Chicago-Kent Law Review

Volume 91 Issue 1 Congressional Dysfunction and Executive Lawmaking During the Obama Article 14 Administration

1-29-2016

Limiting Downstream Effects of Licensing Activity in Software and Electronics: An Argument for Alienability of Patent Licenses to Licensees' Business Successors

Anna A. Onley IIT Chicago-Kent College of Law

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Recommended Citation Anna A. Onley, Limiting Downstream Effects of Patent Licensing Activity in Software and Electronics: An Argument for Alienability of Patent Licenses to Licensees' Business Successors, 91 Chi.-Kent L. Rev. 361 (2016). Available at: https://scholarship.kentlaw.iit.edu/cklawreview/vol91/iss1/14

This Notes is brought to you for free and open access by Scholarly Commons @ IIT Chicago-Kent College of Law. It has been accepted for inclusion in Chicago-Kent Law Review by an authorized editor of Scholarly Commons @ IIT Chicago-Kent College of Law. For more information, please contact [email protected], [email protected]. 37288-ckt_91-1 Sheet No. 188 Side A 12/28/2015 14:43:02 370 -NCE NTI LAIMS OF A CTIVITY C A NCE * ...... 389 IMITING L ICENSING EFENSES TO OFTWARE AND D OINT OOK AT NLEY ROGRESSION OF ...... 388 S P ...... 377 ...... 369 ...... L P NCE L 361 ...... 384 ...... ULE A. O ...... 375 ...... R ...... 369 ...... 375 ...... UDICIALLY J ...... 366 NNA TARTING EADY TO A S ...... 387 R RADITIONAL ISTORICAL T ...... 367 ...... FFECTS OF H ...... 380 ...... ) 12/24/2015 ) 9:25 PM ROPOSED E NDUSTRY A I P ASE FOR NTITIES AND THE NTITIES ...... 365 ...... OLUTION — ELETE ...... 377 ...... E C S BUSINESS SUCCESSORS SUCCESSORS BUSINESS D APS IN ...... 362 ...... ULE AS A NFRINGEMENT OT G I R UDIENCE N ...... 362 362 ...... OURTS ARE A O C (D UESTION Infringement Q REATIVE OWNSTREAM RINCO CONOMIC ONTRACTS INAL INAL ROBLEM ITIGATION LECTRONICS ATENT F P P E -C Patent Licensing Litigation Litigation Problems with to Claims of Invalidity-Based Defenses C P E D L HY THE ON OADMAP TO A NLEY HE HE EGAL HE UMMARY OF THE ILLING THE  NTENDED W R F I T S L T N T LIMITING LIMITING DOWNSTREAM OF PATENT EFFECTS LICENSING 13 O FOR ALIENABILITY OFFOR ALIENABILITY LICENSES PATENT TO LICENSEES’ ACTIVITY INACTIVITY AND ELECTRONICS: SOFTWARE AN ARGUMENT PART III—LEGAL THEORY PART I—ECONOMIC BACKGROUND * Copyright (c) 2015 Chicago-Kent Law Review; Anna A. Onley, J.D. Candidate (2016), Chi- M.A. cago-Kent College of Law; (2007), Northwestern B.S. (2005), DePaul University; Univer- The authorsity. like to thankwould her Law advisor, JeffreyReview Patt, for generously offering his time, expertise, and guidance. Contents INTRODUCTION PART II—LEGAL BACKGROUND 37288-ckt_91-1 Sheet No. 188 Side A 12/28/2015 14:43:02 A 12/28/2015 188 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 188 Side B 12/28/2015 14:43:02 - ULE R IGHT ..... 399 ..... NTI L A RINCO ISUSE ...... 400 ...... EGAL P M L ISUSE IN DDING [Vol 91:1 [Vol M -A ATENT P LLEGALITY OF I ...... 401 ALUE ATENT ...... 399 ...... P V UPPLEMENT THE THE UPPLEMENT S ISTINGUISHABLE RGUING ...... 397 ...... D A S ...... 407 ...... A. The Problem INTRODUCTION .A ) 12/24/2015 ) 9:25 PM NC LAUSES THROUGH LAUSES THROUGH ...... 395 ...... NTERMEDIARIES I ...... 395 ...... RACTICING BUT C LIENABILITY AS CHICAGO-KENT LAW REVIEW ELETE A ...... 4033 ...... -P SPECTS OF D ONTRACT AW ...... 389 A ...... 405 ...... L C OT ON ...... 391 ...... 392 ...... N ARKET ...... 399 ...... N ...... 389 ...... O ONSIDERATIONS TO ONSIDERATIONS M ASE (D ...... 408 ...... Princo Rule Shop Right Doctrine Shop Right C C . MOSAID, I SSIGNMENT NALYSIS INAL INAL NTITIES RECEDENT V F ARGUING LICENSE395 ...... ALIENABILITY S AS Timing P E A OF Patent Contract Antitrust NCE Activity as an Anti-Competitive PracticeNCE Activity Anti-Competitive as an under the Linking License Alienability with Patent Misuse though the with Patent Linking License Alienability A Jurisdiction and Choice of Law Jurisdiction and Choice of ESTRAINTS ON NLEY FFECT ON REEDOM OF ROCEDURAL OLICY R P NCE B&N E F P 362 13 O Consider a hypothetical scenario in which Small Inventor, Inc., which Small in Consider a hypothetical scenario PART IV— located in Colorado, works long hours to perfect a wristwatch-like pe- hours located in Colorado, works long data from a re- calibration dometer capable of wirelessly receiving mote computer motion-control and comprising a sophisticated In- mechanism, which makes the device particularly accurate. Small surprised show, where she is unpleasantly ventor, Inc. attends a trade saturated is already trackers fitness market of personal to see that the from FitBit™, Jawbone™, and similar products with sophisticated CONCLUSION PART V—RESPONSE TO COUNTERARGUMENTS 37288-ckt_91-1 Sheet No. 188 Side B 12/28/2015 14:43:02 B 12/28/2015 188 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 189 Side A 12/28/2015 14:43:02 XPRESS E PTICS . (Nov. 2012), O 363 363 NST I IOMEDICAL ALUATION V , 5 B on her profits. on her profits. 2 LOBAL Profitability and Royalty Rates Across In- Improved Noncontact Optical Sensor for Detection of , KPMG G , LOTNET, http://www.lotnet.com/how-to-join-lot- ) 12/24/2015 ) 9:25 PM ELETE D OT N O Nisan Ozana et al., (D See PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F which is prohibitive for Small Inventor, Inc. Furthermore, the which is prohibitive for Small Inventor, Jonathan E. Kemmerer & Jiaqing Lu, 1 NLEY The optical glucose sen- wristwatch-like monitor consists of an See LOT User Fee Schedule 3 2016] 13 O To further exacerbate the small inventor’sTo further exacerbate two weeks frustration, mail- sent a bulk troll” “patent realizes that the The small inventor In the meantime, six thousand miles away in Israel, a medical miles away in Israel, In the meantime, six thousand dustries: Some Preliminary Evidence Preliminary dustries: Some http://law.unh.edu/assets/images/uploads/pages/ipmanagement-royalty-rates.pdf (the average 2007 royalty rate in the software industry 11%).was approximately Optics Ex- in Biomedical publication a 2014 scenario was informed by ical. The hypothetical 3. touchless an experimental, wristwatch-like, a team of researchers described press, in which Medical Devices, Inc. is a fictional company created for the purposes of this hypothet- glucose monitor. Glucose Concentration and Indication of Dehydration Level 2. Aug. 29, 2015).net/LOT_User_Fees.cfm (last visited 2. 1926 (2014), http://www.opticsinfobase.org/boe/fulltext.cfm?uri=boe-5-6-1926&id=286417 [hereinafter Ozana] (the monitor includes a bracelet a built-in with camera and is “based on 1. 1. manufacturers. The small inventor has no chance of competing be- competing of no chance has small inventor The manufacturers. concerned with users are more out, current end turns it cause, as Discour- precision. than devices fitness of wearable multi-functionality of mo- production down returns home, scales small inventor aged, the numberthem to a limited and sells pedometers, of local tion-sensitive stores. a demand letter later she receives from a “patent that alleging troll”, product infringes of her pedometer component the remote calibration a li- take that she demanding patent and database a client/server do so, even though agrees to Inc. begrudgingly cense. Small Inventor, a for calibrating receiving instructions that wirelessly she disagrees for storage in adata to a server like sending pedometer is anything database. ig- but larger companies simply participants ing to many tradeshow already members of companies are Many of these letter. nored the that mitigate the risk of being sued for defensive licensing programs as high as can be participating of cost annual infringement. The $20,000, sor and a camera. The monitor is the first of its kind, and the $8 billion- the $8 and kind, of its The monitor is the first sor and a camera. small inventor, unlike large companies, would be unable to afford de- companies, would be unable small inventor, unlike large a li- so she chooses to take court, fending an infringement action in royalty to pay an 11% cense and agrees device company, Medical break- Devices, Inc., makes a scientific blood glucose monitor, which through and invents a touchless without drawing sugar level blood measures a diabetic patient’s blood. 37288-ckt_91-1 Sheet No. 189 Side A 12/28/2015 14:43:02 A 12/28/2015 189 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 189 Side B 12/28/2015 14:43:02 , , Windmoller v. Laguerre,, Windmoller v. is optimistic about is optimistic 4 the holding did not the holding did not 7 e.g. , [Vol 91:1 [Vol see stating that its client/server client/server that its stating 8 IP Licenses: Restrictions on Assignment and IPChange Licenses: Restrictions on Assignment 1, 14 (2012) (licensor and licensee perspectives on as- . 1219 (2009), http://www.ncbi.nlm.nih.gov/pmc/arti- ) 12/24/2015 ) 9:25 PM 5 ECH CHICAGO-KENT LAW REVIEW ELETE note 3, at 1926 (“Further development is needed such as motion D The Business of Self-Monitoring of Blood Glucose: Profile A Market UBLICATION OT .&T N stating that she could not assign the right to practice she could not stating that L. P O CI supra supra 6 S (D INAL INAL F Ozana, RACTICAL NLEY IABETES , P See 364 13 O Medical Devices, Inc. finds out about Small Inventor, Inc., whose whose Inventor, Inc., Small out about finds Devices, Inc. Medical Inc. is unhappy Medical Devices, of a cloud onwhen it learns the “troll’s” invention to the “troll’s” invention The “troll”, seeking to capitalize anyone else. to increase the roy- glucose monitors, wants of on the profit potential in thealties to 25% or, for patent alternative, sue Medical Devices Small Inventor,infringement if it proceeds with buying Inc. The medi- cal device company’s attorneys determined that,Court although the 25% (CAFC) recentlyof Appeals for the Federal Circuit criticized the royalties as improper, rule of thumb for setting 3 J. D signability). signability). holds as anow matter of Federal Circuit that the law 25 percent rule of thumb is a fundamentally 7. tool for determiningflawed a baseline royalty rate in a hypothetical negotiation.”). Corp., 632 Uniloc USA, Inc. v. Microsoft F.3d 1292, 1315 (Fed. Cir. 2011) (“This court court. any of the United States, upon the filing of an appropriate. pleading, may declare . tion 8. or whether such declaration, interested seeking any legal relations party of the rights and other 28 U.S.C.A. § 2201(a) (West 2010) (“In a case of actual controversy its jurisdic- within not further such relief is or could be sought. Any the force and effect of a declaration shall have asfinal judgment or decree and shall be reviewable such.”); tracking of temporal changes of reflected speckles produced in the secondary wrist beingwhen a laser beam.”).illuminated by 4. Mark D. Hughes, a-year a-year management in diabetes market devices 284 F. Supp. 563, 566 (D.D.C. 1968) judgment (in a declaratory action of to determine validity , denyingand noting that the action a motion to dismiss the policywas consistent with the Judgmentunderlying Declaratory Act). patent was not invalid. Since invalidity is the main defense to claims Since invalidity is the main defense invalid. not patent was of Control 5. cles/PMC2769893/. 5. cancellation mechanism in order to [make the monitor]contactless more glucose robust.”). 6. Elaine D. Ziff & John G. Deming, extend to private contracts. Furthermore, the attorneys find out that extend to private contracts. Furthermore, the “troll” obtained a declaratory judgment the invention. There is, however, a problem: there is not a suitable suitable a not there is however, a problem: There is, the invention. read- make the device’s would that mechanism motion cancellation precise. ings sufficiently motion cancellation technology is the missing piece to the puzzle. puzzle. the to missing piece the is technology motion cancellation the small inven- about acquiring enthusiastic is Inc. Medical Devices, its technologytor’s company and moni- for use in touchless glucose tors. Small Inventor, property (IP) assets. Inc.’s license to its intellectual signed the licensing agreement,When the inventor she agreed to a standard clause 37288-ckt_91-1 Sheet No. 189 Side B 12/28/2015 14:43:02 B 12/28/2015 189 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 190 Side A 12/28/2015 14:43:02 10 is supra 365 365 B. Legal Question B. Legal Question ) 12/24/2015 ) 9:25 PM Medical Devices, Inc. is concerned that its its that is concerned Inc. Devices, Medical 9 note 2, at 7 (the average EBITDA profit margin is 18.6%). ELETE D supra OT N O (D PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F Kemmerer, NLEY See 2016] 13 O The answer to this question must be consistent with both contract both contract must be consistent with The answer to this question Medical Devices, Inc. anticipates to make a 20% margin profit to Devices, Inc. anticipates Medical The legal question addressed in the hypothetical the hypothetical in addressed question The legal The corporate acquisition transaction does not go through. Small go does not transaction acquisition The corporate is the unas- suboptimal outcome for this seemingly The reason whether corporate change-of-control transactions should limit the sur- transactions whether corporate change-of-control if property, viving entities’ ability to use newly acquired intellectual entity business by the acquired was previously licensed said property licensed invention practice the from a third party that itself does not (an NCE). law and patent law. On one hand, been traditionally contracts have to theabsent express provisions presumed to be fully transferable, defense would not stand. would not stand. defense 10. 9. 35 U.S.C.A. § 282(b)(2) (West 2012). of patent infringement, of patent a 10% marketand secure profits make its annual which would share, million $160 monitoring devices glucose sale of touchless from the andper year mean would $40 million, or would receive that the “troll” 25% in royaltiesthe “troll” is not willing to reassign The on profits. royalties, because it include 11% which original terms, license on the decides Devices, Inc. prevail at trial. Medical to likely it is knows that to develop the motion-control cheaper significantly that it would be technology in-house. goes out Inventor, Inc. eventually be- of business because people ac- albeit exceptionally pedometers, in less interested come less and sue to does not get and troll” makes nothing curate ones. “Patent because Medical De- infringement patent Inc. for Medical Devices, and,or its technology Inc. Small Inventor, not acquire does vices, Inc. draw to Diabetic patients continue further, develops a design-around. years additional three Inc. takes an blood daily while Medical Devices, de- contactless its for technology motion control test a to develop and a monopoly created by the “troll’s” patent. around vices to get to Small Inventor, Inc. This license “troll’s” signability clause in the these restraints on alienability Note presents an argument for relaxing is li- when a patent such clauses invalidating by licenses of patent (NCE or “”). censed from a non-creative entity 37288-ckt_91-1 Sheet No. 190 Side A 12/28/2015 14:43:02 A 12/28/2015 190 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 190 Side B 12/28/2015 14:43:02 , 71 B.R. 686, 71 , . [Vol 91:1 [Vol , 548 U.S. 124, 126–27 (2006), 548 U.S. . 13 However, States Supreme the United 12 ) 12/24/2015 ) 9:25 PM C. Roadmap to a Solution CHICAGO-KENT LAW REVIEW ELETE D OT N O In re CFLC, Inc., 89 F.3d 673, 679 (9th Cir. 1996) (federal must law govern (D . art. I, § 8, cl. 8) (“[T]oo much patent protection can impede rather than INAL INAL F On the other hand, courts have been reluctant to uphold to reluctant have been courts hand, the other On ONST see also 11 ; NLEY Id. 366 13 O This Note presents a synthesis of the principles of contract law, principles a synthesis of the This Note presents al- on as restrictions licenses, in patent clauses Anti-assignability the impact of the issue, including Part I discusses the economics Part II discusses the Part II introduces the legal background. (citing U.S. C 689 (Bankr. W.D. Tenn. 1987) (“[Because the rights] of the patent owner to license the use of that. [i]t questionsfollows regarding . . his invention is [sic] a creature of federal common law of patent licenses are controlled bythe assignability federal law.”) (internal citations omitted). 13. Am.Lab. Corp. of Metabolite Labs., Inc Holdings v. to prevent free assignability and to promote creativity); In re Alltech Plastics, Inc and toto prevent free assignability promote creativity); Court (hereinafter, “SCOTUS”) has acknowledged “SCOTUS”) Court (hereinafter, that sometimes the goes too far. protection doctrine patent rights govern the interpretation ofwill law [an intellectual property] license because a license is merely 11. Inc.Cincom Sys., 581 v. Novelis Corp., F.3d 431, 437 (6th Cir. 2009) (“State contract of contract.”).a type 12. contrary. ‘promote the Progress of Science and useful Arts,’ the constitutional objective of patent and protection.”).copyright the assignability of intellectual property licenses to third parties be- third parties to licenses property intellectual of the assignability to retain patentees encouraging in interest strong policy a cause of inventions. their control of intellectual property law, and antitrust policy in order to find a middle- law, antitrust and property intellectual body the in the gaps in filling includes The proposal ground approach. supplementing the of patent infringement by of defenses to claims anti- defense, to invalidate patent misuse, one such doctrine of patent assignment clauses. practices and are therefore anti-competitive ienability, could lead to by antitrust law. Problematically, how- similar to practices prohibited patent body of defenses to ever, there is no room in the traditional a law, to provide more generally, in patent infringement claims or, these restrictions even in the mechanism for evaluating and relaxing this gap that This Note proposes economic results. face of suboptimal the argumentin law can be resolved by grounding of for alienability misuse. of patent in the doctrine patent licenses eco- Part I also presents an of NCE activity on operating companies. limiting downstream effects of nomics-based argument for judicially NCE licensing activity. are to curb NCE activities, which of thedemonstrative courts’ efforts by NCEs. issued licenses of alienability consider to courts’ readiness 37288-ckt_91-1 Sheet No. 190 Side B 12/28/2015 14:43:02 B 12/28/2015 190 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 191 Side A 12/28/2015 14:43:02 L. J. 1, ATENT 367 367 -O P and claims of and claims 15 ATENTLY 2014 P Apply it to the USPTO: Review of the Im- indefiniteness, 14 decision). 17 D. Intended Audience D. Intended Audience Alice ) 12/24/2015 ) 9:25 PM 18 A discussion and analysis, in Part II, of the in Part II, and analysis, A discussion 16 ELETE D OT N O (D PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F Tristan Gray-Le Coz & Charles Duan, NLEY See rule: to be considered misuse, a practice first must attempt to must attempt misuse, a practice first to be considered rule: 2016] 13 O The topic explored in this Note is of interest to legal and econom- The topic explored in this Note is technology-intensive indus- in First, it is widely recognized that, Part III presents an argument, rootedPart III presents and patent pol- in antitrust li- of patent for arguing alienability roadmap Part IV provides a Part V addresses counterarguments. http://patentlyo.com/media/2014/11/GrayLeCozDuan.pdf over 800 applica- (USPTO withdrew the following tions from allowance 18. Int’l Princo Corp. v. Trade Comm’n, 616 F.3d 1318, 1318–30 (Fed. Cir. 2010). 14. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). 15. Biosig Instruments, Inc., 134 S. Ct. Nautilus, Inc. v. 2120 (2014). 17. 16. Limelight Networks, Techs., Inc., 134 S. Ct. 2111, Inc. v. Akamai 2118–19 (2014). plementation of Alice v. CLS Bank in Patent Examination, in Patent Examination, v. CLS Bank of Alice plementation SCOTUS has weak from the industry protect to taken steps recently asserted by patents for example, by clarifying, NCEs the require- matter, subject patentable ments for recent developments in the case law of patent litigation procedure procedure of patent litigation the case law in recent developments these de- is consistent with presented here the proposal shows that prob- addressed the efforts, however, have not velopments. SCOTUS lems faced by companies NCEsthat choose to license patents from The recent changes in law also them. against litigate rather than the because field computer engineering patent on the wreaked havoc by SCOTUS to curbpatents invalidated activity NCE pertained mostly to computer technologies. induced infringement. induced ics scholars, in contract patent legal ics scholars, and law, and practitioners the important reasons. courts for several a of property assets comprise a significant portion tries, intellectual a typical instance, while in 1929 only a third of company’s value. For icy, that anti-assignment clauses in patent licenses from NCEs con- NCEs from licenses patent in clauses icy, that anti-assignment in the reflected is patent misuse of doctrine The misuse. stitute patent Princo unduly broaden the scope of a patent right, and second, it must be in suit. linked to patents Part IV reconciles successors. First, proposed the censes to business of procedural aspects IV addresses rule with case law. Second, Part jurisdic- and timing, standing, including assignability, arguing license tional law. 37288-ckt_91-1 Sheet No. 191 Side A 12/28/2015 14:43:02 A 12/28/2015 191 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 191 Side B 12/28/2015 14:43:02 21 For example, ]. 25 xxvii (Lanning Bryer & SSETS A This state of affairs is This state of [Vol 91:1 [Vol 22 CQUISITIONS A ROPERTY P 79 (2013) (Judge Posner explains that IP Due Diligence Issues in M&A TransactionsM&A IP Due Diligence Issues in note 19, at 12.15. UDGING J ERGERS AND M supra NTELLECTUAL , SSETS SSETS IN ) 12/24/2015 ) 9:25 PM A A EFLECTIONS ON CHICAGO-KENT LAW REVIEW ELETE ,R D OT ROPERTY ROPERTY and, at the extreme, and, at the extreme, to infringement lawsuits. N It is therefore not surprising that there is currently a currently is there that not surprising It is therefore P P 23 OSNER O 20 19 (D A. P , Elaine D. Ziff & Grace Del Val, INAL INAL F Such exploitations result in uncertainty in IP portfolio in uncertainty result Such exploitations at 12.15. at 76 (noting that the current patent provides system a disproportionate reward to ICHARD NLEY 24 NTELLECTUAL NTELLECTUAL , Practical Law Checklist 3-501-1681. Checklist , Practical Law Id. See, e.g. Id. 368 13 O Second, the bargaining power of licensors is often disproportion- power of licensors is often Second, the bargaining policy law with existing question of balancing is a Third, there 22. I Checklist 22. 23. R 23. 19. I 19. U.S. company’sU.S. theby 1990, assets, were intangible assets of ratio 63%, and to approximately skyrocketed assets tangible to intangible today more growththan 70% of U.S. of in- from exploitation comes assets. tangible Melvin Simensky eds,, 2002) [hereinafter I Melvin Simensky particularly troublesome when theparticularly troublesome patents licensor accumulates monetary gain,many arguewith non- case largely for which is the creative entities. one court said, citing an accused infringer (in this case, Capital One Capital case, this infringer (in accused citing an said, one court by an NCE: a suit brought in Financial Corporation) 20. 20. 21. significant interest in the practitioner community in developing best in developing community practitioner interest in the significant transac- change-of-control in corporate due diligence for practices the tar- all, licenses—after property to intellectual tions with respect of the use encumber the target’s agreements license get’s existing the to expenses in give rise and could property intellectual subject form of royalties many large IT companiesmany spend a significant amount maintaining on simply large patent portfo- defensivelios for purely purposes). 24. pa- and complex expensive litigation complexity, first-time inventors and through unnecessary tent procurement rules discourages improvers from for their inventions). receiving protection 6682981, at *1 (E.D. Va. Dec. 18, 2013). 25. Intell. Ventures I LLC v. Capital One Fin. Corp., No. 1:13-CV-00740 AJT, 2013 WL valuation, inhibit the operating capacity of inventors, and may leave and may of inventors, capacity operating the valuation, inhibit them in the dark as to the identity of their competitors. ately high—in change-of-control transactions, licensors impose exor- transactions, licensors ately high—in change-of-control intellectual fee if the original license up to 100% of the bitant fees of to the purchaser. is valuable property at issue high technology rules to help legal while optimizing considerations Although, as a society, we are markets function efficiently. prepared licensing involved in procuring, to sustain certain transaction costs that benefits is innovation result end if the patent rights and litigating a threat to innova- costs become transaction large, such the public at non-pro- are exploited solely for the benefit of tion when inefficiencies ducers. 37288-ckt_91-1 Sheet No. 191 Side B 12/28/2015 14:43:02 B 12/28/2015 191 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 192 Side A 12/28/2015 14:43:02 .L. , 133 133 , . § 211 211 § ICH ATERIALS mirror- (in- M 31 26 , 105 M ROCEDURE 369 369 P ASES AND note 23, at 90 (Judge :C supra XAMINING , OLICY E P OSNER ATENT , P P When it becomes apparent When it becomes apparent AW AND L 32 e.g. , 27 ATENT See ANUAL OF ,P , www.uspto.gov (a US government agency that ,M dustry UFFY FFICE Instead, they monitor the technological Instead, FFICE O 29 F. D O application continuation process, application NCEs acquire and enforce patents but typ- NCEs acquire and 30 ) 12/24/2015 ) 9:25 PM 28 OHN ELETE I. ECONOMIC BACKGROUND ,&J D RADEMARK at 10. RADEMARK OT N Should Require Proof of Copying? Patent Infringement note 28, at 2 (describing abuse by NCEs of continuation proceedings &T &T O ERGES (D See id. supra P. M PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND ATENT INAL INAL ATENT F at *1 (however, the NCE prevailed court because the noted that the respondent OBERT NLEY Id. A. Non-Creative Entities and the Software and Electronics In- and the Software and Electronics A. Non-Creative Entities 2016] 13 O This Note presents a comprehensive yet narrowly tailored rule to yet narrowly tailored rule comprehensive a This Note presents The proliferation of non-creative entities (NCEs) is considered by by considered non-creative entities (NCEs) is of The proliferation [S]hell companies conceal [the NCE’s] patents so that targets have have that targets so patents NCE’s] [the conceal companies [S]hell businesses’ their around walls of patents it is building no idea that cannot does [the NCE] its targets its attack, when and then launch cannot things thus among other its portfolio and or value assess infringement avoid [the NCE’s] could whether they determine or processes. products accused their by redesigning claims ternal citations omitted) ternal citations . 1525 (2007). EV available in USPTO patentavailable in USPTO prosecution practice NCEs to and used by enhance and supplement existing patents). 29. R 29. 27. A streamlined solution is much needed. ing, on paper, the real-world innovation. S. Ct. 2223, 2231 if they not fees would (2013), that increased not be allowed were licensing entirely related to the patent in suit or if the patentee attempted to extend its power beyond the term of the patent). (9th ed. 2014), http://www.uspto.gov/web/offices/pac/mpep/s211.html MPEP] [hereinafter (pro- Lemley, cedure for claiming a benefit of an earlier filing applications). date through divisional 32. 30. U.S. P 895 (LexisNexis, 6th ed., 2013). 30. 26. 26. failed to identify a patent in suit. Note that the court indicated, citing F.T.C. v. Actavis, Inc that the real-world invention is about to realize commercial success, to realize commercial success, that the real-world invention is about patent entity to license the offer the operating a typical NCE tactic is to R 31. U.S. P regulates patents and trademarks) (last modified Oct. 26, 2015). 31. 28. Mark Lemley, Lemley, . is such a tangle that even inventors . . Posner points out that the current “patent doctrine Mark understandinghave great difficulty it”). 28. advancements by made operating entities and keep their patents alive through the USPTO ically do not practice them. ically do not address the problems outlined above. problems outlined address the some scholars and academics the most significant problem in the cur- the most significant and academics some scholars rent U.S. patent system. 37288-ckt_91-1 Sheet No. 192 Side A 12/28/2015 14:43:02 A 12/28/2015 192 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 192 Side B 12/28/2015 14:43:02 . . ECH ROP T .P PEN LAIMS AND (Feb. 28, 35 C NC NTELL ., O .I , I EV R OUND .F M When patented When patented A 37 NFRINGEMENT I EW ARSHALL , N [Vol 91:1 [Vol For example, one study ATENT , 4 J., 4 M 34 ., P O C AW L RACTICAL ., P ) 12/24/2015 ) 9:25 PM note 29, at 895. CHICAGO-KENT LAW REVIEW ELETE Reforming Patent Law ReformReforming D supra supra Supreme Court Deals Death Blow to Patent Trolls , fects of NCE Licensing Activity Activity fects of NCE Licensing OT Patent Assertion and Startup Innovation N ASDAN ET AL O UFFY (D Second, losing in an infringement suit could lead to a to a lead suit could infringement in an Second, losing J. K &D 36 INAL INAL F ICHAEL ERGES NLEY 11 (2011), http://www.arelaw.com/downloads/ARElaw_PatentInfringe- B. The Economic Case for Judicially Limiting Downstream Ef- Limiting Case for Judicially B. The Economic 33 370 13 O Information technology companies are particularly vulnerable to vulnerable particularly are technology companies Information Companies often choose to license patents from NCEs, instead patents from choose to license Companies often . 14 (Sept. 5, 2013), http://ssrn.com/abstract=2321340 (This study was commissioned by EFENSES NST found that the most frequentlyfound that the most patents asserted in 2012-2014 litigated claims against collectively brought infringement by ten NCEs, which database, com- those for geolocation, included 2,451 defendants, technologies. digital fingerprinting and puter user interaction, 34. M L. 336, 340 (2005). 34. I 35. Colleen Chien, Chien, Colleen 35. 2015, 6:38 PM), http://www.inc.com/jeremy-quittner/supreme-court-ruling-on-patent-trolls.html (“Small businesses mounted 3,400 legal defenses in 2011 for patent cases, a 32 percent in- crease over the prior year . . . . That cost to aboutsmall companies $11was billion in 2011, also a 32 percent increase over the prior year. The total median awards to trolls is now nearly twice as high as those to legitimate patent holders, whose median reward fell about 30 percent to $4 M to a 2013 report billion, according PricewaterhouseCoopers.”)by (internal citations omitted). 37. D 33. Donald J. Chisum, held by the NCE in exchangeNCE in by the held infringe- of patent claims for avoiding ment. technology is licensed from non-creative entities, such entities gain a from technology is licensed change- licensee’s directing the amount of power in disproportionate by of-control decisions enforcing non-assignability clauses in patent licenses. mentClaimsDefenses.pdf. (“[T]he most powerful remedy to a patent available owner is a pre- or permanent that prevents the injunction liminary accused infringer from importing, making, for sale or importingusing, selling, offering into the product US any the that infringes patent.”). 36. Jeremy Quittner, the U.S. Congress as part of the America Invents Act of 2011, sought towhich simplify the U.S. Jeremy patent system). 36. court-ordered injunction and company shutdown. court-ordered injunction and company NCE activity since a single patent on a component, which cannot be cannot be component, which a patent on a single since NCE activity other compo- interfaces with complex of because easily replaced value of the even when the leverage give NCEs enormous nents, can itself is not very patented technology great. of litigating, for two main reasons. First, the costs involved in two mainfor defend- of litigating, reasons. First, example, one For study significant. ing a patent infringement suit are companies $11 bil- small U.S. cost infringement litigation found that lion in 2011. 37288-ckt_91-1 Sheet No. 192 Side B 12/28/2015 14:43:02 B 12/28/2015 192 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 193 Side A 12/28/2015 14:43:02 Even (Dec. 16, 44 N ’ However, However, 40 (Feb. 28, 2015, OMM 38 C 371 371 ORBES RADE , F .T ED 43 Approximatelysurveyed venture 75% of ) 12/24/2015 ) 9:25 PM 42 This is due to the prospect of quick monetary of quick monetary prospect the This is due to ELETE 41 D OT N O note 35, at 11. Are Patent Trolls Now Zeroed In on Start-Ups? (D Moreover, startup companies are also attractive tar- also Moreover, are startup companies 39 PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND supra INAL INAL F Public Comment by Mark Public Comment by Bohannon, Red Hat, Inc., F at 13. at 31. (explaining nuisance value, (“[T]rolls know enough to peg [the] license fee just be- NLEY Id. Id. Id. Id. See 2016] 13 O A report commissioned by the U.S. A report commissioned the impact Congress to study Startups with information technology- and electronics-based and electronics-based Startups with information technology- Since publicly available information does not include NCE licens- NCE include not does information available publicly Since low [the] cost”) and the precedential value of settlements, (“[Patent holders] go after startup agreecompanies to establish case precedent. Startups to quickly amountsettle for a low be- have cause they no money with which to stand up against an expensive patent legal battle. [The established case prec- holder] then attacks using those previously larger companies for money, edents.”)). 43. 44. capitalists and 20% of venture-backed startups with patent experi- with patent 20% of venture-backed startups capitalists and approxi- and entities, non-creative by approached been ence had mately 80%time NCE licensing demands included a of the an the time and 40% of own technology arrangement startup’s for the NCE-patentedadoption of technology. 41. 41. 42. 6:45 PM), http://www.forbes.com/sites/ciocentral/2013/01/17/are-patent-trolls-now-zeroed-in- Chien, on-start-ups/. 40. gain from “nuisance” settlements and the precedential value of settle- value the precedential and settlements gain from “nuisance” NCEsments that gives negotiations additional leverage in licensing companies. with larger 38. 38. 2013, 1:19 PM), http://www.ftc.gov/policy/public-comments/comment-00043-17 (proposing to send information 25 Patent to approximately requests as to Assertion Entities (“PAEs”), as well as part approximately 15 communications sector other entities asserting patents in the wireless of Project No. P131203). in the industry segment The author, represents Savitz, a company who impactedstrongly NCE activity, by FTC supports the proposed study and notes that the agency Eric needed information. positioned to collect this much is uniquely 39. we do know we do know for non-cre- targets are attractive that startup companies and undercapitalization these companies’ because of ative entities vulnerability. with value-at-risk of under $1,000,000, the average cost of litigating a $1,000,000, with value-at-risk of under gets for merger and acquisition transactions (M&A) because of their (M&A) and acquisition transactions gets for merger initi- frequently entities non-creative and valuable niche technologies, an issue to is about a startup efforts when assertion ate their patent in an M&A transaction. acquired offering or be initial public of patent litigation on the U.S. economy as part of on the Invents the America of patent litigation for targets are frequent start-up companies that found Act of 2011 non-creative entities. products were NCE targets 90% approximately of the time. ing agreements, patent acquisition information, and cost and revenue cost and revenue and information, patent acquisition ing agreements, is of NCE activity full economic impact data, the unknown. 37288-ckt_91-1 Sheet No. 193 Side A 12/28/2015 14:43:02 A 12/28/2015 193 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 193 Side B 12/28/2015 14:43:02 Patent Patent (Feb. 28, 2015, While the Fed- 51 ONVERSANT , C [Vol 91:1 [Vol and the value of an av- and the value of 47 —the downstream —the downstream effects 48 Because of the high cost of the high of Because 45 note 19, at 4.12. supra , which introduces significant additional li- additional which introduces significant presented in the Introduction, NCEs are NCEs Introduction, in the presented note 35. SSETS 50 ) 12/24/2015 ) 9:25 PM A 46 supra CHICAGO-KENT LAW REVIEW note 6, at 9–10. ELETE D The Effect of Patent Litigation and Patent Assertion Entities on En- OT ROPERTY supra N P Chien, O note 39 (citing a Report of the Economic Survey published the Amer- note 39 (citing a Report of the Economic by Survey note 35, at 11–12, 17. 31 (MIT Sloan School of Mgmt., Working Paper No. 5095-14, 2014), (D supra supra INAL INAL F NLEY NTELLECTUAL 49 Conversant Takes at Patent Aim Troll Demand Letters See generally the holding was limited to the calculation of damages and it is of damages and it is the holding was limited to the calculation 372 13 O At the same time, as illustrated in the hypothetical case of hypothetical case time, as illustrated in the At the same Another problematic effect is a cloud on the start-up’s title to its its title to start-up’s on the cloud a is Another problematic effect While the typical value of “nuisance” settlements and licensing settlements and of “nuisance” typical value While the 52 trepreneurial Activity 49. Catherine Tucker, http://ssrn.com/abstract=2457611. I 51. 50. Ziff & Deming, litigation, and because pending patent litigation diminishes the value the diminishes litigation pending patent because and litigation, by as much company of the entire companies start-up as 20%, rather with NCEs settle to companies, in five one of rate the at choose, with them. than litigate erage settlement agreement at $340,000 erage settlement censing fees as a condition of the transaction. In licensing transac- licensing In transaction. the of condition as a fees censing a significant royalty amount—tions, the licensor typically receives 25% of the profit by the licensed generated invention. eral Circuit recently noted that the 25% Rule is not always appropri- not always Rule is 25% that the noted recently eral Circuit ate, 46. Chien, Property Lawican Intellectual Association). 46. 47. 47. 52. Microsoft Corp., 632 F.3d Uniloc USA, Inc. v. 1292 (Fed. Cir. 2011). of these licensing arrangements are devastating. For example, one For example, are devastating. arrangements of these licensing activityof NCE funding. One study likely effect is the loss of start-up activity adds operatingestimates that NCE risk and thereby nega- U.S. economytively impacts the by venture capital unwilling making costing the U.S. economy between companies, to invest in start-up over a five-year $41.8 billion in venture capital losses and $8.1 billion period. 45. Savitz, 45. patent infringement lawsuit is $650,000. lawsuit infringement patent 6:49 PM), http://www.conversantip.com/news-article/conversant-takes-aim-at-patent-troll-de- mand-letters/. 48. not binding on private parties negotiating a licensing contract. contract. private parties negotiating a licensing on not binding intellectual property assets. When a target’s technology is encum- property assets. When intellectual of purchaser option a prospective the first bered by a patent license, a new consent to assignment, the target is likely to pursue is licensor sub-license, license, or a costs are relatively small—with various estimates placing the value of placing the small—with various estimates are relatively costs to $50,000 at $1,000 licensing agreements troll v. Small Inventor, Inc. Inventor, Small troll v. 37288-ckt_91-1 Sheet No. 193 Side B 12/28/2015 14:43:02 B 12/28/2015 193 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 194 Side A 12/28/2015 14:43:02 56 U.S. See Because Because 53 373 373 Indemnification, not Indemnification, (Jan. 3, 2012), 57 and the latter because it because latter and the RUNCH 55 C . 135, n.57 (2005) (“[T]he courts adopt ECH EV .L.R , T ES W. R ASE ) 12/24/2015 ) 9:25 PM note 6, at 9. ,, 56 C Incomplete Responses, Transactional Plan- Contracts: Judicial ELETE D OT supra N O CrunchBase Reveals: The Average Successful $25.3 Startup Raises Mil- (D PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F Each of these outcomes is sub-optimal—the former be- outcomes is sub-optimal—the former Each of these 54 Combined with expected valuation loss of 20% if a patent if Combined of 20% with expected valuation loss . NLEY 58 Id . art. I, § 8, cl. 8. 2016] 13 O Yet another potential effect is a negative impact on the start-up’s impact is a negative effect Yet another potential An averagestart-up sells for approximately $196.8 successful ONST cause the public is deprived of the benefit of accessing the patented the of accessing benefit of the is deprived public cause the successor, the business invention through http://techcrunch.com/2012/01/03/crunchbaseexits/. C the claimant damages adequate to compensate for the infringement, but in no event less than 53. 35 U.S.C.A. § 284 (West 2012) (“Upon finding the for the claimant court shall award fora reasonable royalty the use made of the invention the infringer by . . . .”) (emphasis added). ning, and Litigation Strategies 54. Juliet P. Kostritsky, This, in turn, will negatively impact the valuation of the target com- of the target the valuation impact will negatively turn, This, in pany, and the loss is likely to be disproportionately greater resulting with the NCE. Other licensing arrangement than the cost of the initial seek- buyer the to pursue include options that is likely than licensing, ing indemnity for any patent claims arising from the use infringement buyer’s cost reimbursement of the patents or by the buyer of licensed property. replacement intellectual of acquiring unlikely to permit the licensees to transfer contracts to business suc- business to contracts to transfer licensees the to permit unlikely than what lower are significantly royalty terms theyif original cessors damages. as infringement likely to recover are reasonably a damage measure that forces a breaching party to internalize the costs of its breach a damage measure to internalize the costs of its that forces a breaching party . . . [This] . can be efficient: parties rules in torts that strict liability way the same in damage rule is efficient can estimate for it is efficient tothemselves when breach [and] the breacher take will into ac- count the damage compare that amount that a court to the benefitswould assess and from breaching.”) (internalomitted). citations 55. the goalwith This is inconsistent of promoting “Science and Useful Arts.” 58. Eric Eldon, Eric 58. For $196.8 lion, Sells Million 57. 56. Ziff & Deming, represents a transfer of profits from an operating entity to a non-pro- entity profits from an operating of transfer represents a ducer. with the licen- an agreement unable to reach the buyer is valuation. If negotiate with the target a to will likely attempt sor-NCE, the buyer property. for the lost value of theintellectual licensed price discount breaching the terms of the license and proceeding with the corporate with proceeding the license and terms of the breaching the cost internalize to or their successors force licensees sale would in the by NCEs royalties, recoverable of increased damages, form of a is likely in licenses clauses of anti-assignability the real-world effect in or assent to an increase the change of control failure to execute royalties. million. surprisingly, adds costs. adds costs. surprisingly, 37288-ckt_91-1 Sheet No. 194 Side A 12/28/2015 14:43:02 A 12/28/2015 194 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 194 Side B 12/28/2015 14:43:02 [Vol 91:1 [Vol , 243 U.S. 502, 511 (1917)) (internal . In other words, it is nearly im- In other 59 Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 62 see also In fact, many patents are simply ahead of 61 ) 12/24/2015 ) 9:25 PM contemplated rewarding non-producing pa- contemplated rewarding non-producing 60 note 6, at 2 (“[W]here an IP license is silent on assignability by on assignability note 6, at 2is silent (“[W]here anlicense IP CHICAGO-KENT LAW REVIEW ELETE D , 772 F.3d 709 at 718 (“[T]he primary purpose of the patent system is OT supra N O . art. I, § 8, cl. 8; (D INAL INAL ONST F NLEY Ultramercial, Inc. Ultramercial, 374 13 O It is unlikely that the judiciary contemplated such extreme resultsthat the judiciary contemplated It is unlikely Problematically, even in the absence of an explicit non-assign- even in the absence of an explicit Problematically, It is, however, unlikely that the promulgators of the constructive It is, however, unlikely that the promulgators 60. U.S. C of courtsthe licensee, the majority have found that are presumed a licensee’s rights assign- not U.S. able without the licensor’s express consent.”). 60. citations omitted). 62. 35 U.S.C.A. § 112 (West 2012). 717–18 (Fed. Cir. 2014) (Mayer, J. concurring) are(“Unless to we assume that the constraints to ensure thatClause are mere surplusage, we are bound Intellectual Property explicit in the . This is . . . the patent monopoly and useful Arts promote the Progress serves ‘[t]o of Science the standard expressed not be ignored.’”) (citing Graham in the Constitution and it may v. John Deere Co., 383 U.S. 1, 6 (1966)) (internal citations omitted). 61. . private fortunes for the owners of patents.”) . . to promote scientific progress, not to creat[e] Mfg. Co (citing Motion Picture Patents Co. v. Universal Film their time, and the relaxed constructive enablement standard, which standard, enablement their time, and the relaxed constructive by explaining how an invention allows applicants to receive patents model, was created functioning producing a would work rather than this possibility. to account for tent holders to this extent. possible to circumvent a typical anti-assignment clause in a patent a patent in clause anti-assignment circumvent a typical to possible license. when the body that of law devel- made licenses non-assignable was Clause Patent of the drafters that the oped. It is likewise improbable in the U.S. Constitution 59. Ziff & Deming, infringement lawsuit is pending, the cost of the initial “nuisance” li- “nuisance” initial the of cost the is pending, lawsuit infringement mil- $40 to to up will now increase the NCE with settlement censing licensor- an average will position because negotiations lion— either NCE to demand in the target’s valuation, or 20% of up to $40 million, target orcompany, from the because the fees licensing purchasing through indemnification up to this amount to absorb will be expected with the buyer. and litigation cost-sharing the NCE and the original a patent license between ment clause in in an asset sale considered is transfer property intellectual licensor, such, the and, as transactions, restructuring of corporate the context if a corporate of infringement vulnerable to claims purchaser remains law. of operation transfer occurs by enablement standard envisioned that an NCE would procure a patent a patent an NCE would procure that enablement standard envisioned 37288-ckt_91-1 Sheet No. 194 Side B 12/28/2015 14:43:02 B 12/28/2015 194 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 195 Side A 12/28/2015 14:43:02 , 68 aff’d The United 375 375 64 , 134 S. Ct. 910 (2014);, 134 S. Ct. 910 63 , 371 F. Supp. 939, 949 (N.D. Ohio . cert. denied when the accused infringer when the accused infringer 67 The doctrine of induced infringe- induced of doctrine The 66 . (Feb. 28, 2015, 6:49 PM), OUND Infringement Infringement F ) 12/24/2015 ) 9:25 PM II. LEGAL BACKGROUND ELETE D OT RONTIER 69 N Bad News for Patent Trolls! FTC to Look Under the Hood Troll-of the O (D The concept of direct infringement is codified in 35 is codified of direct infringement The concept .F PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL 65 F LEC . NLEY Daniel Nazer, Id A. Filling the Gaps in Traditional Defenses to Claims of Patent to Claims Defenses Gaps in Traditional A. Filling the , E 2016] 13 O Non-creative entities typically bring claims of patent infringement, claims of patent infringement, typically bring Non-creative entities is a Patent infringement defined concept. statutorily U.S.C. § 271(a)makes and to make, use, offer for sale or it unlawful invention. patented another’s sell https://www.eff.org/deeplinks/2013/06/bad-news-patent-trolls-ftc-look-under-hood-trollmobile (noting that a Federal Trade Commission used this case as an example spokesperson of frivo- lous patent enforcement when FTC announced an investigation into the conduct of “patent trolls”). 65. 64. 35 U.S.C.A. § 271 (West 2010). 66. 35 U.S.C.A. § 271(a) (West 2010). 67. 35 U.S.C.A. § 271(b) (West 2010). 68. 35 U.S.C.A. § 271(c) (West 2010). Aro Mfg. 1973) Co. v.(discussing Convertible Top Replacement Co., 365 U.S. 336 (1961) and 69. Ctr., Inc. v. Perma Glas-Mesh Corp Plastering Dev. Aro Mfg. Co. v. Convertible Top Replacement Co., 377 U.S. 476 (1964)) (“The fundamental basis of patent law requires that a patent holder establish acts of direct infringement before for inducementliability or contributory infringement can be found.”). knows that a patent exists. Contributory infringement, codified in 35 in 35 infringement, codified exists. Contributory a patent knows that for sale a import, sell, or offer to U.S.C. § 271(c), makes it unlawful a patented invention. a material part of component that constitutes Both contributory and induced infringements require proof of direct require infringements Both contributory and induced requirement on the scienter infringement and impose an additional accused infringer. clear and convincing. by . . 728 F.3d 1332 (Fed. Cir. 2013) conclude that the prior art (“We 63. Soverain Software LLC v. Newegg, Inc., 705 F.3d 1333, 1341 (Fed. Cir. 2013), claims.”), evidence, rendered obvious the ‘shopping cart’ see also mobile on a pre-populated drop-down box before interactive computing de- computing interactive box before drop-down pre-populated on a against actions infringement and then bring feasible vices become common technology. using this entities operating States Code recognizes three primary categories of patent infringe- three States Code recognizes in- contributory and infringement, induced infringement, ment: direct fringement. ment is codified in 35 U.S.C. § 271(b) and prohibits actions that “ac- and prohibits actions ment is codified in 35 U.S.C. § 271(b) patent” tively induce[] infringement of a and relaxing the rules for license alienability would therefore shield therefore would alienability license for rules the and relaxing such claims. from their successors and licensors 37288-ckt_91-1 Sheet No. 195 Side A 12/28/2015 14:43:02 A 12/28/2015 195 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 195 Side B 12/28/2015 14:43:02 , 72 infra This stat- This Note This Note 70 71 of patented subject subject of patented 77 76 and includes failure to and includes failure [Vol 91:1 [Vol note 37, at 6. 73 79 As discussed in Part II supra , 78 ASDAN K and obviousness see also 75 ) 12/24/2015 ) 9:25 PM CHICAGO-KENT LAW REVIEW ELETE D OT note 37, at 5. note 37, at 5–7. note 37, at 5. N O (D anticipation , Soverain Software LLC v. Newegg, Inc., 705 F.3d 1333, 1341 (Fed. Cir. supra supra supra supra 74 , , , INAL INAL F e.g. , ASDAN ASDAN ASDAN NLEY See 376 13 O The third category of defenses includes equitable defenses, such equitable of defenses includes The third category The second, frequently litigated, category of defenses challenges defenses challenges of category frequently litigated, The second, This doctrinal body of defenses is predicated on the concept that the concept on is predicated body of defenses This doctrinal Traditional defenses to claims of patent infringement can be be can infringement patent claims of to defenses Traditional relying on patent invalidity to defend against claims of patent infringe-relying on patent invalidity to defend solution the enforceability-based ment is problematic because, unlike holdings in court invalidity-based defenses result here, introduced uncertainty. and procedural substantive that generate patent a patent, procuring of in the process conduct as inequitable equitable estoppel. exhaustion, laches, and meet the statutory requirements of patentability on the grounds of in- requirements of patentability meet the statutory definiteness, matter in light of prior art consisting largely of patents previously is- matter in light of prior art consisting any third parties. and patent-holder sued to the proposes linking license alienability, via a doctrine of patent misuse, via a doctrine of patent misuse, alienability, license proposes linking to unenforceability—be- of defenses—specifically, to this category does not invalidate defense, if sustained, cause the unenforceability narrowly tailored This is, advantageously, a the underlying patent. so- lution. view ofpatent validity in statutory requirements for patentability. 70. K 70. Likewise, this category is statutorily codified Likewise, this category 2013) (citing the “clear and convincing evidence” standard). doctrine of patent authorized sale of a patented item termi- exhaustion provides that the initial 79. Quanta Comput., Inc., 553 U.S. 617, 625 (2008) (“The longstanding Inc. v. LG Elec. nates all patent rights to that item.”); 72. K 72. 71. 35 U.S.C.A. § 282(b)(1) (West 2012). 78. 78. 73. 35 U.S.C.A. § 282(b)(2) 2012).(West 74. K 35 U.S.C.A. § 112 (West 2012). 75. 35 U.S.C.A. § 102 (West 2015). 77. 76. 35 U.S.C.A. § 103 (West 2015). utorily codified category of defenses includes non-infringement, ab- non-infringement, includes of defenses category utorily codified and unenforceability. infringement, for liability sence of a patent cannot be infringed if it is invalid, and the burden is on the is on burden is invalid, and the it infringed if be cannot a patent invalidity. defendant to establish patent broadly groupedbroadly simple first category is categories. The into three that its is, non-infringement—that establishes the accused infringer infringement. patent of elements meet the not actions do 37288-ckt_91-1 Sheet No. 195 Side B 12/28/2015 14:43:02 B 12/28/2015 195 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 196 Side A 12/28/2015 14:43:02 377 377 83 This makes the operat- This 81 Global Value Chains in the Electronics Equitable defenses illustrate defenses illustrate Equitable refining the rules on whether on whether rules the refining and determining whether NCE whether and determining 80 84 85 ) 12/24/2015 ) 9:25 PM , 553 U.S. at 633–35 (patent rights to products that “constitute a ELETE 1. Patent Infringement Litigation 1. Patent Infringement Litigation D Inc. OT . N O (D and precludes recovery recovery and precludes purchaserswhen, for example, Historical Progression of Anti-NCE Litigation of Historical Progression PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL 82 F NLEY B. Why the Courts Are Ready to Look at NCE Contracts—a B. Why the Courts Are Ready to Id. Quanta Comput 3 (The World Bank, Policy Research 3 (The Paper No. Working World Bank, Policy 5417, 2014), 2016] 13 O Thus, entities that practice their patents by making products lose lose by making products their patents that practice Thus, entities The U.S. Supreme Court recently issued a number of decisions The doctrine of patent exhaustion is of particular interest in the in the interest particular of is exhaustion of patent doctrine The the need for relaxing thethe need For of patent licenses. for alienability rules loses the patentee exhaustion, of patent underexample, the doctrine the places using its invention after it from others the ability to block of commerce. stream the in patented article 80. 80. 81. refurbish and competitively resell the patented product. resell the competitively refurbish and and when NCE patents are infringed, patents and when NCE ing entity-patentee unable to take advantage of the unable to take advantage of ing entity-patentee entire economic value chain the right to control their inventions as soon as patented articles are are patented articles as soon as inventions their control the right to NCEs, who produce any hand, other do not themselves sold. On the therefore commercialize patentspatents and on their articles based articles, patented manufactured selling them rather than by licensing This inequity is yetthese are licensed. after long patents control their for alienability of NCE licenses,another reason for relaxing the rules at a minimumsuccessors. licensee-operating entity’s business to the intended to limit the impact of NCE in developingactivity. SCOTUS, on lim- case law, has focused, in succession, its body of precedential iting the remedies available to NCEs, context of NCE activity.context of exhaustionPatent if the infringement negates from license implied express or that it has an infringer shows accused the invention. to practice the patentee material part of the patented invention” are exhausted such when products are sold). Industry 82. Timothy J. Sturgeon & Momoko Kawakami, http://secnet087.un.org/unsd/trade/s_geneva2011/ref- docs/RDs/GVC%20in%20Electronics%20Industry%20(Sturgeon%20-%20Sep%202010).pdf dominate total trade in the top-50 manufac- goods (“Intermediate electronics and automotive tured intermediate products.” In otherrelies on modular financ- the electronics industry words, ing, a componentwhere may become more valuable combinedwhen otherwith components in a finished product). 83. Hitachi, Ltd., 655 F. Supp. 2d LG Elecs., Inc. v. 1036, 1045–46 (N.D. Cal. 2009). 84. Inc. v. MercExchange, LLC, eBay 547 U.S. 388 (2006). 85. Limelight Networks, 134 S. Ct. 2111 Techs., Inc., Inc. v. Akamai (2014). 37288-ckt_91-1 Sheet No. 196 Side A 12/28/2015 14:43:02 A 12/28/2015 196 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 196 Side B 12/28/2015 14:43:02 91 but 89 OFTWARE :S AW L 92 [Vol 91:1 [Vol It is that the courts clear RINCIPLES OF THE 87 eBay, Inc. v. MercExchange, eBay, A.L.I., P , 134 S. Ct. 2120 (2014); Alice Corp. Pty. Ltd. . see generally ) 12/24/2015 ) 9:25 PM The Court grounded its decision in an equity- The Court groundedin an its decision CHICAGO-KENT LAW REVIEW ELETE 90 D Additionally, lower courts limited the binding the binding limited courts lower Additionally, 86 OT N O (D , 547 U.S. at 396–97 (Kennedy, J., Stevens, J., Souter, J., and Breyer, J., notes 128–30; The Court affirmed that the purpose of the Patent Act Act of the Patent that the purpose The Court affirmed INAL INAL at 391 opinion) (majority (“According to well-established principles of equity, a at 396 (J. J. Stevens, Kennedy, J. Souter, J. Breyer concurring) (“In cases now 88 F 44 (2010) (noting be unenforceable).should that constitute IP misuse clauses that at 397 (Kennedy, J., Stevens, J., Souter, J., and Breyer, J., concurring). NLEY Id. Id. See id. See id. See infra eBay Inc. , SCOTUS, following a finding of patent infringement, denied of a finding , SCOTUS, following 378 13 O SCOTUS remedies. In first tackled Notably, SCOTUS held that the status of parties as non-compet- of parties Notably, SCOTUS held that status the ONTRACTS ONTRACTS plaintiff seeking a permanent injunctiona a four-factor must satisfy plaintiff seeking test grant before a court may such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that such asremedies available at law, monetary damages, are inadequate to compensate for that (3) that, consideringinjury; the balance of hardships the between plaintiff and defendant, a rem- in edy equity is warranted; and (4) that the public interest not bewould disserved by a permanent injunction.”) 91. 92. arising trial courts should bear in mind that in many instances the nature of the patent being enforced and the economic function of the patent holder present considerations quite unlike has developed in which earlier cases. An industry not as a basis for producingfirms use patents . For these firms, an . . and selling goods but, instead, primarily for obtaining licensing fees. serious sanctions arising from its violation, can be employed as ainjunction, and the potentially bargaining tool to exorbitant charge fees to companies licenses to practice the to buy that seek patent.”) 90. concurring) (“When the patented invention is but a small component of the product the compa- small concurring) (“When the patented invention is but a for undue leverage in simply is employed nies seek to produce and the threat of an injunction for the infringement be sufficient to compensate and annegotiations, legal damages may well not serve the public interest.”).injunction may 89. 86. Nautilus, Inc. v. Biosig Instruments, Inc C and indicated that it saw no public policy benefit in putting an accused an accused putting in benefit no public policy saw it that and indicated of business and, by doing infringer out granting NCEs additional so, terms. licensing leverage to negotiate favorable patents are valid. are patents employed a policy-based analysis to conclude that the status of the the status employed a to conclude that policy-based analysis injunc- of whether issue on the is dispositive competitors parties as granted. tions can be v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). 87. L.L.C. arose from a non- suit the injunction because permanent the plaintiff a competitor. are now well-positioned to consider a logical extension to this body of this to extension logical consider a to well-positioned are now law by developing in clauses anti-assignment rules for invalidating contracts. NCE licensing power of contracts in technology licensing. contracts in technology power of based four-factor test to determine when an injunction is appropriate when an injunction determine test to based four-factor 88. 88. was to protect innovation by excludingwas to protect innovation from infringing, others itors is key to restricting availability of injunctive relief to NCEs. Forc- availability restricting itors is key to to a suit party to shut down operations in response ing the accused 37288-ckt_91-1 Sheet No. 196 Side B 12/28/2015 14:43:02 B 12/28/2015 196 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 197 Side A 12/28/2015 14:43:02 94 EW , N 97 Limelight Limelight 379 379 The as- holding helped 96 , the Court held that proof , the ) 12/24/2015 ) 9:25 PM , 134 S.Ct. at 2117.(“[A] method’s steps have not all been per- ELETE D Supreme Court Trolls Rulings Could Create Issues for Patent The proposal, advanced in this Note, to relax the relax to this Note, in advanced The proposal, OT N 93 O (D , http://newenglandinhouse.com/2014/07/15/supreme-court-rulings-could- PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND at 396 arising(“In cases now trial courts should bear in mind that in many INAL INAL F OUSE -H N I NLEY Limelight Networks,Limelight Inc. See id. Under the standard upheld by SCOTUS, to establish infringe- 2016] 13 O In further attempts to limit the fallout from NCE activity the fallout from attempts to limit In further in the in- In their brief supporting the petitioner, key actors in the infor- in the key actors the petitioner, supporting In their brief 95 NGLAND formed as claimed by the formed as claimed by patent are unless they all attributable to the same defendant, eitherAtkins, because the defendant actually performed those or because steps he directed or controlled Kimberly performedothers who them.”). 97. of induced infringement first required proof of direct infringement. proof of direct first required of induced infringement rules of alienability of licenses from NCEs to the licensor’s business licenses from of business to the licensor’s NCEs alienability rules of on the same principle. is premised successors for the standard SCOTUS tightened technology industry, formation it more difficult infringement occurred, making determining whether in For example, infringement suits. in for NCEs to prevail Inc. Technologies, Akamai Networks, Inc. v. instances the nature of the patent being enforced and the economic function of the patent holder enforced and the economic of the patent being instances the nature present considerations quite unlike earlier cases. An industry has developed in which firms use for obtaining goods but, instead, primarily patents not as a basis for producing and selling li- these firms,. For an injunction, and the potentially arising serious sanctions . . censing fees. as a bargaining can be employed fees to companies tool to charge exorbitant from its violation, licensesthat seek to buy to practice the patent.”). 94. Limelight Networks, Techs., Inc., 134 S. Ct. 2111 Inc. v. Akamai (2014). process, matter, or of a known use machine, composition of manufacture, and includes a new 95. 35 U.S.C.A. § 100(b)(West 2015) (“The term “process” means process, art, or method, material.”). 96. E 93. 93. The effect of this decision is a heightened standard for establishing for establishing decision is a heightened standard The effect of this to significance is of particular and this effect induced infringement, patents, where methodinformation technology claims, comprising subject mat- patented to define used are frequently steps, discrete ter. from an NCE arguably yields a loss to the economy to the economy a loss yields arguably an NCE from corre- a without benefit. sponding create-issues-for-patent-trolls/#ixzz3KOrL3E4D (last visited Aug. 2, 2015) (“If [the lower court, theto case which remanded]was upholds the single-actor standard, be good it will news for companiessoftware like Microsoft, one of many amici that filed briefs in the case. Those briefs suitsexpressed concern that under a different standard, companies could face infringement implementing certain steps could be seen as of customer unaware were actions that even if they in a competitor’s patent process.”). sure peace of mind for technology companies that would otherwise of sure peace they technologies suits because the be vulnerable to infringement take place as a mat- and many steps that make are highly interactive by end users. are carried out ter of practicing these inventions ment, it is necessary for the moving party to show that a single to show that the moving party necessary for ment, it is infringing actor had performedall the steps. mation technology industry warned the Supreme Court that modifying the Supreme Court that mation technology industry warned 37288-ckt_91-1 Sheet No. 197 Side A 12/28/2015 14:43:02 A 12/28/2015 197 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 197 Side B 12/28/2015 14:43:02 98 100 , SCOTUS decisions have Alice Nautilus, Inc. v. Biosig v. Biosig Inc. Nautilus, [Vol 91:1 [Vol and and , NCEs can still seek mon- seek , NCEs can still eBay Nautilus , another companies, pharmaceutical Alice Corp. Pty. v. CLS Alice Corp. Pty. Bank Int’l ) 12/24/2015 ) 9:25 PM decision: “This ruling is definitely a win and I definitely a ruling is “This decision: Limelight CHICAGO-KENT LAW REVIEW ELETE D Alice OT and in N , SCOTUS clarified the standard of definiteness in in of definiteness the standard , SCOTUS clarified O 99 (D INAL INAL F NLEY 380 13 O The Supreme Court, during the 2014 term, also attempted to clar- also attempted the 2014 term, Court, during The Supreme While the Supreme CourtWhile the Supreme should be commended to for its efforts S. Ct. 2111 (Mar. 3, 2014) (No. 12-786), at 16 (“Far-reachingInc. v. Akamai Techs., Inc., 134 98. Brief for Google, et al. as Amici Inc. Curiae Supporting Petitioner, Limelight Networks, into the temporally,discovery and geographically, disparate operationfunctionally of unrelated suppliers of complementary goods and services bywill provoke settlements driven cost rather than the merits of the parties’ claims.”). 112, ¶ 2 to require and prosecution viewed in light of the specification that a patent’s claims, 99. Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120, 2129 (2014) (“[W]e read § inform thosehistory, skilled in the art about the scope of the invention reasonablewith certainty. The definiteness requirement, so understood, mandateswhile recognizing that absolute clarity, precision is unattainable.”). 100. concept of intermediated transaction settlement embodied by the patented system 2347, 2356 (2014) is an (holding that theLtd. v. CLS Bank Int’l, 134 S. Ct. Alice Corp. Pty. abstract idea and is therefore unpatentable). the single-actor standard would increase both uncertainty and com- and uncertainty both would increase standard the single-actor discovery andplexity in abusive infringement encourage would thus claims. non-meritorious even settlement of the force and litigation SCOTUS argument when agreed with this clearly for the peti- it held tioner. for accused in- of patentability and made it easier ify the standards infringementNCE by advancing a claims fringers to challenge invalidity. For instance, in patent defense of Inc. Instruments, claim language, took steps to limit the subject matter that is eligible for patenting. limit the subject matter that is eligible to took steps etary damages. Under bring valid claims of left unable to industry that drives innovation, are who change the drug delivery infringement against copycats mecha- the invention between the nism by splitting the practice of manufac- turer and the end user. Finally, the limit NCE activity, the body of precedential law illustrated by its recent by its recent the body of precedential law illustrated limit NCE activity, Under not yet complete. is decisions been welcomed in the information technology sector but they still re- Moore,expensive defense. Todd to put up an infringers quire accused a member andof the Application Developers Alliance and CEO Founder of TMSOFT, an publisher for mobile application devices, commented on the But what ideas. on abstract patents hope the USPTO will stop issuing 37288-ckt_91-1 Sheet No. 197 Side B 12/28/2015 14:43:02 B 12/28/2015 197 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 198 Side A 12/28/2015 14:43:02 , Ǧ Alice In  , of  The solu- 103 381 381 Nautilus Claims  to 

101 Defenses  even though these patents The holding allowed an ac-  105 104 and a successful invalidity de- successful invalidity and a Based Ǧ 102 , for example, SCOTUS held that the example, , for decision, USPTO withdrew 830 previ- fringement note 17 (assignees thewith most of allow-withdrawals Alice Alice . (June 20, 2014), https://www.appdevelopersalli- ) 12/24/2015 ) 9:25 PM Invalidity LL  A supra ELETE D with  OT N O (D ., 134 S. Ct. at 2353. EVELOPERS PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL D F Problems  NLEY 2. Alice Corp 2016] 13 O On the flipside, the holding drastically impacted patentability of drastically impacted patentability On the flipside, the holding Two main problems with the recent judicial trend of invalidating of invalidating judicial trend with the recent Two main problems adverseAs to substantive uncertainty, an effect of Indeed, litigating bad patents is expensive because a USPTO- because a is expensive bad patents litigating Indeed, . U.S. Supreme Court Software WhatMembersPatent Decision: Are Saying Alliance 101 PPLICATION and their progeny is the uncertainty they have introduced by changing by changing is the uncertainty they have introduced and their progeny In patentability. the rules of tion proposed in this Note avoids problems associated with high costs with high costs associated avoids problems in this Note tion proposed because the argument for patents of litigating li- alienability of patent is- litigating the by NCEs to avoid issued is tailored precisely censes validity. sue of patent about the thousands that were already were that the thousands about to too expensive It’s issued? there.” bad patent out fight every let companies cused infringer to prevailcused infringer over an NCE’s claim of patent infringement invalid. was by arguing that the NCE’s patent in the financial services industry. software inventions, especially Within two months of the ously granted patents from allowance fense requires proof “by clear and convincing evidence.” and convincing proof “by clear fense requires ance.org/news/2014/6/20/us-supreme-court-software-patent-decision-what-apps-alliance- members-are-saying. 102. 35 U.S.C.A. § 282(a) (West 2012). 103. 131 S. Ct. 2238, Microsoft Corp. 104. Ltd. P’ship., v. i4i 2246 (2011). 105. Gray-Le Coz & Duan, and financialances included technology IGT,giants IBM, Microsoft, eBay, and JPMor- services gan Chase Bank). patents to dispose of claims of infringement are substantive of claims of infringement are patents to dispose and pro- Note avoids these The proposal advanced in this cedural uncertainty. unenforceability as to the problems because it on li- focuses patent rather than invalidity. successor censee or its issued patent is presumed valid, is presumed patent issued concept of intermediated transaction settlement embodied by a pa- concept of intermediated transaction un- and is therefore was an abstract idea tented computer system would amount that to the absence of factors in patentable “significantly more” than a mere idea. A 37288-ckt_91-1 Sheet No. 198 Side A 12/28/2015 14:43:02 A 12/28/2015 198 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 198 Side B 12/28/2015 14:43:02 Alice , similar Alice because the yet similar claims claims yet similar Prior to 111 may be found ineligi- in part because they in part because approach to patent in- approach to patent [Vol 91:1 [Vol 109 , CAFC held that a sum- Alice Alice 110 algorithm processing in online online in processing algorithm , 773 F.3d 1245 (Fed. Cir. 2014). However, courts, sympathetic to . 107 113 -like defenses to infringement, which infringement, which to -like defenses by invalidating patents directed to image patents by invalidating Alice ) 12/24/2015 ) 9:25 PM Alice CHICAGO-KENT LAW REVIEW ELETE Bose Corp. v. SDI Tech. Ultramercial v. Hulu, LLC v. Ultramercial D OT , the strength of patents directed to computer tech- to directed of patents strength , the N O DDR Holdings, v. Hotels.com, L.P. LLC (D rule did not provide a clear standard for evaluating pa- standard for not provide a clear rule did SiRF Tech v. ITC, 601 F.3d 1319, 1322 (Fed. Cir. 2010) (a method for cal- Alice INAL INAL F and online transaction processing. and online Alice 108 NLEY CAFC followed Post- See, e.g., 106 382 13 O For example, in Another problem with The 112 contained “insignificant data gathering steps”, contained “insignificant tent-eligibility of software and online technologies. Following the Following technologies. online of software and tent-eligibility advertising technologies online to claims directed decision, patent in were invalidated were upheld in abstract idea was not easily identifiable from the patent claim at is- was not easily identifiable abstract idea sue. mary judgment of non-infringement was appropriate if the accused accused was appropriate if the mary judgment of non-infringement accused infringers, recently introduced procedural shortcuts aimed at shortcuts introduced procedural recently infringers, accused modification of thevalidity, including avoiding the question of patent without formal invalidity of decisions issuing evidentiary standard and hearings. claim construction data processing and correlation, data processing 113. the province within is exclusively claim, terms of art within its patent, including construction of a Instruments, Inc., 517 U.S. 370, 372 (1996)Markman v. Westview (“We hold that the of the court.”). 106. 35 U.S.C.A. § 103 (West 2015). 107. 2014). Digitech Image Techs., LLC v. Elecs. for Imaging, Inc., 758 F.3d 1344,1347 (Fed. Cir. 108. Planet Bingo, LLC v. VKGS LLC, 576 F. App’x 1005, Cir. 2014). 1006 (Fed. 109. Inc. buySAFE, v. Google, Inc., 765 110. F.3d 1350, 1351 (Fed. Cir. 2014). culating an absolute position of a GPS receiver). 111. F.3d 1366,Corp. v. Retail Decisions, 1370 Inc., 654 (Fed. Cir. 2011)). Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 716 (Fed. Cir. 2014) (citing CyberSource 112. DDR Holdings, v. Hotels.com, L.P LLC were directed to processes, which is a statutorily patentable cate- patentable statutorily is a which to processes, directed were gory. technologies were found patent-eligible. were found technologies validity results in a high degree of uncertainty in the industry because because industry the in of uncertainty degree high a validity results in pre- issued and numerous patents drafted ble. of Findings procedural uncertainty. are based on patent invalidity, is patent claims to determine theinvalidity require the court to construe patented invention. scope of the nologies appears to rest not in the inventive valuenologies appears of the patented theavoid describing in the patent drafter’s skill to systems, but rather the Arguably, ideas. systems as abstract gaming, 37288-ckt_91-1 Sheet No. 198 Side B 12/28/2015 14:43:02 B 12/28/2015 198 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 199 Side A 12/28/2015 14:43:02 dis- inter inter 119 122 TATISTICS S reh’g denied reh’g , 135 S. Ct. 752 OARD 383 383 B that the opposing the opposing that PPEAL A 114 as evidence of good-faith good-faith as evidence of RIAL AND cert. granted in part Commil LLC v. USA, Commil Cisco T 120 Ultramercial v. Hulu, LLC Ultramercial review petitions that have been ATENT , 720 F.3d 1361 (Fed. Cir. 2013), . , P 121 In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. FFICE , 558 Fed. App’x. 1012, 1024 (Fed. Cir. 2014). Similarly, Similarly, in O . 115 ) 12/24/2015 ) 9:25 PM inter partes As a result, the “clear and convincing evi- and convincing “clear the As a result, ELETE , 135 S. Ct. 704 (2014) and 117 D RADEMARK OT &T N O (D . The court, in reviewing a district court’s dismissal for court’s dismissal a district in reviewing . The court, ATENT cert. denied CAFC disposed with the “clear and convincing evidence” evidence” “clear and convincing with the CAFC disposed PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F 116 , overruled on other grounds by supra rather than in invalidity of a patent in light of its claims. of a patent in light of rather than in invalidity NLEY reviews, which USPTO is a reasonable reviews, which grants when “there Id. Id. 118 2016] 13 O Another recent decision indicative of procedural uncertainty is indicative of procedural uncertainty Another recent decision Finally, courts have increasingly relied on USPTOFinally, courts have grant of Sys., Inc. partes [one] to at least would prevail with respect the petitioner likelihood that petition,” in the of the claims challenged requirement to prove invalidity by using the accused infringer’s good- infringer’s accused by using the to prove invalidity requirement patent was invalid the that faith belief of no basis for a finding as a liability. infringement (Oct. 25, 2013), (2014). 117. Commil USA, LLC Inc., v. Cisco Sys., 2015 WL 394343 (2015) (No. 13-896), at permit-14 (“By Industry Brief of Biotechnology Organization as Amicus Curiae Supporting Petitioner, the Federal virtue of a good-faith Circuit by belief of invalidity, avoid liability ting an inducer to one by assert an accused of inducement effectively invalidity provides a pathway which may evidence of validity, and that can be established on defense that runs up against no presumption that is less than ‘clear and convincing.’ As demonstrated by the facts of this case, an inducer faith, So long as it is held in good the in- by a mistaken belief of invalidity. avoid liability may defense can be entirely (internal meritless.”) citations omitted). ducer’s invalidity 118. 119. U.S. 120. P 35 U.S.C.A. § 314(a) 121. (West 2012). 116. Inc Commil USA, LLC v. Cisco Sys., denied has been steadily increasing: in FY 2013, 13% of such peti- in FY 2013, steadily increasing: been denied has in FY to 25%, and number increased this in 2014, tions were denied; to 29%. increased 2015, it further belief that the accuser’s patent is invalid. However, this is not a good However, this is not is invalid. patent accuser’s belief that the proxy because USPTO grants such review more often than not and invalidity may notmere likelihood of because a to a finding translate problem this as a USPTO appears to recognize of invalidity at trial. number of because the (2015), http://www.uspto.gov/sites/default/files/documents/2015-06-30%20PTAB.pdf.(2015), 122. Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014). 114. Underwater Devices, Co., Inc. v. Morrison-Knudsen 717 F.2d 1380, 1389–90 (Fed. Cir. 1983), 2007)) (accused has ainfringer “duty to seek and obtain competent from legal advice counsel before the initiation of any possible infringing activity”). 115. Bose Corp. v. SDI Techs., Inc infringer relied in good faith on counsel’s opinion counsel’s on faith in good relied infringer party’s patent was invalid. party’s patent dence” standard is now grounded in the accused infringer’s subjectiveinfringer’s the accused grounded in is now dence” standard belief cussed cussed CAFC’s finding of patent invalidity in CAFC’s finding of patent invalidity 37288-ckt_91-1 Sheet No. 199 Side A 12/28/2015 14:43:02 A 12/28/2015 199 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 199 Side B 12/28/2015 14:43:02 on 126 In 1996, In 1996, 124 , 52 F.3d 967 (Fed. Cir. aff’g [Vol 91:1 [Vol hearings, or proceedings . This, although reducing the . This, although Markman 127 The resulting procedural uncertainty, uncertainty, resulting procedural The Ultramercial 128 note 125 (limiting claim construction requests to no more ) 12/24/2015 ) 9:25 PM , held that claim construction is a question of of question a is construction claim , held that , and makes the judicial decision-making pro- judicial decision-making , and makes the supra 3. Patent Licensing Litigation 3. Patent Licensing Litigation CHICAGO-KENT LAW REVIEW provide an opportunity intro- for both sides to ELETE D 125 OT N O (D Commill Markman INAL INAL F Standing Order, Markman v. Westview Instruments, Markman v. Inc., 517 Westview U.S. 370, 372 (1996) (holding that hearings in the absence of a claim construction hearing. construction a claim of in the absence at 714. NLEY See Id. See 123 384 13 O When courts make it easier to legally challenge and wholly or and wholly challenge legally to make it easier When courts The decisions discussed above represent impressive judicial ef- above represent judicial impressive discussed The decisions than three “case dispositive” terms).three “case dispositive” than 128. F.3d 709, 718 (Fed. Cir. 2014)Ultramercial, Inc. v. Hulu, LLC, 772 citing (J. Mayer Co., 243 U.S. 502, 511) (1917) (explaining Co. v. Universal Film Mfg. Motion Picture Patents that “the primary purpose” of the patent system is to promote scientific progress, not to “creat[e] . . . private for fortunes the of owners patents.”) (emphasis added). 1995)). 127. claim construction is a question of law). is a question of law). claim construction 125. Order Regarding Letter Brief and Procedures for Early Briefing Markman Hearing/Summary John D. Love, U.S. Magistrate Judge, U. S. Dist. Court for the E. Dist. of Tex., Standing Judgment of Non-Infringement Requests (Jan. 9, 2012) [hereinafter Standing Order], http://www.txed.uscourts.gov/cgi-bin2/view_document.cgi?document=21674. 126. and of appropriate permissible if the court finds it to be is both upon this question testimony En Liung Huang v. Auto Shade, Inc., 945 F.Supp. 1307, 1308 (C.D. Cal. 1996) (“Expert assistance in reaching its determination of the meaning of the language of the patent.”) (citing Instruments, Inc., 517 U.S. 370 (1996),Markman v. Westview cost of litigation, may diminishcost of litigation, for the industry. the value of patents between NCEs andOn the otherrelationship hand, addressing the with- relationship contractual their context of the in infringers accused patent NCE of the the lens through such relationships out viewing would avoid these problems. en- to incentives agreements, NCEs lose licensing partially invalidate will license alienability such, promoting As ter into these contracts. of problem First, the objectives. several important help accomplish SCOTUS, in decision, following this law, and, solely limited to determining the scope of patent claims at issue and issue and at claims patent of scope the to determining solely limited became common infringement, practice. on from proceedings distinct Markman “case dispositive” claim terms. claim “case dispositive” duce technical experts and evidence to aid in claim construction and evidence to aid in claim duce technical experts 123. 123. 124. failure to state a claim, issued a holding that an NCE’s patent was was patent an NCE’s that a holding issued a claim, state to failure invalid however, is a significant drawback of relying on patent invalidity to patent invalidity relying on of drawback a significant however, is im- legal analysis it renders because claims infringement challenge precise, as in cess less transparent, as in cess less transparent, forts to limit NCE activity. forts to limit 37288-ckt_91-1 Sheet No. 199 Side B 12/28/2015 14:43:02 B 12/28/2015 199 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 200 Side A 12/28/2015 14:43:02 , 133 S. 385 385 ), cert. denied ), cert. Preston v. Marathon and , the United States Court , 685 F.3d 163 (2d Cir. 2012 . Stanford v. Roche Stanford v. ) 12/24/2015 ) 9:25 PM In These holdings granted more control over the These holdings ELETE Indus. Eng’g & Dev., Inc. v. Static Control Components,Inc. v. Static Indus. Inc., No. Eng’g & Dev., 129 D 130 , 131 S. Ct. 2188 (2011); Preston v. Marathon Oil Co., 684 F.3d 1276 OT N O aff’d but see (D PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F NLEY Rates Tech., Inc. v. Speakeasy, Inc. Rates Tech., Inc. v. Speakeasy, , CAFC held that a contract presently assigning future inven- assigning future , CAFC held that a contract presently 2016] 13 O Courts have already successfully undertaken the task of invali- task the successfully undertaken Courts have already In NCEs routinely threaten infringement litigation to coerce operat- coerce to infringement litigation NCEs routinely threaten Another important development, aimed at discouraging licensing licensing aimed at discouraging Another important development, of Appeals for the Second Circuit concluded that a no-challenge a no-challenge concluded that of Appeals for the Second Circuit oc- if settlement is unenforceable settlement agreement in a clause curs before litigation. 8:12-CV-691-T-24-MAP, 2014 WL 4206584 (M.D. Fla. Aug. 25, 2014) (holding that a no-chal- enforceable; however,lenge clause was note that here at issue was a claim for breach of a cross-licensing agreement). 130. 832 (Fed. Cir. 2009), Bd. of Trustees of Leland Stanford Junior Univ. v. Roche Molecular Inc., 583Sys., F.3d (Fed. Cir. 2012).(Fed. Cir. tions takes precedence over a contract promising to assign such to assign promising a contract over precedence tions takes future. rights in the Oil Co. Ct. 932, 184 (2013); attempts by NCEs, is the recent trend in judicially limiting the power limiting the judicially in trend recent attempts by NCEs, is the other the foreclose estoppel to licensee argue to of patent holders party from advancing defenses. infringement primary the invalidity is one of patent because license to ing entities patented subject matter to the inventor and its business successor, successor, business inventor and its matter to the patented subject power given to intermediaries, such thus diminishing the amount of who do this Note, of beginning the in introduced troll” “patent as the process. to the creative not contribute 129. Inc Rates Tech., Inc. v. Speakeasy, existing bad patents will cease to exist because the parties will be will be parties the because to exist will cease patents bad existing validity. rather than patent agreement the license able to challenge the patent sys- stability within certainty and will promote This, in turn, the court sys- the burdens on and litigation of tem. Second, the costs purchase companies that Furthermore, significantly diminish. tem will a by license encumbered the title is assets where property intellectual not be to infringe and will therefore be less likely with an NCE will damages.subject to monetary in turn, will strengthen their ne- This, with NCEs. gotiating position by, for licensing contracts of intellectual property dating some aspects example, disfavoringrights when defining succession non-producers the doctrine of proceedings and by limiting to IP assets in bankruptcy in entities operating disfavors estoppel Licensee estoppel. licensee by limitingcomparison to NCEs held by operating of patents the reach sell. products they entities to the 37288-ckt_91-1 Sheet No. 200 Side A 12/28/2015 14:43:02 A 12/28/2015 200 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 200 Side B 12/28/2015 14:43:02 AR 135 only .B Lear M Lear, Lear , A abrogated by ITIGATION L and held that pa- ATENT P did not apply to litigation set- did not apply [Vol 91:1 [Vol NTITY Lear E One Year After Medimmune-the Im- . B.J. 401, 402 (2008). IR RACTICING .C note 131 Federal Circuit has repeatedly (“[T]he -P ED ON N supra , 17 F In an apparent effort to further discour- 136 ) 12/24/2015 ) 9:25 PM PPLIES TO A CHICAGO-KENT LAW REVIEW decision discouraged NCEs from aggressively NCEs from decision discouraged ELETE D OT N The lower courts subsequently narrowed the The lower courts O (D MedImmune, Inc. v. Genentech, Inc. 132 , noting that the interest in protecting property rights property in protecting interest the that , noting EFORM AS ITEFORM AS 134 R INAL INAL F Bleeker & O’Shaughnessy, The lower courts also held that, in order to bring an action bring an action in order to that, lower courts also held The MedImmune doctrine when, in 2007, the Court relaxed the standing re- Court relaxed the in 2007, the doctrine when, ATENT NLEY 133 See The Supreme Court attempted The Supreme legal rule in to optimize this ., http://www.americanbar.org/content/dam/aba/administrative/intellectual_prop- 386 13 O The Lower court decisions were favorable to patent-holders, including including favorable to patent-holders, were decisions Lower court Lear 131 SSOC seeking a declaratory judgment of patent invalidity, the licensee first of patent judgment first seeking a declaratory invalidity, the licensee by, for example, failing to agreement to repudiate the licensing had pay royalties. 132. Lear, Inc. v. Adkins, 395 U.S. 653, 133. 664 (1969). narrowed limited and the ruling’s scope. For example, decisions subsequent held that applied to patent license agreements and not to patent assignment agreements or to consent the courts held that cases. In addition, judgments in patent tlement agreements.”). 134. Gen-Probe, Inc. Inc., 359 v. Vysis, F.3d 1376, 1380 (Fed. Cir. 2004), MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007). 135. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 135 (2007) (“Promising to pay on patentsroyalties that have not been held invalid does not amount to a promise not a to seek holding of their invalidity.”). P 136. A 131. O’Shaughnessy, Ronald A. Bleeker & Michael V. SCOTUS thus demonstrated that it was ready to carve out an excep- to licensors by disallowing estoppel licensee of doctrine tion to the immunityseek they enter licens- from patent validity challenges when to agreements enter licensing longer ing agreements. NCEs could no from litigation by licensees. shield themselves licensing. pursuing patent pact on Patent Licensing & Negotiation defenses to claims of patent infringement, and the doctrine of licensee licensee of doctrine and the infringement, of patent claims to defenses patent valid- challenging of patents from licensees prevents estoppel ity. erty_law/archive/2012/patentreform-as-itapplies.authcheckdam.pdf 29, 2015) (last visited Aug. (“After pursue to aggressively licensing under the ideaMedImmune, patent trolls are less likely age NCEs from attempting to collect licensing fees on possibly weakage NCEs from attempting licensing fees to collect doctrine when they held it to be inapplicable to patent assignment assignment patent to be inapplicable held it to they doctrine when settlement agree- and litigation judgments, agreements, consent ments. NCEs. The Supreme Court, however, reversed of the trend limiting the quirements in tent licensees did not need to repudiate or breach a licensing to repudiate or breach a licensing did not need tent licensees patent. validity of the licensed the agreement in order to challenge Inc. v. Adkins remove to the need against be balanced a patent must by granted inventions only valuable system so that from the patent invalid patents are protected. 37288-ckt_91-1 Sheet No. 200 Side B 12/28/2015 14:43:02 B 12/28/2015 200 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 201 Side A 12/28/2015 14:43:02 inter partes 387 387 SanDisk Corp. v. Corp. SanDisk proceedings where any where any proceedings holding in holding A similar effort was undertaken undertaken was effort A similar 137 inter partes inter 138 Medimmune III. LEGAL THEORY ) 12/24/2015 ) 9:25 PM when it held that protracted licensing negoti- licensing that protracted it held when ELETE D OT N note 31, at § 2609 (“Any third note 31, at § 2609 (“Any party requester can request O (D supra PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F NLEY 2016] 13 O In summary, it is apparent that, first, courts did not favor non- apparent that, first, courts did In summary, it is This Note proposes extending one of the traditionally available of the traditionally available This Note proposes extending one proposed rule and discuss present the The following sections will reexamination at any time during the period of enforceability of the patent . . . .”). time during the period of enforceability reexamination at any that once they lock up the license, the licensee can’t challenge the patent’s validity. can’t the licensee This takes the patent’s validity. challenge that once they lock up the license, some of the pressure before off companies entering the to investigate the validity contract, but such as upfront forum selection clauses, license payment, use provisions licensors can still fees from attorney’s of the patent.”).defense licensor’s right to a successful 137. ing that prospective licensee had standing to challenge the patent “[the patentbecause holder] SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1383 (Fed. Cir. 2007) (hold- has engaged in a course of conduct that shows a to enforce its preparedness and willingness patent” even in the absence of a direct threat to sue the prospective licensee for patent infringe- ment). MPEP, 138. patents, CAFC extended CAFC patents, the STMicroelectronics, Inc. STMicroelectronics, chal- standing to the necessary licensee the prospective ations gave without even validity underlying patent’s lenge the having to enter a an NCE. agreement with licensing by USPTO by USPTO when it introduced party may a patent. challenge producers in their recent decisions; second, courts wanted to wanted give li- second, courts recent decisions; their producers in against to seek legal redress more freedom entities censee operating NCEs from licenses third, courts signaled that taking NCE tactics; and is It entities. operating of rights the extinguish completely does not on developing a principled ap- courts to now focus logical for the intellectual in when anti-assignment clauses proach to determining invalid. are agreements property licensing defenses to claims of patent infringement, the doctrine of patent mis- the doctrine of patent infringement, claims of patent defenses to by a third-party use, to facilitate acquisition of technology licensed for expandingfrom NCEs. The proposed mechanism is this doctrine provisions and covenants not anti-assignment a rule for invalidating property licensing in intellectual to sell, which are typically present where, in a cor- scenarios addresses agreements. The proposed rule as- target’s the example, M&A) transaction, (for porate restructuring of A synthesis agreements. by such licensing sets are encumbered and antitrust patent misuse, of patent unenforceability, the concepts result. analytical to arrive at the proposed policy is used frameworks of pa- legal the a policy-based approach for reconciling 37288-ckt_91-1 Sheet No. 201 Side A 12/28/2015 14:43:02 A 12/28/2015 201 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 201 Side B 12/28/2015 14:43:02 , 66 141 rule Princo because the rule. The pro- The rule. 142 patent misuse is an an is misuse patent Princo 139 [Vol 91:1 [Vol , Finally, the rule is mindful of the distinction distinction Finally, the rule is mindful of the Mere “misuse in the air” is not sufficient. Mere “misuse in the air” is not ) 12/24/2015 ) 9:25 PM 144 140 CHICAGO-KENT LAW REVIEW ELETE D Formal but Forgiving:Formal A New Approach to Patent Assignments A. Summary Proposed Rule of the OT N Princo v. Int’l Trade Comm. v. Int’l Princo O (D . 299, 305 (2014). INAL INAL F because the underlying contract is not invalidated and be- is contract because the underlying EV W. Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937). at 1318–34. at 1329. 143 NLEY L. R Id. Id. See 388 13 O The rule proposed here supplements the the supplements here The rule proposed The proposed rule solves several problems. The rule focuses on problems. The rule focuses on The proposed rule solves several As stated in in As stated UTGERS R 144. Karen E. Sandrik, cause the proposed rule supplements rather than overrides contract contract overrides rather than rule supplements cause the proposed only to federally adjudicated is- and applies principles interpretation sues of patent licenses. 139. Princo Corp. v. Int’l 140. Trade Comm’n, 616 F.3d 1318 (Fed. Cir. 2010). 141. 142. Aronson v. Quick 143. 440 U.S. 257, Point Pencil Co., 262 (1979). tent, contract, and antitrust to the extent these theories inform the pro- the inform theories these extent to the and antitrust contract, tent, doctrine the under licenses patent of alienability upholding posal for misuse. of patent between productive and non-productive entities insofar as such dis- such non-productive entities insofar as between productive and to which is their competitor tinction relates a principle status, rooted in antitrust policy. NCE is free to continue to receive royalties from the licensee’s busi- from the licensee’s receive royalties to continue to NCE is free rule is consistent with freedom of proposed ness successor. Also, the contract attempt to unduly extend the scope of the patent right in a manner a right in extendattempt to unduly patent of the the scope of a clearly iden- effects and in the presence that has anti-competitive at issue. tifiable patent posed rule can be summarized asby NCE- can be summarized follows: first, refusal posed rule successors licenses to the licensee’s business patentees to assign in light of the misuse patent same terms constitutes on the extent the activity is an attempt to unduly licensing because NCE scope and, mis- of a patent; second, case law establishes that patent or as to the licensee underlying patent unenforceable the use renders step in below, each analytical As illustrated successor. its business by policy and case law. considerations rule is informed the proposed It is providing a narrowly tailored solution. patent unenforceability, with the principle, found in patent law, consistent of avoiding disrup- by patents monopoliessecured limited-term tions to 37288-ckt_91-1 Sheet No. 201 Side B 12/28/2015 14:43:02 B 12/28/2015 201 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 202 Side A 12/28/2015 14:43:02 389 389 sis 1. Patent ) 12/24/2015 ) 9:25 PM ELETE D OT B. The Princo Rule as a Starting Point B. The Princo Rule as a N O (D PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F NLEY C. Policy Considerations to Supplement the Princo Rule Analy- C. Policy Considerations to Supplement 2016] 13 O In order to develop a viable solution to the problem of unduly to the problem re- In order to develop a viable solution Patent misuse is an attempt to unduly extend the scope of the the scope of to unduly extend attempt Patent misuse is an strictive licensing agreements, it is necessary to understand the policy understand the to it is necessary agreements, strictive licensing is pri- law of patent The doctrine law. patent underlie objectives that innovation; second, rewarding marily concerned with, first, stimulating patent right in a manner that has anti-competitive effects and in the anti-competitive effects and patent right in a manner that has “misuse in the Mere at issue. patent clearly identifiable a presence of a clear it provides We adopt this rule because sufficient. air” is not with interest of components analytical roadmap and illuminates critical respect to NCE licensing activity: of the patent effect on the reach NCE activity on focus and of NCEs, monopoly, non-producer status patents. procure after such entities 37288-ckt_91-1 Sheet No. 202 Side A 12/28/2015 14:43:02 A 12/28/2015 202 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 202 Side B 12/28/2015 14:43:02 L. 39 Alt- 146 ORNELL . 730 (1998) RACTICES P EV , 88 C At the same At the AND .L.R , 149 EB OLICIES , 77 N [Vol 91:1 [Vol ,P ULES :R An important consequence of of consequence An important AW L 148 in property law). 145 ROPERTY § 1:38 (4th ed.). ., P sine qua non ) 12/24/2015 ) 9:25 PM note 29, at 627, n. 2. ATENTS CHICAGO-KENT LAW REVIEW P Property and the Right to Exclude ELETE D supra , OT N INGER ET AL O UFFY (D ALKER ON ON ALKER &D W. S W , 440 U.S. at 262. INAL INAL S ’ F whereas in patent law, the focus is on the relationship be- is on the law, the focus whereas in patent OY ERGES NLEY OSEPH 147 Property as a Fundamental Constitutional Right? The German Example 390 13 O Our proposal does not disrupt these objectives. Promoting alien- Promoting objectives. disrupt these does not Our proposal to distinguish furtherTo understand NCE activity, it is necessary . Aronson . . 733, 748 of ownershipthe “social obligation” (2003) (discussing in German jurisprudence). 145 EV hough recent scholarship attempted to refocus the property doctrine attempted to refocus the scholarship hough recent the arguably true that still is it boundaries, on relationships rather than onfocus in real property law remains relationships between private parties, 147. J 147. this distinction is that the grant of a patent is viewed as a bilateral grant of a patent is viewed as a is that the this distinction an individual and society, where a limited-term mo- contract between in exchange for disclosure. is granted nopoly right 146. Thomas W. Merrill, invention; and third, assuring that innovative ideas that innovative assuring third, and invention; in- remain do not domain. private in the definitely (Wolters Kluwer (Wolters Kluwer 6th ed. 2014) (legal rights as among people); jural relations S. Alex- Gregory ander, tween the inventor and the public. (arguing that a right to exclude is a R 148. M 148. time, patent monopoly must serve a useful end, and NCEs do not do not practice their patents. because they further this objective 149. 1 M ability of patent licenses from licensee-operating entities to their busi- their entities to licensee-operating from licenses patent ability of law. Thepatent of principles the with consistent is successors ness a long-time from retaining patentees monop- of discouraging principle is disrupted because, when a license invention is not oly on their be able such successor should successor, a business transferred to NCE. the to obligations contractual original licensee’s to assume the business successor, its royalty stream from the the ability to maintain NCE retains the because is still rewarded Furthermore, invention value of the original license, and the same terms as those but on the because preserved activity through patents is of protecting inventive than rather enforceability of to the question is linked patent misuse validity of patents. the pa- avoids disrupting Therefore, the proposal tent system it does not invalidatebecause that underlies the patent the license. law. In direct and real property patent law between the doctrines of of interests harmonize the to which seeks patent law, contrast with property law is pri- real individual, the public with the interests of the others. right to exclude marily concerned with an individual’s 37288-ckt_91-1 Sheet No. 202 Side B 12/28/2015 14:43:02 B 12/28/2015 202 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 203 Side A 12/28/2015 14:43:02 These These seeks to seeks 153 150 391 391 509 (LexisNexis, 4th When courts use use When courts HEORY 152 T . L.J. 105, 156 (2008-2009) (citing ECH AW AND L T Contract law therefore offers Contract law therefore IGH 151 &H § 205 (1981). (“Every contract imposes upon § 205 (1981). (“Every ONTRACT ONTRACT ,C and courts are unlikely to find a power and courts 2. Contract 2. Contract 154 OMPUTER OMPUTER RAUS ONTRACTS C C S. K ) 12/24/2015 ) 9:25 PM OF ) LARA C ODY ODY ELETE W. Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937) (freedom to D &J ECOND ANTA OT Reconciling Contract Doctrine with Intellectual Property Law: An Inter- 155 N (S O COTT COTT AT&T Mobility LLC AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 1746 (2011) (deferring (D , 25 S E. S PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F Content Extraction & Transmission v. Wells Fargo Bank, Nat. LLC Ass’n, 779 F.3d see also ; OBERT ESTATEMENT NLEY But see generally Id. See 2016] 13 O Therefore, the licensees are left with the only viable option—chal- the only viable are left with licensees Therefore, the It is also important to be aware of the differences between the differences aware of the be to important It is also the parties requiring that other than doctrine, The contract law contract is subject to restraints imposed by public policy unless the imposition of such restraintscontract is subject to restraints imposed by public policy Ritchie, is unconstitutional). as against individuals Lorelei 152. disciplinary Solution disciplinary each party a duty of good faith and fair dealing in its performance and its enforcement.”) 151. protect the freedom of individualsprotect the freedom their own terms to craft so as to maximize the private right to contract. 150. R 150. doctrines are often predicated on the imbalance of power between imbalance the on often predicated are doctrines the licensee, and the licensor inequity where both parties to a transaction are equally sophisticated transaction are equally inequity where both parties to a business entities. the principles of contract law to adjudicate disputes in patent licens- law to adjudicate disputes of contract the principles in- to doctrines rely on any of these effectively cannot ing, licensees clauses. validate unduly restrictive non-assignment to state law toto state law interpret and noting unconscionability that a required finding of unconscionability undue “oppression” or “surprise”); Agri-Mark, Inc. v. Niro, Inc., 233 F.Supp.2d 200, 212 (D. both not unconscionable because Mass. 2002) (a high contractual limitation on damages was entities). sophisticatedparties business were ed. 2007) (contract generally voluntary, informed enforces only law agreements between men- competent adults).tally 155. Sherwood v. Walker, 33 N.W. 919, 923 (Mich. 1887) (mistake); Austin Instrument, Inc. v. Loral v. Walker, 33 N.W. 919, 923 (Mich. 1887) (mistake); Austin Instrument, Sherwood Corp., 272 N.E.2d 1892) S.W. 781 (Ky. 20 533, 535 (N.Y.v. Horsley, 1971) (duress); Wollums (unconscionability). 153. 1343 (Fed. Cir. 2014) (attempts by NCE to license patents do not amount to extortion). R 154. very few mechanisms for rendering a contract unenforceable— a contract for rendering very few mechanisms namely, and duress. mistake, unconscionability, lenging the validity of the patent itself. This option, however, is expen- This option, of the patent itself. validity lenging the havoc wreak undue court decisions and, furthermore, sive to litigate, Note proposes an approach that this on the patent industry. Instead, contract law doctrine and patent law while keeping in mind that the the in mind that law while keeping patent and doctrine law contract alienability to uphold license be used doctrine alone cannot contract de- not provide does contract and of freedom protects it because in the NCE licensing apply formation that would fenses to contract context. dealing, and fair faith of good principles conform with the 37288-ckt_91-1 Sheet No. 203 Side A 12/28/2015 14:43:02 A 12/28/2015 203 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 203 Side B 12/28/2015 14:43:02 160 , re- RADEMARKS , No. 85 Civ. . ,T Clearly, a li- Seabrook 157 OMPETITION C [Vol 91:1 [Vol NFAIR U 158 Also, and more significantly, the 159 ALLMANN ON 993 F.2d 1534 (2d Cir. 1993)).9931534 (2d Cir. F.2d 3. Antitrust 3. Antitrust , C aff’d, OLLACK note 6. ) 12/24/2015 ) 9:25 PM P However, standard However, for- to contract defenses note 154, at 510 (summarizing the Seabrook unconscionability CHICAGO-KENT LAW REVIEW 156 ELETE supra ALLA D supra OT , &M N O (D RAUS § 4:56 (4th ed. 2010) (citing E. Venetian Blind Co. v. Acme Steel Co., 188 LTMAN INAL INAL &K A F Ziff & Deming, (discussing Sanford Redmond, Inc. v. Mid-America Dairymen, Inc COTT COTT NLEY OUIS See Id. ONOPOLIES 392 13 O As discussed above, a license is a contract governed by the prin- governed by the is a contract above, a license As discussed To supplement the law of contracts, which alone does not provide does not provide which alone To supplement the law of contracts, will license a patent provision in illegal law, “an Under antitrust M 159. L 159. 4574, 1992 WL 57090 (S.D. N.Y. 1992), criteria). 158. AND cense agreement between two business between two to havecense agreement entities is unlikely in fact, and, criteria meet these the conditions that been formed under clauses, and similar provi- no-challenge clauses, non-assignability trade in crafting licensing agreements tools of the sions are standard attorneys. patent and contract for both the 156. Inc. v. Weatherford Nipple-Up Sys., Inc., 871 F.2d 1082, 1085 (Fed. Cir. 1989) (“A [patent] Inc., 67 F.3d 920 917, Lift, v. Mitsuboshi Cutlery, (Fed. Cir. 1995)McCoy (citing Power license agreement is a contract governed by ordinary principles of state contract law.”)). S 157. would allow the courts to invalidate unduly restrictive non-assignabil- restrictive unduly to invalidate the courts allow would agreements. in patent licensing ity clauses law. contract ciples of F.2d 247 (4th Cir. 1951)). 160. mation, which allow a licensee to ask the court to invalidate an unduly court to invalidate to ask the which allow a licensee mation, example, the to apply. For are unlikely license agreement, restrictive as articulated in contract, to defense unconscionability superior legal “(1) possessed one party that facts the lied on a scarce commodityknowledge and (2) party that [the other needed], nor (4) received or understood, party] had not read (3) knew [the other (5) the legallylegal counsel regarding terms in (6) the fine technical contract.” (7) lengthy party’s] [offending print of the presence of an illegal provision in a licensing agreement an maypresence of invali- underlying invalidating the date the agreement itself without patent. mechanisms to support alienability of patent licenses to business suc- to business alienability of patent licenses mechanisms to support that would allow the is needed cessors, a viable analytical framework of dimension the public-policy take into account courts to correctly frameworkpatent law. One such exemplary is antitrust-based. which, as a matter of patent misuse, generally constitute patent law, unenforceable.” patent renders the 37288-ckt_91-1 Sheet No. 203 Side B 12/28/2015 14:43:02 B 12/28/2015 203 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 204 Side A 12/28/2015 14:43:02 , N ’ See su- OMM C FTC IP 360 (Feb. 11, RADE 165 AW AND § 5.7 (1995), 393 393 .T , L ED &F ROPERTY P USTICE USTICE J the International Trade the International 164 T OF ’ Therefore, as a matter of an- as a matter of Therefore, NTELLECTUAL EP I 161 Furthermore, the term “anti-com- the term Furthermore, 162 U.S. D See note 19, at § 16.4. However, it is unlikely that note 19, at the licen- § 16.4. However, it is unlikely ICENSING OF L , 333 U.S. 287, 308-311 (1948)) (“[I]n Line Material . . . the . . , 333 U.S. 287, 308-311 (1948)) (“[I]n Line Material ) 12/24/2015 ) 9:25 PM . supra , ELETE Controlling Opportunistic and Intellectual PropertyAnti-Competitive D SSETS OT A . 509, 521 (2003). N ]. ‘Patent Troll’ Suits Face New Obstacles Troll’ at the ITC ‘Patent EV O (D , Fed. S. Ct. 2223, Trade 2232 (2013) Inc., 133 Comm’n v. Actavis, (citing PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL ROPERTY F e.g. P UIDELINES FOR THE , UIDELINES G G . NLEY and it where NCEs therefore fits well in a scenario wield a Id See , 44 B.C. L. R 163 2016] 13 O The policy principles that underlie antitrust law are consistent are consistent law antitrust underlie that The policy principles Additionally, the ITC tightened the domestic industry requirement industry requirement the domestic Additionally, the ITC tightened Antitrust law seeks to level the playing field for producers with the with for producers field the playing level to seeks law Antitrust : the “patent troll” included in its agreement with the small inventor in its agreement with the included troll” : the “patent NTITRUST NTITRUST NTELLECTUAL Court held that the antitrust laws forbidCourt held that the of a group antitrust laws patentees, each owning one or more patents, and,each other, to cross-license in doing so, to insist that each licensee maintain retail prices by the patent holders.”).set collectively The licensee andare its successor subject also to antitrust regulation. 162. I United States v. Line Material Co petitive” is reserved for lawsuits that seek socially undesirable exclu- seek socially undesirable for lawsuits that is reserved petitive” sion, Commission (ITC) recently introduced a pilot program to determine (ITC) recently introduced Commission industry requirement needed to whether NCEs meet the domestic ITC administrative forum. bring an infringement suit in the with the Supreme Court’s recent decisions, discussed in Part II, to in Part discussed decisions, Court’s recent with the Supreme in- patent in non-producers of NCEs by disfavoring limit the reach a feedback in industry echoing the example, For fringement disputes. on antitrust, hearing 2012 congressional disproportionate amount of power over other parties’ economic trans- of power over other parties’ amount disproportionate the Introduction the hypothetical presented in actions. Consider gave the “troll” undue control that it effectively a term so restrictive mechanism, ability to sell its motion-control over the small inventor’s partially related to an invention only data transfer patent, the “troll’s” was therefore un- Inc. The Israel-based company to Medical Devices, the U.S. market. able to enter pra http://www.justice.gov/atr/public/guidelines/0558.htm#t57 DOJ [hereinafter 2014, 7:21 PM), http://www.law360.com/articles/509094/patent-troll-suits-face-new-obstacles- at-itc. 165. A 164. Ryan Davis, Ryan 164. 161. 161. A titrust law, a business practice, which in itself may be lawful and ap- be lawful in itself may practice, which business a titrust law, unlawful be considered perspective, could from a business propriate scheme. unlawful an part of is if it see, typically a small entity, and its business successor would be direct competitors “in the ab- would and its business successor a small entity, see, typically sence of the licensing arrangement.” 163. Litigation Michael J. Meurer, in a judicial decision requiring that NCEs, in addition to demonstrating to demonstrating that NCEs, in addition requiring decision in a judicial ultimate goal of benefiting the public. goal of benefiting ultimate 37288-ckt_91-1 Sheet No. 204 Side A 12/28/2015 14:43:02 A 12/28/2015 204 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 204 Side B 12/28/2015 14:43:02 , 166 Intel- . 1187, EV cert. denied .L.R TAN These two prin- Elaine Johnston, Elaine , 51 S . (2004), http://jp.white- 171 NST I [Vol 91:1 [Vol AW L both parties must be com- see generally 169 Essential Facilities Essential RACTISING , P , 133 S. Ct. 2223, 2231 (2013) (citing Walker Pro- . ) 12/24/2015 ) 9:25 PM CHICAGO-KENT LAW REVIEW ELETE D OT N O (D , Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir.), Additionally, to prevail in a Section 2 argument under, for under, for argument 2 Section prevail in a Additionally, to INAL INAL F Neither is necessarily the case with NCEs. the case with Neither is necessarily 168 170 . NLEY Id See, e.g. However, in order show thatto is anti-competitive a practice 394 13 O Similar to patent is alone contract law, the antitrust doctrine and Notwithstanding the foregoing, then, the antitrust-based ap- then, the antitrust-based Notwithstanding the foregoing, 167 344 U.S. 837 (1952). 171. attempt to set higher-than-average licensing feesin a settlement agreement competitor with Actavis Inc., 133 S. Ct. 2223, 2231 (holding that a pharmaceutical substance patentee’s not immune from antitrust scrutiny,was even if the agreement’s anticompetitive effects fell within potentialthe scope of the of the patent).exclusionary under the Sherman Act, a patentee must have fraudulently procured Act, a patentee under the Sherman its patent. 1190–91 (1999) (“A monopolist in control of a facility essential to other competitors must provide so”); to do feasible if it is reasonable access to that facility cess Equipment, Inc. v. Food Machinery & Chemical174 (1965) Corp., 382 U.S. 172, Machinery Inc. v. Food cess Equipment, (“[E]nforcement of a patent procured fraud by may violate the Sherman Act”) (internal citations omitted). 169. Abbott B. Lipsky, Jr. & J. Gregory Sidak, 166. 166. 167. 15 U.S.C.A. § 2 (West 2004). 168. Fed. Trade Comm’n v. Actavis, Inc a patent, show that at least one product practicing the patent exists. the patent practicing one product at least that show a patent, it is significant federal courts, is not binding on this decision Although enablement the constructive that First, it recognizes in two respects. products, practicing absence of patents in the which allows standard, monetary gain for in patent enforcement may result to pro- rather than to restrict mote competition. a way decision finds Second, the ITC to the patent system, by disruptive way that is not NCE activity in a stand- enablement to change the seeking rather than limiting standing law. ard in patent it does not pro- because support license alienability to not sufficient doing so. In the con- doctrinal mechanisms for vide all the necessary anti- is the provision antitrust applicable one text of patents, in Section 2 of the provision articulated monopolization Sherman Act. petitors. ciples inform the argument for license alienability. alienability. for license the argument inform ciples case.com/files/Publication/c93f2d08-b2c5-492c-804b- bd5dc51f74ed/Presentation/PublicationAttachment/15b3c953-2983-4ede-a055- of the es- applicability c17043b5c00d/00817_Elaine_Johnston_byline.pdf (discussing limited to intellectual property).sential facilities doctrine 170. example, the essential facilities doctrine, example, the essential facilities proach recognizes that NCEs, as non-competitors, should enjoy a enjoy should NCEs, as non-competitors, that proach recognizes shows infringement suits and bring narrower field of opportunities to policy accomplish this rules that that it is possible to implement judicial of patentability. objective without disrupting the law lectual Property as an ‘Essential Facility’ lectual Property as an ‘Essential 37288-ckt_91-1 Sheet No. 204 Side B 12/28/2015 14:43:02 B 12/28/2015 204 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 205 Side A 12/28/2015 14:43:02 : L. 173 ISUSE RAKE M ]. rule anal- , 50 D Therefore, ISUSE M 395 395 ROPERTY 178 P Princo ROPERTY P NTELLECTUAL , I and bad-faith enforcement and bad-faith enforcement territorial, field-of-use, and AW L 176 NTELLECTUAL 174 Law NTITRUST A 177 Princo Rule ) 12/24/2015 ) 9:25 PM grantbacks that are broader in scope than are broader in scope grantbacks that ECTION OF 175 Antiassignment Clauses, Mergers, the and Myth About Federal ELETE D ., S 1, at 1 (2000) [hereinafter I OT N IV. ARGUING LICENSE ALIENABILITY O SSOC (D .A Because patent grants create monopolies, the misuse Because patent grants create monopolies, the misuse PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND ITIGATION INAL INAL AR L F 172 .B . at 127–28. . at 75. . at 82–84. . at 86–87. . at 66. 1. NCE Activity as an Anti-Competitive Practice under the an Anti-Competitive Practice 1. NCE Activity as M NLEY Id Id Id Id Id A. Restraints on Alienability as Patent Misuse in Light of Case Light of in Misuse Patent as on Alienability A. Restraints 2016] 13 O Attempts by successors exclude business non-creative entities to This section reconciles the proposed rule with case law, presents case law, presents proposed rule with the reconciles This section A typical anti-assignment clause in a patent license will prohibit will prohibit license patent in a clause A typical anti-assignment . 639, 642 (2002). EV ICENSING AND customer restrictions, improvements patents, to the licensed L doctrine is intended to check the temptation to temptation doctrine is intended to check the manipulate the intel- serve. intended to it was never lectual property system to ends that R 172. A 172. In the licensing context, conduct that has been challenged as patent as has been challenged that In the licensing context, conduct misuse includes tying arrangements, 174. 174. 175. 176. 177. 178. Jessica L. Braeger, Preemption of Application Contract Law to Patent License Agreements of State 173. 173. ysis, and discusses procedural aspects of litigating alienability of pa- litigating alienability procedural aspects of ysis, and discusses of the licensee. successors to business tent licenses of a licensee by enforcing anti-assignment clauses run counter to the run counter enforcing anti-assignment clauses by of a licensee market participants to protect seeks patent misuse, which principle of of patent doctrine The parties. third actions by from anti-competitive the of improper attempt exists on the part misuse applies when an attempts and such of the patent, to extend the scope patent holder improper if they contravene an- are especially likely to be considered titrust law. an additional doctrine (shop right) to supplement the right) to supplement doctrine (shop an additional of particular interest here is the application by courts of the doctrine interest of particular attempt toof patent misusecontext of contracts that unduly in the patent right. exceed the scope of the of intellectual property rights. of intellectual the right or power to assign the contract to third parties. the right or power to assign the contract 37288-ckt_91-1 Sheet No. 205 Side A 12/28/2015 14:43:02 A 12/28/2015 205 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 205 Side B 12/28/2015 14:43:02 , In Re accord. Sanofi- the Ninth Circuit held the held Ninth Circuit 183 [Vol 91:1 [Vol manufacture and sales of ge- manufacture and Additionally, CAFC, in In Re CFLC 184 182 ) 12/24/2015 ) 9:25 PM , has recently held that the defense of patent has recently held , CHICAGO-KENT LAW REVIEW , the parties were competitors disputing the ex- the were competitors disputing parties , the ELETE , held that attempts to impose conditions on a on a conditions impose to attempts that , held rule is not inconsistent with case law. The case law. The with is not inconsistent rule D OT N O Princo (D Princo INAL INAL F CAFC also noted that, if patent misuse is established on is established if patent misuse noted that, CAFC also and the United States District Court for the Eastern District, Court for the and the Eastern District, United States District . at 1328 (“When [] contractual conditions violate public policy, as in thehowever, . at 1328 public policy, (“When [] contractual conditions violate 179 NLEY Sanofi-Aventis Id decision, for example, pertained to a situation where the to a situation where decision, for example, pertained licen- 181 180 396 13 O In Notwithstanding these recent decisions, the proposal that anti- that decisions, the proposal recent Notwithstanding these CAFC, in CAFC, upheld non-assign- also courts have time, however, At the same tent to which statutorily permissible tent to which statutorily licensee that exceed the scope of the patent right constitute patent right constitute patent the of scope exceed the that licensee misuse. in an unpublished opinion, refused to recognize NCE patent refused to recognize infringe- opinion, in an unpublished misuse. as patent ment allegations public policy grounds, the underlying contract is rendered unenforce- is rendered underlying contract grounds, the public policy able. 179. Princo Corp. v. Int’l 180. Trade Comm’n, 616 F.3d 1318, 1318–30 (Fed. Cir. 2010). case of price-fixing conditions restraints, and tying patentsthe underlying unenforcea- become ble, and the patenteeits right loses to sue for infringement or breach of contract.”); No. 1:10-CV-564, Printer Supplies, LLC, Lexmark 2014 WL 1276133, Int’l, Inc. v. Ink Techs. at *6 (S.D. Ohio Mar. 27, 2014). 181. such licenses makes because federal law and patent licenses, nonexclusive of assignability In re CFLC, 673, 680 Inc., 89 F.3d (9th Cir. 1996) governs the (“Because federal law personal and assignable only with the consent of the licensor, the . . . license is not assumable .and assignable in bankruptcy . . .”). 182. (E.D. Va. Dec. 18, 2013). Intell. Ventures I LLC v. Capital One Fin. Corp., No. 1:13-CV-00740, 2013 WL 6682981 183. Sanofi-Aventis v. Apotex, Inc., 659 F.3d 1171, 1182 (Fed. Cir. 2011). 184. 21 U.S.C.A. § 355 (West 2013) (the Hatch-Waxman Act). neric medication constituted infringement. Further, the court Further, the court infringement. neric medication constituted Aventis v. Apotex, Inc. Aventis v. Apotex, a simply because infringer to a presumptive available misuse is not even commercial conduct, of wrongful kind some in patentee engages may haveconduct that anticompetitive effects. CFLC this bankruptcy, and, in see declared to scenario, it was appropriate suc- the patent holder and the licensee’s resolve the conflict between was in of the patentpatent holder cessor in favor holder because the licensepatent the use to debtor licensee’s the than a better position in a productive fashion. assignment clauses in NCE licensing contracts constitute patent mis- patent constitute contracts NCE licensing in clauses assignment use under the ability clauses and refused to recognize NCE licensing arrangements licensing NCE refused to recognize ability clauses and For example, in as anti-competitive. that a patent holder had an exclusive right to prevent such an assign- an such an exclusive right to prevent holder had that a patent ment, 37288-ckt_91-1 Sheet No. 205 Side B 12/28/2015 14:43:02 B 12/28/2015 205 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 206 Side A 12/28/2015 14:43:02 The The 189 185 397 397 , where CAFC noted, in This Note argues that re- that This Note argues 186 Such consideration, as determined Such as determined consideration, rule posits that unduly extending pa- unduly posits that rule 190 Princo ) 12/24/2015 ) 9:25 PM Shop Right Doctrine Shop Right ELETE , noting that wrongful commercial conduct at is- conduct commercial that wrongful , noting D OT courts have made have made to this rule when courts an exception N , 659 F.3d at 1182 under (“‘[T]he key patent the inquiry misuse doctrine 188 O 187 (D Princo Speedplay, Inc. v. Beebop, Inc. PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL , 616 F.3d at 1318–30. F . NLEY , that a patent owner does not hold an absolute right to withhold hold an absolute right to , that a patent owner does not Sanofi-Aventis Princo Id rule and license alienability, and further underscores the im- alienability, and further underscores and license rule 2. Linking License Alienability with Patent Misuse though the the Misuse though with Patent Alienability License 2. Linking 2016] 13 O The shop right doctrine presents an additional mechanism to ar- presents an additional mechanism The shop right doctrine of the prong The first Policy principles underlying license alienability are discussed, for for are discussed, license alienability Policy principles underlying tent scope constitutes patent patent misuse. constitutes tent scope court interpreted the parties’ licensing agreement, which stipulated stipulated agreement, which licensing the parties’ court interpreted to meanwithheld “unreasonably,” be to assign shall not that the right of the li- assignment prohibiting for that the only reasonable basis cense would be an impediment for en- the to owner’s consideration tering the original agreement. gue that NCE restrictions on license alienability to licensee’s business alienability to licensee’s on license gue that NCE restrictions the supports both misuse. This doctrine constitute patent successors Princo to pro- and its successors’ ability the licensee considering portance of ductively use a patent. 185. 185. is whether . . . the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has failure to anticompetitive effects.’ BMS’s Apotex,side deal with and certification to the FTC its false disclose the oral regarding the same, broadened the scope of the 265 patentin no way Int’l Trade grant.” (quoting Princo Corp. v. Comm’n, 616 F.3d 1318, 1328 (Fed. Cir. 2000)). 186. 187. Ushakoff v. United States, 179 Ct. Cl. 780 (Ct. Cl. 1967). 188. DevicesNeon Signal Neon v. Alpha-Claude Corp., 54 F.2d 793, 796 (W.D. Pa. 1931). 189. Inc. Speedplay, 190. v. Bepop, Inc., 211 F.3d 1245, 1251–52 (Fed. Cir. 2000). distinguished distinguished a failuresue was to comply with notice than at- rather requirements invention. patented the the scope of unduly enlarge tempts to there is “a complete succession of the entire business and good will entire business and of the there is “a complete succession of [the licensee]”. strictions on license assignments to business successors in effect in effect business successors assignments to license on strictions NCE patent, and this proposal finds unduly extend the reach of an law. Although a in patent shop right, rooted doctrine of support in the but right to practice a patent the shop right confers on the licensee it, not to assign permission to the licensee to assign the license to a third party. a third to license the to assign the licensee permission to example, in dictum 37288-ckt_91-1 Sheet No. 206 Side A 12/28/2015 14:43:02 A 12/28/2015 206 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 206 Side B 12/28/2015 14:43:02 to the hypo- [Vol 91:1 [Vol Speedplay , refused to uphold the , refused to uphold 192 , the court concluded that court concluded , the . rule states that misuse in the air misuse in the rule states that Princo The court, citing a long line of prec- long line of The court, citing a 194 Princo ) 12/24/2015 ) 9:25 PM Intellectual Ventures Intellectual which, as discussed above, is not the case case not the which, as discussed above, is CHICAGO-KENT LAW REVIEW Intellectual Ventures Intellectual ELETE 196 D OT Similar to the Ninth Circuit, the District Court for District Court Circuit, the Similar to the Ninth N O 193 (D . INAL INAL 191 F at 1329 at *10. . NLEY Id Id. Id. Id. 195 398 13 O The second prong of the The second If we apply the reasoning articulated in articulated the reasoning If we apply The facts, however, are radically different when an established an established when are radically different however, The facts, thetical scenario discussed in the Introduction, where the licensee, where the licensee, in the Introduction, discussed scenario thetical license transfer its attempted to Small Inventor, Inc., unsuccessfully Inc., it becomes Devices, Medical successor, business a rights to presumably contract, its assign the licensee to clear that permitting owner’s patent impact the would not adversely on the same terms, royalty revenues. effectively afford the Any other conclusion would patent scope of the commensurate with the not patent owner a benefit over the the owner to exerciseat issue by allowing undue influence pa- an outcome would constitute Such decisions. business licensee’s CAFC in as defined by tent misuse 191. 191. 192. Princo Corp. v. Int’l 193. Trade Comm’n, 616 F.3d 1318, 1318–30 (Fed. Cir. 2010). Intell. Ventures I LLC v. Capital One Fin. Corp., No. 1:13-CV-00740, 2013 194. WL 6682981, at *9 (E.D. Va. Dec. 18, 2013) (“Ulterior or bad motives do not deprive a patent holder in the defense cannot be based on ‘misuse a patent; and a patent misuse of its right to enforce air.’ Rather, ‘[t]he misuse must be of the patent in suit.’”). 195. 196. by the court, consisted largely of protecting the owner’s ongoing roy- ongoing owner’s the of protecting largely consisted court, by the alty stream. when an unqualified right to withhold an assignment to a business to a an assignment to withhold right when an unqualified the Eastern District, in the Eastern District, pa- bad-faith of misuse as a defense to allegations doctrine of patent an NCE, attempted licensor, tent enforcement because the attempted to prospective licensee pointed The to enforce a portfolio of patents. to any specific patent to sup- than this activity in the aggregate rather ap- was the at issue and enforcement, bad-faith of port its allegations licensee attempted patent misuse by the claiming propriateness of was finalized. before a license edent, noted that allegations of “misuse in the air” were not suffi- air” were not in the “misuse of that allegations edent, noted cient. the prospective licensor had not demanded from had not demanded the prospectivethe prospective licensor li- beyond the monopoly censee any “concessions power created by an patent,” enforceable is not sufficient. licensor-licensee relationship exists. Because there was not a clearly Because there exists. relationship licensor-licensee patent in identifiable 37288-ckt_91-1 Sheet No. 206 Side B 12/28/2015 14:43:02 B 12/28/2015 206 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 207 Side A 12/28/2015 14:43:02 If brought 199 198 399 399 ’s “totality of the cir- . L.J. 161 (2008) (discuss- ECH T MedImmune Declaratory Judgment Suits Against Declaratory Judgment 197 ERKELEY (2014), http://riipl.rutgers.edu/andrew-schwe- , 23 B AW &L 1. Timing Andrew Schwerin, Schwerin, Andrew OLICY see .P ) 12/24/2015 ) 9:25 PM Declaratory Judgment Actions in Patent Cases: The FederalDeclaratory Judgment NFO I ELETE D 2. Jurisdiction and Choice of Law and 2. Jurisdiction Clauses through Patent Misuse Patent Misuse through Clauses OT FOR . N O NST (D PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F Jennifer R. Saionz, , RIIPL I at 189. NLEY Id. See B. Procedural Aspects of Arguing Illegality of Anti-Assignment of Anti-Assignment Arguing Illegality Aspects of B. Procedural 2016] 13 O If brought post-infringement, the licensee or its successor could the licensee or its If brought post-infringement, Additionally, the licensee or its successor could bring such claims such bring could or its successor Additionally, the licensee This Note proposes expanding the doctrine of patent misuse to patent misuse doctrine of the expanding This Note proposes on assignment restrictions invalidate to Complaints seeking The second question related to procedure is jurisdiction and jurisdiction is procedure to related question The second Circuit’s Response v. Genentech to Medimmune Circuit’s cumstances” test). 199. ing the “reasonable apprehension” standard relaxed in light of rin-declaratory-judgment-suits-against-patent-trolls/. 198. 197. For an in-depth discussion successor would effectively exceed the scope of such monopoly exceedwould effectively of such successor the scope power. pre-infringement, the licensee or its successor could seek a declara- a successor could seek the licensee or its pre-infringement, agree- the licensing in clause tory judgment the restrictive invalidating ment. alter- to invalidate the clause or, in the seeking bring a counter-claim unenforceability. of patent native, supplement its defense or counter-claims either before or after the change-of-control transac- after the change-of-control or counter-claims either before or As such, the analytical framework proposed here does tion occurs. in suit. timing or the parties either on not impose restrictions support claims that anti-assignment clauses in patent licenses, when licenses, when anti-assignment clauses in patent support claims that undulyis an NCE, may be ex- the licensor restrictive because they to proce- respect with question the patent. The first ceed the scope of the question of timing, and, such claims is of bringing dural aspects the re- license, affects ownership of the disputed inasmuch as timing bring an action. who can lated question is before or after infringement is alleged. could be brought Patent Trolls choice of law. The issue of alienability of patent licenses should be should licenses patent of alienability of The issue law. choice of and, patent-related disputes, similar to other courts, litigated in federal law conflict with existing jurisdictional not does approach notably, this 37288-ckt_91-1 Sheet No. 207 Side A 12/28/2015 14:43:02 A 12/28/2015 207 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 207 Side B 12/28/2015 14:43:02 , 66 205 , 71 B.R. 686, 71 , . [Vol 91:1 [Vol whether contractually stip- whether contractually 204 note 50, at 3. As to the choice of law, interpretation As to the choice , 133 S. Ct. at 1061. federal patent law controls on the issue issue on the law controls federal patent 203 supra 200 ) 12/24/2015 ) 9:25 PM 202 CHICAGO-KENT LAW REVIEW ELETE D Formal but Forgiving:Formal A New Approach to Patent Assignments but see Gunn OT CAFC successfully harmonized state contract law state contract harmonized CAFC successfully N Ziff & Deming, O In re CFLC, Inc., 89 F.3d 673, (9th679 Cir. 1996) (federal must law govern 201 (D V. RESPONSE TO COUNTERARGUMENTS Gunn v. Minton, 133 S. Ct. 1059, 1061 (2013) (refusing to interpret a legal . 299, 305 (2014). INAL INAL F see also EV see also , NLEY L. R See, e.g., Id. 400 13 O Likely counterarguments to the proposal advanced in this Note this in advanced proposal to the Likely counterarguments Additionally, federal courts have jurisdiction over counter-claims courts have jurisdiction over Additionally, federal UTGERS 205. because 28 U.S.C. § 1338 misuse is a limit patent scope a narrow application of misuse to Trade Comm’n, 616 F.3d 1318 (Fed. Cir. 2010) Princo Corp. v. Int’l (noting, however, created judicially doctrine); 689 (Bankr. W.D. Tenn. 1987) (“Because ‘[t]he rights of the patent owner to license the use of that questions regarding False [i]t follows creature of federal common law is [sic] a his invention of patent licenses are controlled bythe assignability (internal federal law’”) citations omitted). 202. R Karen E. Sandrik, to prevent free assignability and to promote creativity); In re and toto prevent free assignability promote creativity); Alltech Plastics, Inc 203. 28 U.S.C.A. § 1338 (West 2011). 204. malpractice claim, a matter of state under law, federal patent law because the federal issue needed to befor “necessary resolution,” “actually “substantial,”disputed,” and consistent with public policy); with the law of patents. with the ulated or not, and arguments related to establishing patent misuse onto establishing patent and arguments related ulated or not, license clause in the of an anti-assignment presence the ground of the federal law of patents. under be interpreted agreement could of license alienability in order to promote innovation and because the innovation and because to promote in order alienability of license of intellectual law in the is rooted issues of license alienability analysis rights. property 200. interpretation govern the will contract law of of a license because a a type license is merely Inc. v. Novelis Corp., 581 F.3d 431, Sys., Cincom 437 (6th Cir. 2009) (noting that “state contract.”). 201. in either contracts or patents. While state contract law governs inter- governs law contract state While or patents. contracts in either patent licenses, of pretation of the contract language as to the extent to which assignability is re- extent to which as to the of the contract language assignability a change-of-ownership transaction determining whether stricted and a matter of state law, occurred would be include the following: first, NCE activity first, NCE include the following: because should not be limited much-needed liquidity provide that NCEs are valuable market players patent misuse has property rights; second, in the market of intellectual licensing; of NCE context in the argued already been unsuccessfully that entities non-practicing may adversely affect third, the proposal runmay and fourth, the proposal add value, such as universities; of contract. These of freedom well-established principle counter to the are addressed below. counterarguments or defenses to infringement. to or defenses 37288-ckt_91-1 Sheet No. 207 Side B 12/28/2015 14:43:02 B 12/28/2015 207 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 208 Side A 12/28/2015 14:43:02 : . ECH APTURE .J.T C UL RS (2011), A ALUE 1, 2 (2013). V , 17 T 401 401 , M . (May 2014), 2014), . (May 4 (2006), http://digital- 208 OURCE OUND S F RODUCER P UATEMALA NTITRUST G A The same study, however, The same RONTIER HE HE note 161, at § 3.4 Agencies’ gen- (“The 207 .: T .F ERU AND supra supra Patent Assertion Entities and Antitrust: Oper- LEC , ,P SSOC 211 Market disintermediation benefits Market disintermediation .A ISINTERMEDIATION AND 209 AR D Hacking the Patent System: A Hacking the Patent System: Guide to Alternative Patent Alienability and Its Discontents Patent Alienability .B UIDELINES M ICARAGUA 3-5, E G N ARKET ) 12/24/2015 ) 9:25 PM , 12 A , 12 ., M ELETE D OFFEE IN NTITRUST A. NCEs As As A. NCEs Intermediaries Market , the anticompetitive effects of such economic ac- of such economic effects , the anticompetitive C OT and consumers. N Hannibal Travis, O 210 RADE (D For example, one study, commissioned by the Federal by the Federal commissioned study, one For example, T supra FTC IP A RNOULD ET AL PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL 206 AIR F . 109 (2014). J. A F AND ROP RIC NLEY 212 Id. Case Study: Dell—Distribution and Supply Chain Innovation See generally .P 2016] 13 O Opponents of limiting NCE activity argue that NCEs provide mar- that NCEs activity argue of limiting NCE Opponents Technology companies form alliances to jointly purchase patents patents to jointly purchase Technology companies form alliances The largest technology companies clearly view NCEs as a prob- The largest technology companies In other words, it is questionable whether the increased transac- is questionable whether the increased In other words, it ASE OF C NTELL HE 208. 208. DOJ 209. &I ating Company Patent Transfers 207. Mark S. Popofsky & Michael D. Laufert, commons.unl.edu/marketingfacpub/11. 211. found that less than 25% of this licensing activity leads to innovation innovation leads to activity of this licensing than 25% found that less heavily rely on intellectual property. in industries that 206. 206. https://www.eff.org/files/2014/05/29/hacking_the_patent_system.pdf. T Trade Commission, found that non-creative entities account for 75% entities account that non-creative found Trade Commission, markets. licensing in patent of all activity Patent System for Innovators http://www.marsdd.com/mars-library/case-study-dell-distribution-and-supply-chain-innovation/. 212. Martha Belcher & John Casey, ket liquidity. both producers eral approach in analyzing a licensing restraint under the rule of reason is to inquire whether restraint is reasonably the and, if so, whether to have anticompetitive effects the restraint is likely to achieve . . .). procompetitive benefits that outweigh those anticompetitivenecessary effects. E 210. from smaller inventors, thereby taking these patents off the market so these patents from smaller inventors, thereby taking as to preventfrom NCEs acquiring them. Technologyand enforcing tivity must not exceed the that market intermedi- aggregate benefits the economy. aries provide to lem rather thanas facilitators of commercial activity, as indicated by by litigation companies to avoid infringement of these recent efforts oper- arrangements with other NCEs by licensing entering alternative they own. that practice the patents Defensive patent ag- ating entities are examplesgregators and cross-licensing arrangements of these efforts. tion costs associated with procuring, managing and litigating patents managing and litigating with procuring, associated tion costs by NCEs. Market facilitated patent commercialization by are justified exchange facilitating property an important role in intermediaries play but, as noted 37288-ckt_91-1 Sheet No. 208 Side A 12/28/2015 14:43:02 A 12/28/2015 208 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 208 Side B 12/28/2015 14:43:02 , The The In sum- http://www.lot- 214 . [Vol 91:1 [Vol , LOTNET (July 7, 2014),, LOTNET (July 215 ) 12/24/2015 ) 9:25 PM CHICAGO-KENT LAW REVIEW ELETE D OT N O (D INAL INAL 216 F see also LOT Agreement Under this program, participants agree to license, royalty- license, agree to participants program, Under this .; . . at http://www.lotnet.com/patent-assertion-problem/index.cfm (“The balance of rev- NLEY Id Id Id 213 402 13 O Once such initiative is Google’s License on Transfer (LOT) pro- Transfer (LOT) on License initiative is Google’s Once such Notably, the LOT licensing agreement includes an exception stip- an agreement includes Notably, the LOT licensing “[t]here are two principal exceptions where the transfer of patents of patents where the transfer exceptions “[t]here are two principal a Agreement. The first is a license under the LOT will not trigger Network participant. current LOT to another of patents transfer second is a transfer that is part of a legitimate M&A or spin-out ac- M&A or spin-out a legitimate that is of part is a transfer second to uti- room sufficient allow companies . These exceptions . . tivity. that maintain in ways of their intellectual property lize and dispose of their business performance and the growth to support value them protect to royalty-free license a participants giving active while e.g., PAEs.” (emphasis to non-participants, from patent sales added). net.com/userfiles/files/LOT%20Agreement%20(v1_3-7_7_14).pdf enue obtained by operating companies versus costs expended to defend against [NCEs] is orders of magnitude in favor of costs.”). 216. 213. 213. 214. LOTNET, http://www.lotnet.com/lotnet-solution/index.cfm 215. Aug. 9, 2015). (last visited companies also form alliances aimed at creating commoncreating at aimed alliances also form of pools companies patents. of the number aims to reduce gram, which to patents available NCEs. free, their patent portfolios to each other, but agree that licenses will licenses that agree but to each other, portfolios patent free, their patent to transfer its only if a participant decides become enforceable encumber their an NCE. Thus, intentionally portfolio to participants re- entities, operating to other with licenses property title intellectual that in the event some of these an assurance ceiving, in exchange, to NCEs, thepatents are transferred by litigation risk of infringement the pa- because will dissipate LOT participants NCEs against other have been to these participants. licensed tents will already mary, technologyto reduce companies aim of the number NCEs, thereby reducing liquidity, patents available to enforceable these companies see NCE activitywhich shows that as costly rather than beneficial to the industry. ulating that licenses transferred to participants’ business successors successors business to participants’ ulating that licenses transferred rather than NCEs remain unenforceable as against other participants. by Google, Inc., Specifically, as articulated 37288-ckt_91-1 Sheet No. 208 Side B 12/28/2015 14:43:02 B 12/28/2015 208 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 209 Side A 12/28/2015 14:43:02 220 rule stating 403 403 After several 217 Princo B&N brought a counter- 218 The court found that B&N failed to identify B&N failed to identify that The court found ) 12/24/2015 ) 9:25 PM 221 ELETE D OT N O The ITC court did not find patent misuse. The ITC court did not find patent (D 219 PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F Certain Handheld Elec. Computing Devices, Related Software, & Components . . . . NLEY Id Id Id Id B. B&N v. MOSAID, Inc. As Distinguishable Legal Precedent Inc. B. B&N v. MOSAID, Precedent As Distinguishable Legal In re 2016] 13 O The proposal advanced in this Note is not inconsistent with the The proposal advanced in this Note Patent misuse has already been unsuccessfully argued in the Patent misuse has already Consistent with the proposal advanced in this Note, the the this Note, in advanced proposal with the LOT Consistent a member become not to chooses of the successor In the event that, first, misuse must be related to specific patents, and, second, second, and, specific patents, be related to misuse must that, first, mustthe goal of the licensing activity have been intended to broaden the patent. the scope of particular patents in controversy because in controversy attempted to Microsoft had particular patents claim with the ITC alleging patent misuse as an affirmative defense to affirmative patent misuse as an ITC alleging claim with the infringement. 217. Thereof, Inv. No. 337-TA-769, USITC Order No. 32 (Jan. 31, 2012) (order granting motion for determination).summary 218. 219. 220. 221. rounds of unsuccessful licensing negotiations, Microsoft, Inc. brought Microsoft, Inc. licensing negotiations, rounds of unsuccessful that B&N infringed its patents. suit, alleging court’s reasoning. Notably, the court relied on the court’s reasoning. Notably, the court context of NCE licensing. Barnes & Noble (B&N), a licensee of context of NCE licensing. Barnes Android™ operating system used in computer tablet Google, Inc.’s Inc., a patent aggregation al- technology, recently accused MOSAID, liance (an NCE) formed patent by Inc. and Nokia, Inc., of Microsoft, and consequently Android™, to make was alleged goal misuse. The expensive, and thus perpetuate B&N tablet computers, prohibitively dominance in PC operating systems. Microsoft’s agreement defines business successors as entities that assume own- that assume as entities successors definesagreement business mergers, change-of- of result a patents as participant’s a ership of spin-offs. and control transactions, expire. This licenses simply the six months, within network the LOT Note in in this advanced proposal with the in accord fully provision is two ways: first, the industry views title encumbrances as harmful, ra- entities, and, second, the industry to operating ther than beneficial, or ter- companies to continue free choice of successor supports the of min- goal apparent with an arrangement, minate the cross-licensing change-of-control on of title encumbrances impact imizing the of patents at issue. the value thus preserving negotiations and 37288-ckt_91-1 Sheet No. 209 Side A 12/28/2015 14:43:02 A 12/28/2015 209 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 209 Side B 12/28/2015 14:43:02 223 This This , F.2d 645 222 First, the First, 224 Fed. Trade Comm’n. v. See . [Vol 91:1 [Vol In the license assigna- 226 Actavis noted that Microsoft did not Microsoft noted that See SCM Corp. v. Xerox Corp.See SCM Microsoft’s attempt to extractattempt Microsoft’s 379 U.S. 29, 33 Indeed, (1964). the patent 225 MOSAID , 133 S. Ct. 2223, 2231 (2013) created a multi-factor Ct. 2223, 2231 (2013) created a multi-factor , 133 S. In contrast, field-of-use restrictions are restrictions field-of-use contrast, In . 228 35 U.S.C. § 271(d)(4). Accordingly, this is not misuse.”) ) 12/24/2015 ) 9:25 PM Brulotte v. Thys Co., 227 CHICAGO-KENT LAW REVIEW ELETE D see also OT N O (D test. test. INAL INAL F Certain Handheld Elec. Computing Devices, Related Software, & Components test—undue extensions of scope of the patent. scope of the of extensions test—undue , 133 S. Ct. 2223, 2231., 133 However, note However, that CAFC denounced the 25% Uniloc USA, Inc. v. Microsoftrule. . / . . . (“A patent empowers the owner to extractcan negotiate royaltieswith as high as he NLEY Id. Id Id Id Id Princo In re 404 13 O Second, the ITC court in Second, the ITC court Further, CAFC noted thatFurther, CAFC noted B&N did not meet the second prong of , 632 F.3d 1292, (Fed. 1315 Cir. 2011) (“This holds as a matter of Federalcourt now Circuit Princo . 228. Actavis, Inc Thereof, Inv. No. 337-TA-769, USITC Order No. 32 (Jan. 31, 2012) (order granting motion for determination).summary high royalties was permissiblehigh royalties was doctrine of patent the because monop- a ceilingoly does not impose on royalties. bility scenario, however, the monetary value of royalties due to the the monetary value of bility scenario, however, NCE would issue. Rather, not be at proposal simply attemptsthe to and of the licensees freedom of operation remove the barriers to the NCE ability to negotiate with licensee limiting fact, In their successors. version one position—because NCE’s the would protect successors anti-as- the this Note would invalidate in articulated of the proposal the entire licensing agreement, signability clause rather than the NCE successor on the receiving royalties from its licensee’s could continue same terms as before. situation is drastically different from the scenario addressed in this scenario addressed different from the drastically is situation Note, where agreement a licensing exist and,would already the thus, or de- a complaint Thus, clearly identifiable. issue would be patent at prong fail the patent-in-suit not would by the licensee fense brought not at issue in regards to the licensor-licensee relationship. relationship. the licensor-licensee regards to in not at issue 226. 226. Corp 222. 222. 223. 224. 225. the leverage of that monopoly.” license a portfolio without identifying each individual patent. individual each identifying without portfolio a license of the law that the 25 percentlaw flawed rule of thumb tool for determining is a fundamentally a baseline royalty rate in a hypothetical negotiation.”). Also, Fed. Trade Inc Comm’n v. Actavis, analysis to follow under § 271(d)(4). 227. haveThis would passed the test articulated in laws even permit laws unilateral refusals to license patents. 1981); 1204 (2d Cir. 1195, court stated that, in light of case law, in light that, court stated unduly expand the breadth of scope of its patents when it attempted of its patents unduly expand the breadth of scope B&N by limiting on sys- operating to impose field-of-use restrictions tem versions and upgrades. the 37288-ckt_91-1 Sheet No. 209 Side B 12/28/2015 14:43:02 B 12/28/2015 209 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 210 Side A 12/28/2015 14:43:02 . ITT In- 232 , 71 U. P 405 405 note 207. 230 supra , required a showing AUFERT &L MOSAID OPOFSKY note 172. P supra see , test. test. ) 12/24/2015 ) 9:25 PM ELETE Princo D Competitive Injury and Non-Exclusive Patent Licensees Injury and Non-Exclusive Patent Competitive OT N O The scope of the issue presented in this Note, in con- presented in The scope of the issue (D 231 PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F C. Effect on Non-Practicing but Value-Adding Entities C. Effect on Non-Practicing but Value-Adding Because NCEs do not practice their patents, the first scenario scenario the first their patents, NCEs do not practice Because NLEY See Intellectual Property Misuse 229 . 641, 642–43 (2010). (“Consider, for example, that a patent owns a university on a med- 2016] 13 O Proponents of the free-market approach to regulating NCEs ar- regulating to approach the free-market of Proponents In summary, the B&N argument in Field-of-use restrictions arise when both parties to the agreement agreement the to parties both when arise restrictions Field-of-use EV of patent misuse antitrust violation by a competitor, to prove an and to make reluctant the court was understandably a policy decision on against use patents entities to for practicing whether it was allowable competitors. gue that any restrictions on NCE activity will adversely impact non- gue that any restrictions on NCE add value—for example, universities. that entities practicing trast, is much narrower and aims to encourage corporate investmentand aims to trast, is much narrower in innovation by making it easier for companies to acquire potentially be issues would not field-of-use that end, To profitable resources. for assignability would not fail the argument licensee’s raised, and the of the second prong Related Software, & Components Computing Devices, HandheldCertain Elec. 230. Thereof, Order No. 32, USITC Inv. No. 337-TA-769 (Jan. 31, 2012) (order granting motion for determination).summary 231. violate antitrust laws, assets to NCEs may For an examination of possible arguments to support the assertion that transfers of IP involving two competitors in a licensor-licensee relationship is not relationship licensor-licensee in a two competitors involving second sce- with respect to the and, scope of this proposal, within the Note in this as articulated advantage of the proposal nario, a distinct NCE to of the to examine the provenance a need is not there is that The competitor. the licensee’s it was created by determine whether than a provision rather anti-assignability issue is the restriction at antitrust from the borrows our proposal limitation, and field-of-use rely on than rather patent misuse of doctrine the framework to extend as was done by B&N. doctrine exclusively the antitrust 229. 229. 232. S. Corgill, Dennis L. R ical device invented by oneical device invented of its professors. The may university choose not to practice the the simple reason that the university invention itself for does not have the requisite manufactur- channels.”). or distribution ing facilities practice the technology covered by thetechnology or when one patent at issue the practice an a sword through as patents its use attempts to entity practicing NCE. 37288-ckt_91-1 Sheet No. 210 Side A 12/28/2015 14:43:02 A 12/28/2015 210 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 210 Side B 12/28/2015 14:43:02 (Jan. MERICAN 233 UNDING F 235 EDERAL F Second, patent mis- Second, patent 234 [Vol 91:1 [Vol OLE OF R which, in turn, will create will in turn, which, HE :T 238 However, it is unclear whether 236 ESEARCH R which increases the likelihood that these that these which increases the likelihood note 206. 237 NIVERSITY ) 12/24/2015 ) 9:25 PM supra ., U CHICAGO-KENT LAW REVIEW ELETE D NIVS OT N .U O M A (D OF INAL INAL . F Hannibal Travis, ]. . (“That leaves the university . (“Thatwith the option of licensing. Depending upon a variety leaves the university SSOC NLEY See Id 406 13 O As a result, the outcome of the analytical process proposed hereproposed outcome of the analytical process As a result, the NCEs to control transfera- for difficult Arguably, making it more This proposal, however, would not negatively impact productive impact productive would not negatively however, This proposal, NIVERSITIES use supports unenforceability rather than patent invalidity. rather than patent unenforceability use supports 237. A 237. of economic circumstances, the university may optof economic circumstances, the university for non-exclusive licensees. For example, may power, a single, exclusive not to obtain monopoly the university want licensee which would prefermay restrict output. Instead, the university permit the exclusive licensee to raise price and compete price and on will who of non-exclusivea system expand licensees output.”). 234. 28 U.S.C.A. § 2201 (West 2010). 235. 35 U.S.C.A. § 282(b)(1) 236. (West 2012). U 233. 233. deed, universities are in a position to conceive of inventions and re- of inventions conceive to in a position are universities deed, they them. Instead, without commercializing to practice duce them entities. private-industry patents to their or license may assign entities will become owners of the patents resulting from such re- patents resulting from owners of the become entities will statutorily, or by contract search, either “patent trolls” are big purchasers of university patents, especially in university patents, especially of “patent trolls” are big purchasers private by are funded projects research university that fact the light of industry and government, 238. [funded party] elects rights, the invention respect in which “with to any files a patent. However, 35 U.S.C.A. § 202(c)(4) (The may elect to retain rights, provided that it timely university the Federal shall have a nonexclusive, agency nontransferable, irrevocable, paid-up license to 2011), http://www.aau.edu/WorkArea/DownloadAsset.aspx?id=11588 [hereinafter A would have no impact on the legal status of non-creative entities or status of non-creative would have no impact on the legal entities, including Non-creative on the requirements for patentability. the need to show evi- could continue to operate without universities, a patent. rights to obtain or retain dence of use in order to to unwilling entities make these could patents their to bility of licenses procure patents from universities. non-practicing entities for several reasons. First, a key strength of the a key strength First, several reasons. entities for non-practicing and between NCEs activity prac- contracting is its focus on proposal solution for A targeted validity. on patent than rather ticing entities activity eliminatesthe entire pa- need to invalidate the curtailing NCE NCE: tent held by the above, theas explained argument that re- context the outside assignability are illegal can be raised on strictions patent invalidity in misuse as a defense to effectuate of raising patent licen- ways: first, the in two be done can This infringement litigation. only to its contract judgment pertaining declaratory see may seek a the underlying patent. to not with the NCE and 37288-ckt_91-1 Sheet No. 210 Side B 12/28/2015 14:43:02 B 12/28/2015 210 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 211 Side A 12/28/2015 14:43:02 . EV 240 .L.R ARV 407 407 , 96 H note 237 (“In sup- 2009, [the federal government supra , ) 12/24/2015 ) 9:25 PM D. Freedom D. Freedom of Contract ELETE 239 D NIVERSITIES Contracts of Adhesion: An Essay in Reconstruction OT U N O (D which are subject to invalidity under the to invalidity under doctrine of un- which are subject PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL MERICAN F A 241 Content Extraction & Transmission LLC v. Wells Fargo Bank LLC v. Wells Fargo & Transmission Content Extraction At the same time, the law of patents is firmly rooted is At the same time, the law of patents in the NLEY See 242 2016] 13 O An argument could be made, however, that licensees are not free free An argument are not be made, however, that licensees could Another potential counterargument is rooted in the principle of the principle is rooted in counterargument Another potential 1173, 1176–77 form (1983) (a contract contract of adhesion is standard presented on a take-it- or-leave-it basis). 242. 1343, 1351 n.2 (Fed. Cir. 2014) (“Treating meritlessContent Extraction litigation as form of and extortion v. Wells Fargo Bank,Transmission LLC punishable Nat. Ass’n, 776 F.3d .” (citing Deck v. Engi- . . . court petitioning under RICO chill even valid substantially would neered Laminates, 349 F.3d 1253, 1258 (10th Cir. 2003)). doctrines of patent monopoly and market choice, and neither of these monopoly and marketpatent and neither doctrines of choice, re- mechanisms for prospective licensees to reject doctrines provides in license negotia- to third license assignment parties on strictions in this articulated judicial solution a narrowly tailored tions. Therefore, on helping licensees challenge restrictions Note could fill the gaps by patent system and withoutassignment without disrupting the disrupt- en- to invalidate proposal does not seek the ing freedom of contract; agreements. tire license practice or have practiced for or on behalf of the United States throughout any invention subject the world.”). 239. The proposal articulated in this Note, however, to this is not contrary in this Note, The proposal articulated of contracts contracts cannot be considered licensing principle. NCE adhesion, title encumbrances that would make would that encumbrances title for unattractive purchases such trolls”. In fact, 60% “patent research spending of university comes funding. from federal conscionability, because both the NCE and its licensee are likely busi- are likely the NCE and its licensee both because conscionability, the of the terms over to bargain enough sophisticated ness entities contract. they would otherwise because agreements licensing enter to refuse to example, an accused infringer For actions. infringement be subject to by extortion, which was rejected counter-claim of recently brought a CAFC in on the ground that the patent filing of an infringement lawsuit owner’s did not rise to the level of extortion to support an extortion sufficient claim. 241. Todd D. Rakoff, ported] about $33 billion of universities’ total annual R&D spending of $55 billion”). D. Todd 240. W. Coast Hotel 300Co. v. Parrish, 241. U.S. 379 (1937). freedom of contract, which stipulates that private entities should be freedom of that private entities should which stipulates contract, without judicial or governmentfree to enter contracts interference. 37288-ckt_91-1 Sheet No. 211 Side A 12/28/2015 14:43:02 A 12/28/2015 211 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 211 Side B 12/28/2015 14:43:02 stipulated by the stipulated by 247 [Vol 91:1 [Vol When a corporate transfer occurs corporate transfer When a 243 978 (W. Page Keeton et al. eds., 5th ed. 1984). would occur because the successor the successor would occur because CONCLUSION note 87, at 87. 245 ORTS T ) 12/24/2015 ) 9:25 PM supra , CHICAGO-KENT LAW REVIEW it is not inconceivable that licensees may seek inconceivable it is not ELETE D 246 OT EETON ON N K In this case, no such deprivation would occur be- would occur deprivation no such case, In this O ONTRACTS C (D 244 , McGreevy v. Daktronics,, McGreevy Inc., 156 F.3d 837 (8th Cir. 1998) (interference with INAL INAL F e.g. , rule. This approach is consistent with substantive and pro- is consistent rule. This approach . at 989 (the defendant cause must the interference and the resulting loss). ROSSER AND OFTWARE NLEY Id See 248 408 13 O In addition, the proposal articulated in this Note would not disrupt disrupt articulated in this Note would not proposal In addition, the Another counterargument is potential liability for tortious interfer- for tortious liability potential is counterargument Another Non-creative entities contribute to rising costs of innovation by innovation of costs to rising contribute Non-creative entities business relations). S 246. Inc. Cincom Sys., 247. v. Novelis Corp., 581 F.3d 431, 437 (6th Cir. 2009). would be free because the li- and to assume contract the licensee’s than in- rather that reduces a contract to enter censee is unlikely invention. the from practicing creases revenues framework.the existing jurisdictional a are issues Although contract matter of state law, 244. 244. 245. cedural requirements of both federal patent law and state contract of both federal patent law cedural requirements of on the treatment law the case with it is consistent law. Additionally, by operation of law or despite the license holder’s objections, the busi- the objections, holder’s the license of law or despite by operation Tortious be held liable. would not ness successor interference, im- the contract of requires a deprivation portantly, of its holder consideration. NCE and the licensee or its successor. NCE and the or licensee cause the NCE would because the NCE would receiving royalties to continue free to agree terms. The NCE’s on the same position, successor from the business vein, no disruption not be compromised. In a similar therefore, would of a business relationship 243. P 243. redress in federal courts that have jurisdiction over patent matters. In jurisdiction that have courts redress in federal con- could apply disputes, these in adjudicating fact, federal courts, provisions tractually agreed upon choice-of-law 248. Princo Corp. v. Int’l Trade Comm’n, 616 F.3d 1318 (Fed. Cir. 2010). ence with contractual relations. ence with contractually requiring their licensees to seek NCE consent to subse- NCE consent to seek contractually requiring their licensees working to developquent license transfers. However, while courts are sys- to the patent address this problem, drastic changes solutions to tem are not way of graduallydesirable. One possible the reach limiting of NCEs is to expand the of patent misuse, which supports doctrine re- to construe infringement, to patent defense the unenforceability patent licenses as patent misuse under the straints on alienation of Princo 37288-ckt_91-1 Sheet No. 211 Side B 12/28/2015 14:43:02 B 12/28/2015 211 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 212 Side A 12/28/2015 14:43:02 409 409 ) 12/24/2015 ) 9:25 PM ELETE D OT N O (D PATENT LICENSINGPATENT SOFTWARE IN ELECTRONICS AND INAL INAL F NLEY 2016] 13 O IP licensees. Finally, the proposed approach is tailored with a preci- with is tailored approach the proposed Finally, IP licensees. it system because the patent to minimize shock to sion sufficient alter the to does not seek invalidity and question of patent avoids the patents. NCEs to procure ability of 37288-ckt_91-1 Sheet No. 212 Side A 12/28/2015 14:43:02 A 12/28/2015 212 Side Sheet No. 37288-ckt_91-1 37288-ckt_91-1 Sheet No. 212 Side B 12/28/2015 14:43:02 37288-ckt_91-1 Sheet No. 212 Side B 12/28/2015 14:43:02 B 12/28/2015 212 Side Sheet No. 37288-ckt_91-1