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Not Patent Misuse to License U.S. Patents in Foreign Jurisdictions for “Administrative Convenience”

The defendant, IBG, contended that the plaintiff, Trading Technologies (“TT”) committed patent misuse (rendering its patents unenforceable) when it tied licenses to its U.S. patents to sales of products in foreign jurisdictions where IBG did not hold any patents. TT moved for summary judgment on the patent misuse defense.

As explained by the district court, between 2004 and 2018, TT and various third parties entered into thirty-five license and/or settlement agreements with respect to the four patents-in-suit. At least seven of these agreements include language explaining that the license granted is “worldwide and is based on worldwide usage of [the competitor’s licensed products], as opposed to only usage in countries in which there is patent protection.” The license agreements also included the following or nearly identical language: “WHEREAS, TT is willing to grant the discounted license granted herein for administrative convenience because the license is worldwide and requires payments of royalties for use of Licensed Products . . . anywhere in the world as opposed to royalties based only on the usage of Licensed Products in countries in which there is patent protection.”

Patent misuse is a patentee’s act of “‘impermissibly broadening the physical or temporal scope of the patent grant with anticompetitive effect.’” Princo Corp. v. Int’l Trade Comm’n, 616 F.3d 1318, 1328 (Fed Cir 2010) (quoting Windsurfing Int’l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed Cir. 1986)). The “basic rule of patent misuse” is that a patentee “may exploit his patent but may not ‘use it to acquire a monopoly not embraced in the patent.’” Princo, 616 F.3d at 1327 (quoting Transparent-Wrap Mach. Corp. v. Stokes & Smith Co., 329 U.S. 637, 643 (1947)). Where a patentee imposes restrictive conditions on licenses to broaden the scope of the patent, an accused infringer may invoke the doctrine of patent misuse to defeat the patentee’s claim. Princo, 616 F.3d at 1328.

The district court analyzed IBG’s contentions of tying, and noted that “[e]ven assuming that IBG establishes the existence of a tying arrangement, TT contends that the provisions providing for discounted royalties for worldwide licenses do not constitute patent misuse because the parties to the agreements agreed to these provisions for reasons of administrative convenience. In support of this theory, TT cites cases finding no patent misuse where the patentees entered into licensing agreements that covered unpatented components of an invention where doing so was a convenient way to measure the value of the licenses. See, e.g., Engel Indus., Inc. v. Lockformer Co., 96 F.3d 1398, 1408 (Fed. Cir. 1996); see also Zenith Radio Corp. v. Hazeltin Res., Inc., 39 U.S. 100, 138 (1969) (“If convenience of the parties rather than patent power dictates the total-sales royalty provision, there are no misuse of the patents and no forbidden conditions attached to the license.”).” The district court explained that this line of cases allows a patentee to license unpatented components of an invention in the interest of administrative convenience and that “[i]n the instant case, the licenses do not cover unpatented components of the invention. Instead, they give licenses to use TT’s invention in jurisdictions where TT does not have patent protection,” which was done for administrative convenience.

The district court agreed that “seeking a worldwide license helps both parties avoid the extraordinary transaction costs of litigating or licensing a global patent portfolio on a country-by-country basis.” St. Lawrence Comm’ns., 2018 WL 915125, at *9. If a party takes a license to use a product that is patented in many of the jurisdictions in which it does business, it might just be more convenient for both parties to allow the license to apply on a global basis, at a discounted rate. The district court further found that “IBG has not presented any admissible evidence in support of its belief that this arrangement was not administratively convenient nor that TT coerced parties to enter into the agreement. As such, the only evidence before the Court is the text of the agreements themselves, which explicitly indicate that the arrangement is administratively convenient, and Mr. Borsand’s testimony that the parties agreed to these arrangements for purposes of administrative convenience. The Court must therefore conclude that administrative convenience was the motivating force behind these agreements. As such, TT did not misuse its patents by entering into these agreements.”

As a result, the district court granted the summary judgment to dismiss the patent misuse defense.

Trading Tech. Int’l, Inc. v. IBG LLC, Case No. 10 C 715 (N.D. Ill. Jan. 4, 2021)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. For more information about this case, contact Stan Gibson at 310.201.3548 or