORATION v. ITC 12

agreements to suppress competition violated the antitrust
laws and constituted misuse of the closed edge board pat-
ents: “the testimony of the witnesses is ample to show that
there was an understanding, if not a formal agreement, that
only patented board would be sold. Such an arrangement in
purpose and effect increased the area of the patent monop-
oly and is invalid.” Id. at 397. The Court explained that
there is

no support for a patentee, acting in concert with all
members of an industry, to issue substantially iden-
tical licenses to all members of the industry under
the terms of which the industry is completely regi-
mented, the production of competitive unpatented
products suppressed, a class of distributors
squeezed out, and prices on unpatented products
stabilized.

Id. at 400. Contrary to the majority, Gypsum is not simply
an antitrust case. The Gypsum case was specifically cited
by the Supreme Court in Blonder-Tongue Laboratories, Inc.
v. University of Illinois Foundation—the most recent Su-
preme Court articulation of patent misuse—as one of “the
series of decisions in which the Court has condemned at-
tempts to broaden the physical or temporal scope of the
patent monopoly.” 402 U.S. 313, 343, 344 n.40 (1971).
Gypsum, together with the panel decision in this case, has
also been cited by the leading treatise to exemplify the point
that agreements not to compete can constitute misuse of
patents. Hovenkamp et al., supra, § 3.3g, at 3-42.

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
13 PRINCO CORPORATION v. ITC

Products, Inc., 453 F.2d 38 (4th Cir. 1971), a case explicitly
rejected by the majority. See Majority Op. at 23 n.4. In
Compton, as part of a license agreement, the patent holder
agreed not to compete with the licensee for a period of years.
453 F.2d at 44. In holding that this agreement constituted
patent misuse, the Fourth Circuit explained that

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 pat-
ents. 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 23 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., 329 F.2d 782,
784 (9th Cir. 1964) (holding that a non-competition clause in
a patent license constitutes misuse without proof of sub-
stantial lessening of competition); Nat’l Lockwasher Co. v.
George K. Garrett Co., 137 F.2d 255, 257 (3d Cir. 1943)
(finding misuse of a patent where patent licensees had
agreed to “make and sell no form of non-entangling Spring
Washers except such as are covered by said patent”);
Krampe v. Ideal Indus., 347 F. Supp. 1384, 1387 (N.D. Ill.
1972) (holding a non-competition clause in a patent licens-
ing agreement binding the licensee not to sell competing
products constitutes patent misuse); Park-In Theatres v.
PRINCO CORPORATION v. ITC 14

Paramount Richards Theatres, 90 F. Supp. 730 (D. Del.
1950) (holding a non-competition clause in a patent license
agreement binding the licensee not to sell or promote com-
peting products constitutes misuse), aff’d, 185 F.2d 407 (3d
Cir. 1950); see also SCM Corp. v. Xerox, 645 F.2d 1195, 1204
(2d Cir. 1981) (“While . . . a concerted refusal to license
patents is no less unlawful 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.”
(emphasis added)). Indeed, the leading treatise on patent
law states that “prohibiting production or sale of competing
goods” is a “classic act of misuse” and notes that the “courts
have consistently taken the view that a provision in a
patent license requiring a party not to deal in products that
compete with the patented product constitutes misuse per
se.” 6 Donald S. Chisum, Chisum on Patents § 19.04 [3],
[3][b], at 19-451, -463 (2010). If an agreement to suppress
competition in an unpatented product to protect a patented
product constitutes misuse, it is clearly misuse where the
agreement involves the suppression of one patented tech-
nology to protect another patented technology from competi-
tion, as is the case here.

The same approach has been taken in copyright law
where courts have found copyright misuse based on sup-
pression of competing products. For example, in Lasercomb
America, Inc. v. Reynolds, the Fourth Circuit held that the
plaintiff’s requirement in its standard licensing agreement
forbidding the licensee and all its employees from develop-
ing any kind of software competitive with the plaintiff’s
application constituted misuse and rendered the copy-
righted software unenforceable. 911 F.2d 970, 973, 979 (4th
Cir. 1990). The Ninth Circuit in Practice Management
Information Corp. v. American Medical Association held
that licensing a copyrighted product in exchange for an
15 PRINCO CORPORATION v. ITC

agreement not to use a competitor’s product constituted
misuse and rendered the copyright unenforceable. 121 F.3d
516, 520–21 (9th Cir. 1997). These cases establish that,
regardless of the form of intellectual property involved, a
party’s efforts to use its intellectual property to suppress a
competitive product constitutes unacceptable misuse.

The majority attempts to distinguish Gypsum and ap-
parently also its progeny by suggesting that they involve a
single agreement, whereas here the non-compete agree-
ments with respect to the Lagadec patent were independent
of or collateral to the agreements with respect to the Raay-
makers patents. See Majority Op. at 25–26.

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 govern-
ing 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. 9 The

9 The parties entered into the letter agreement on
September 7, 1993 (the “1993 agreement”). The 1993 agree-
ment 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.
PRINCO CORPORATION v. ITC 16

agreement between Philips and its licensees not to use the
Lagadec technology in competition with the Raaymakers
technology appears in the agreements licensing the Raay-
makers technology. The overall effect of the two agreements
was to prevent competitors from utilizing the alternative
Lagadec technology and to protect the licensed Raaymakers
patents from competition with the Lagadec technology. The
licenses to the asserted patents were “condition[ed] . . . so as
to control conduct by the licensee not embraced within the
patent monopoly” of the asserted patents. See Ethyl, 309
U.S. at 456–57. The agreements with respect to Raaymak-
ers and Lagadec cannot be treated separately, as the Su-
preme Court held in Gypsum and as the circuit courts held
in the other cited cases. Nor is it significant that two sepa-
rate agreements (the licensee agreements and the Phil-
ips/Sony agreement) are involved. In Gypsum itself, the
agreements to suppress the competing open edge boards
were in fact not even formally part of the license agree-
ments, but were treated together because they were directed
to the same course of conduct. See U.S. Gypsum, 333 U.S.
at 384–85. Thus, the agreement to promote the Raaymak-
ers patents cannot be separated from the agreement to
suppress the Lagadec patent. 10 This misconduct renders
both the Raaymakers and Lagadec patents unenforceable.11

10 Indeed, a similar issue was specifically ad-
dressed in Morton Salt Co. v. G.S. Suppiger Co., 314 U.S.
488 (1942). In Morton Salt, the patent holder had licensed
patents for a salt dispenser on condition that the licensees
use only Morton’s salt in the dispensers. Morton argued
that the agreement with respect to the salt dispensers
should be treated separately and that the anticompetitive
conduct at most only rendered the salt purchase agreement
unenforceable; it did not render the salt dispenser patent
unenforceable. The Court in Morton Salt disagreed, holding
that the salt dispenser patent was itself unenforceable. Id.
at 492–94. Here, as in Morton Salt, the agreement with
17 PRINCO CORPORATION v. ITC

The majority alternatively suggests that the existence of
an antitrust violation involving an agreement not to com-
pete 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 major-
ity’s view, “[w]hat patent misuse is about . . . is ‘patent
leverage,’ i.e., the use of the patent power to impose over-
broad conditions on the use of the patent in suit that are
‘not within the reach of the monopoly granted by the Gov-
ernment.’” Majority Op. at 24. 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 viola-
tion. Those cases do not suggest that leveraging is a neces-
sary 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

respect to the suppression of the Lagadec patent cannot be
separated from the Raaymakers patents.
11 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 2. 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.
PRINCO CORPORATION v. ITC 18

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, 137
F.2d at 256. Here too the Orange Book licensees were in
effect compensated for their agreement not to use Lagadec
as an alternative to the Orange Book technology with a
license to the Raaymakers patents, and Sony was compen-
sated for its agreement not to license Lagadec for non-
Orange Book uses by license fees from the Raaymakers
patents. That is sufficient proof of leveraging if proof of
leveraging is required at all in concerted action cases.

The majority suggests that asserting a patent misuse
defense against the patent covering the suppressed technol-
ogy (here, Lagadec) or an antitrust suit would provide a
remedy for anticompetitive behavior. See Majority Op. at
23, 26, 28 n.6. The clear ineffectiveness of both of these
remedies demonstrates the importance of a misuse defense
against the protected patents (here, the Raaymakers pat-
ents). 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 condi-
tion for testing patent validity and enforceability. See, e.g.,
Benitec Austl., Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1346–
47 (Fed. Cir. 2007).
19 PRINCO CORPORATION v. ITC

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. Poten-
tial purchasers of the alternative product have no remedy. 12
The ability of even a competitor to sue for damages is highly
problematic given the early stage of development of the
Lagadec technology. And injunctive relief at the request of
a competitor is unlikely to take effect in a time frame that
would allow for the development of an alternative technol-
ogy given likely litigation delays. The difficulty of securing
a misuse determination with respect to the suppressed
patent or traditional antitrust relief underscores the impor-
tance of applying the doctrine of patent misuse to the pro-
tected patents. Unless the protected patents are held
unenforceable, there will be no adverse consequence to the
patent holder for its misconduct nor will the patent misuse
be remedied.

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. 13 The legis-
lation did not remotely suggest that antitrust violations did
not constitute misuse. It is quite clear that Congress in-

12 See generally Ill. Brick Co. v. Illinois, 431 U.S.
720, 728–29 (1977) (prohibiting an indirect purchaser from
suing a manufacturer to recover gains the manufacturer
obtained by violating the antitrust laws).
13 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 Illi-
nois Tool Works changed antitrust law to make it consistent
with § 271(d). See 547 U.S. at 40–43.
PRINCO CORPORATION v. ITC 20

tended that the patent misuse doctrine could extend to a
refusal to license patented technologies by parties acting in
concert. In 1988, Congress enacted 35 U.S.C. § 271(d)(4),
providing that no patent owner shall be deemed guilty of
misuse by reason of having “refused to license or use any
rights to the patent.” Pub. L. No. 100-703, § 201, 10 Stat.
4674, 4676 (1988) (codified at 35 U.S.C. § 271(d)(4)). The
implication from the face of the statute is that an agreement
not to license a patent could, however, be patent misuse,
and the legislative history confirms what is plain from the
language.

Congressman Kastenmeier, the author of this amend-
ment, 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 com-
pete.” Id. at 32,294–95 (emphasis added).

Kastenmeier also stated that “[c]odification of the ‘re-
fusal 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 unlawful 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.” 645 F.2d at 1204 (emphasis added). The
legislative history thus confirms that an agreement to
suppress a competitive patent, which would enlarge the
21 PRINCO CORPORATION v. ITC

patent holder’s monopoly beyond the scope of the patent,
would constitute patent misuse.

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, 547 U.S. at 42. In holding that
Philips’ anticompetitive behavior cannot constitute patent
misuse because the Lagadec patent was not asserted, the
majority has significantly narrowed the patent misuse
doctrine and has disregarded governing Supreme Court
authority and congressional intent.

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 hy-
pothesized agreement . . . did [not] have anticompetitive
effects in the relevant market.” Majority Op. at 41. 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 tech-
nology market.” Id. at 38. In addressing the issue of anti-
competitive 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. 14 As noted earlier,

14 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
PRINCO CORPORATION v. ITC 22

this essential precept of patent misuse doctrine was con-
firmed by the Supreme Court in Illinois Tool Works. See
547 U.S. at 42. Indeed, Supreme Court cases, as well as our
own cases and other circuit cases, suggest the misuse doc-
trine should be broader than the antitrust prohibitions. 15
As we explained in C.R. Bard, Inc. v. M3 Systems, Inc.,
“[p]atent misuse is viewed as a broader wrong than anti-
trust violation because of the economic power that may be
derived from the patentee’s right to exclude. Thus misuse
may arise when the conditions of antitrust violation are not
met.” 157 F.3d 1340, 1372 (Fed. Cir. 1998). The require-
ment of establishing an “anticompetitive effect” is necessar-
ily satisfied by showing that the practice would violate the
antitrust laws.

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 ar-
rangement 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”).

Hovenkamp et al., supra, § 3.2d, at 3-11 (explaining that the
misuse analysis is “largely coextensive with antitrust doc-
trine”).
15 See Zenith Radio, 395 U.S. at 140–41 (explain-
ing that the lower court could find patent misuse on remand
even if the alleged conduct did not constitute an antitrust
violation); Monsanto Co. v. Scruggs, 459 F.3d 1328, 1339
(Fed. Cir. 2006) (quoting C.R. Bard, 157 F.3d at 1372); C.R.
Bard, 157 F.3d at 1372; Practice Mgmt., 121 F.3d at 521;
Lasercomb, 911 F.2d at 978; Senza-Gel Corp. v. Seiffhart,
803 F.2d 661, 668 (Fed. Cir. 1986).
23 PRINCO CORPORATION v. ITC

Under antitrust analysis, an agreement such as that be-
tween 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 competi-
tors not to compete are classic antitrust violations. See, e.g.,
United States v. New Wrinkle, Inc., 342 U.S. 371, 380 (1952)
(“An arrangement was made between patent holders to pool
their [competing] patents and fix prices on the products for
themselves and their licensees. The purpose and result
plainly violate the Sherman Act.”); Standard Oil Co. (Ind.)
v. United States, 283 U.S. 163, 175 (1931) (“[T]he primary
defendants own competing patented processes for manufac-
turing an unpatented product . . . ; and agreements concern-
ing such processes are likely to engender the evils to which
the Sherman Act was directed.”).

Such anticompetitive behavior designed to foreclose
competition from other technologies or increase prices has
been a particular problem in the patent area because pat-
ents give competitors the legal right to foreclose competi-
tion. 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 re-
cently 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, 130 S. Ct. 2201, 2206–07 (2010). And
the Court has held that patent pooling agreements involving
agreements not to compete violate the antitrust laws. See
New Wrinkle, 342 U.S. at 380; Standard Oil, 283 U.S. at
175. Agreements not to compete are a matter of particu-
lar concern where, as here, the competitors collectively enjoy
a monopoly position and set standards for an industry.
Agreements between competitors to engage in standard
setting may force an entire industry to adhere to a particu-
PRINCO CORPORATION v. ITC 24

lar standard, effectively foreclosing competition from alter-
natives. Indeed, the Supreme Court has routinely con-
demned efforts to use standard-setting agreements to
suppress competition of alternative products. See Am. Soc’y
of Mech. Eng’rs v. Hydrolevel Corp., 456 U.S. 556, 571
(1982) (cautioning that “a standard-setting organization . . .
can be rife with opportunities for anticompetitive activity,”
which can give members “the power to frustrate competition
in the marketplace” and harm competitors); Standard
Sanitary Mfg. Co. v. United States, 226 U.S. 20, 48–49
(1912). Most significantly, as the Supreme Court decision in
Gypsum and the court of appeals cases cited earlier confirm,
these basic principles apply in concerted action cases involv-
ing the suppression of alternative technology.

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 Raay-
makers technology, 16 but the majority finds no misuse
because Philips and Sony were involved in a joint venture
and there has been no showing that the Lagadec technology
was commercially viable or probably would have become so.
The majority’s analysis of anticompetitive effects rests on
three fundamental errors.

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 exis-
tence of an agreement to suppress a competitive technology.

16 See also February 2007 ITC Determination, slip
op. at 24 (“Lagadec constitutes, at best, a substitute tech-
nology . . . .”).
25 PRINCO CORPORATION v. ITC

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, 416 F.3d 29, 36 (D.C.
Cir. 2005). Under such an agreement, “no elaborate indus-
try analysis is required to demonstrate the anticompetitive
character of such an agreement.” NCAA v. Bd. of Regents of
Univ. of Okla., 468 U.S. 85, 109 (1984) (citations omitted).
“[A]n agreement not to compete in terms of price or output”
is inherently suspect. Id. The agreement to suppress the
Lagadec patent, a competing technology, surely falls within
this category. See Cal. Dental Ass’n v. Fed. Trade Comm’n,
526 U.S. 765, 769–71 (1991) (describing numerous cases in
which the Supreme Court and the courts of appeals have
applied the “quick look” analysis to anticompetitive agree-
ments); En Banc Br. of Amicus Fed. Trade Comm’n 25 (“On
its face, an agreement between Philips and Sony . . . that
the latter would withhold its technology from the market is
‘an agreement not to compete in terms of price or output.’”
(quoting NCAA, 468 U.S. at 109)). 17

17 An inherently suspect restraint on competition
requires no showing by the plaintiff of market power. See
Cal. Dental, 526 U.S. at 779 (“[A] challenge to a ‘naked
restraint on price and output’ need not be supported by ‘a
detailed market analysis’ in order to ‘requir[e] some com-
petitive justification’ . . . .” (quoting NCAA, 468 U.S. at
110)); PolyGram, 416 F.3d at 36. If a restraint does not
qualify as inherently suspect, the plaintiff will need to
demonstrate anticompetitive effect either “indirectly by
proving that the defendant possessed the requisite market
power within a defined market or directly by showing actual
anticompetitive effects.” Law v. NCAA, 134 F.3d 1010, 1019
(10th Cir. 1998); see Fed. Trade Comm’n v. Ind. Fed’n of
Dentists, 476 U.S. 447, 460–61 (1986); Hovenkamp et al.,
supra, § 30.3(b), at 30-10. Even if the agreements here are
PRINCO CORPORATION v. ITC 26

Competitive harm is thus presumed, and the burden
falls on Philips to “come[] forward with some plausible (and
legally cognizable) competitive justification for the re-
straint.” PolyGram, 416 F.3d at 36; see NCAA, 468 U.S. at
110 (“This naked restraint on price and output requires
some competitive justification even in the absence of a
detailed market analysis.”); id. at 113 (“[T]hese hallmarks of
anticompetitive behavior place upon petitioner a heavy
burden of establishing an affirmative defense which com-
petitively justifies this apparent deviation from the opera-
tions of a free market.”); En Banc Br. of Amicus Fed. Trade
Comm’n 25–26 (explaining that because the agreement with
Sony to suppress the Lagadec patent was inherently sus-
pect, the burden would be on Philips to show that the
agreement was not anticompetitive).

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, 416 F.3d at 36.
“If no legitimate justifications are set forth, the presumption
of adverse competitive impact prevails and ‘the court con-
demns the practice without ado.’” United States v. Brown
Univ., 5 F.3d 658, 669 (3d Cir. 1993) (quoting Chi. Prof’l
Sports Ltd. P’ship v. NBA, 961 F.2d 667, 674 (7th Cir.
1992)). Given the inherently suspect nature of the agree-

not inherently suspect, the ITC found that “Philips has
market power in the United States market for licensing
essential US patents for the manufacture of CD-R/RWs
according to Orange Book standards because . . . there are
no close substitutes for CD-R/RWs (ID at 160–64).” Final
Determination, slip op. at 27. This ITC finding was sus-
tained by our court in 2005. U.S. Philips Corp., 424 F.3d at
1186.
27 PRINCO CORPORATION v. ITC

ments to suppress the Lagadec technology, Princo has
satisfied its burden, and Philips has the burden to establish
a justification or lack of anti-competitive effects. 18

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
30–34, 39–41. 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, 468 U.S. at 113. The Supreme
Court has recently made clear that otherwise anticompeti-
tive agreements with respect to intellectual property are not
justified simply because they are part of a joint agreement.
In American Needle, a professional football league, its
teams, and a corporate entity the teams formed to manage
their intellectual property were sued by one of their licen-
sees for allegedly violating § 1 of the Sherman Act, 15
U.S.C. § 1. 130 S. Ct. at 2206. The defendants asserted

18 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
37–38. However, none of these cases involved an agreement
not to compete or suggested there is a burden on the chal-
lenging party to establish that inherently suspect agree-
ments had actual anticompetitive effects in the marketplace
under the “quick look” rule of reason analysis. For example,
the majority relies on California Dental, 526 U.S. 765. But
California Dental involved not simply an agreement not to
compete, but an agreement not to engage in certain types of
potentially deceptive advertising. That agreement has no
resemblance to the non-compete agreements here.
PRINCO CORPORATION v. ITC 28

that their licensing activities were beyond the coverage of §
1 of the Sherman Act because they were collectively acting
as a single entity. The Supreme Court disagreed, stating
that “[t]he mere fact that the teams operate jointly in some
sense does not mean that they are immune” from the anti-
trust laws. Id. at 2214.

Rather, a non-compete agreement arising out of a joint
venture must still pass the rule of reason by providing some
kind of justification, such as “where the agreement . . . is
necessary to market the product at all.” See Broad. Music,
Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 23 (1979); see
also Am. Needle, 130 S. Ct. at 2216–17; Texaco, Inc. v.
Dagher, 547 U.S. 1, 7 (2006). But here, as in American
Needle, “it simply is not apparent that the alleged conduct
was necessary at all.” See Am. Needle, 130 S. Ct. at 2214
n.7. Even if a joint venture were necessary to produce the
CD-R/RW standard, it does not follow that concerted activity
in marketing, and suppressing, intellectual property was
necessary to produce the standard. See id.; Major League
Baseball Props., Inc. v. Salvino, 542 F.3d 290, 339 (2d Cir.
2008) (Sotomayor, J., concurring in the judgment) (“[A]
restraint that is unnecessary to achieve a joint venture’s
efficiency-enhancing benefits may not be justified based on
those benefits.”); United States v. Visa U.S.A., 344 F.3d 229,
240–41 (2d Cir. 2003); Law v. NCAA, 134 F.3d 1010, 1019
(10th Cir. 1998). At oral argument before the panel, counsel
for Philips conceded that he could think of no competitive
justification for the restraint, and Philips has pointed to no
record evidence that the suppression agreement was neces-
sary to serve the joint venture’s legitimate goals.

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 legiti-
mate ancillary restraint. See Majority Op. at 29, 33–34, 40.
29 PRINCO CORPORATION v. ITC

There was no overall agreement that prevented Sony from
competing with the joint venture, and the apparent agree-
ment 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 partici-
pants. 19

19 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 30–32. 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 stan-
dard, Sony continued to pursue the technology, and applied
for a U.S. patent over seven months after the Raaymakers
technology was adopted for the Orange Book and the La-
gadec technology was rejected. As noted on page 32, infra,
the U.S. patent reflected improvements in the Lagadec
technology.
PRINCO CORPORATION v. ITC 30

Third, the majority holds that the suppression of an al-
ternative technology violates the antitrust laws and consti-
tutes misuse only if the technology is commercially viable or
is shown to have a “reasonable probability” of commercial
viability. Majority Op. at 38. Quite apart from the major-
ity’s error in placing the burden on Princo to show probable
commercial validity, the probable commercial viability test
itself finds no support in the case law or antitrust policy, as
the amicus brief for the FTC makes clear. 20 It has been
explicitly rejected in antitrust cases 21 and misuse cases as
well. See, e.g., Berlenbach, 329 F.2d at 784. The reasons for
this rejection are readily apparent. Apart from the joint
venture rationale, there is, first, no procompetitive benefit
from the suppression of potential competition, no matter

20 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 stan-
dard. 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)).
21 See, e.g., Standard Oil Co. (Cal.) v. United States,
337 U.S. 293, 309–10 (1949) (rejecting proof of the restric-
tive effect of alleged unlawful practices on competition
because “what would have happened but for the adoption of
the practice that was in fact adopted . . . would be a stan-
dard of proof, if not virtually impossible to meet, at least
most ill-suited for ascertainment by courts”); United States
v. Microsoft Corp., 253 F.3d 34, 79 (D.C. Cir. 2001) (en banc,
per curiam) (“To require that [Sherman Act] liability turn
on a plaintiff’s ability or inability to reconstruct the hypo-
thetical marketplace absent a defendant’s anticompetitive
conduct would only encourage monopolists to take more and
earlier anticompetitive action.”).
31 PRINCO CORPORATION v. ITC

how remote the possibility of success. As the majority
purports to recognize, see Majority Op. at 37, the antitrust
laws are designed to protect not only full-fledged competi-
tion but also nascent competition. It is vitally important to
protect competition from being stifled in its infancy. There
is great difficulty in predicting commercial viability in the
early stages of technological development, and indeed the
patent system itself recognizes the importance of protecting
technologies that have not yet reached the stage of commer-
cial viability. There are numerous examples of technology
that in the early stages of development were thought likely
to fail but which eventually matured into successful com-
mercial applications, including the electric light bulb, tele-
phone, radio, telegraph, and television. 22 Moreover, even a
flawed technology may provide competitive benefits. The
Areeda and Hovenkamp treatise points out “the inquiry
[into whether a given patent is superior or inferior] is rarely
worthwhile, for even inferior technologies can provide some,
even if not perfect, competition to the patentee.” 3 Phillip E.
Areeda & Herbert Hovenkamp, Antitrust Law ¶ 707e, at 287
(3d ed. 2008). In short, it “would be inimical to the purpose
of the Sherman Act to allow monopolists free reign to
squash nascent, albeit unproven, competitors at will—
particularly in industries marked by rapid technology
advance and frequent paradigm shifts.” Microsoft Corp.,
253 F.3d at 79.

While it may be that proof by Philips that the Lagadec
technology could never become commercially viable might be

22 Christopher Cerf & Victor S. Navasky, The Experts
Speak: The Definitive Compendium of Authoritative Misin-
formation 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 atten-
tion of practical or scientific men.” Id. at 225.
PRINCO CORPORATION v. ITC 32

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 ll.47–52, col.7 ll.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 develop-
ment of potentially competitive technologies except in the
most extreme and unlikely circumstances. I respectfully
dissent.