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[klaviernista]

Question:  Is it patent misuse if a company conditions the grant of an exclusive or non-exclusive license to a patented technology on the prospective licensee's agreement not to sell a competing (and inferior) technology than the licensed technology?

[DogDayPM 9er9er9er]

Question:  Is it patent misuse if a company conditions the grant of an exclusive or non-exclusive license to a patented technology on the prospective licensee's agreement not to sell a competing (and inferior) technology than the licensed technology?

Bump; anyone? 

I haven't seen any caselaw on this, but it seems like it should at least be run by someone with antitrust experience, even if it isn't strictly a patent misuse (no opinion as yet).

Consider the inferior product is likely cheaper, and the licensed product likely more expensive both because it's the less inferior and because it's burdened with royalties.  So due to the license's influence over the licensee's actions, the public loses the chance to save money and a competing product is removed from the market.

Is the inferior product also covered by the patent claims?  Does the licensor himself (or any of his other licensees) also compete with the inferior product?  What is the licensor's reasoning for demanding that the inferior technology not be sold?

[JimIvey]

I likewise don't have any caselaw on point.  Though, years ago, a classmate of mine wrote is Law Review article on exact that -- Patent Misuse and Antitrust.  He now teaches IP and antitrust at Stanford.  His name is Mark Lemley.  It would be in California Law Review in about 1991ish.  It's old but might lay down a nice foundation for the overall issue and a little Sheppardizing might get you caught up.

Aside from that, two things immediately come to mind.  The Xerox paper case for antritrust (using a patent for one technology to control a market for unpatented products) and requirement contracts. 

I don't see why you couldn't simply do a standard requirements contract that would effectively block out all competitors.  Of course, you'd only have leverage if (i) the cheaper, inferior goods also infringe your patent(s) or (ii) they really want at least some of your products.

I hope that helps somewhat.

Regards.

[bleedingpen]

I am in the Caribbean right now and so I don't have my trusty Chism books in front of me, but this one starts to smell just a bit on the sniff test.   

[bartmans]

From a European point of view, this could lead to a clause in the licensing contract which offends the so-called "block exemption". An example where this plays is when you put in a license contracts that the licensor is not allowed to sell a product below a certain price. Or, if you put in a license contract for a patent on coffe machines, that they may only be sold with a specific sort of coffe (something like that happened in the razor-razorblade scene).
This seems to fall in the above category, so if the license deal is with a European company (or also adresses European territory) you should consult a European anti-trust specialist.

[klaviernista]

His name is Mark Lemley. 

Small world.  I know Mark too.  Back when I was in law school, I drafted a couple of papers for one of my school's law journals.  Mark graciously served as my "attorney advisor" on one of those articles.  He is very nice . . . and an extremely good patent attorney.

edited to remove an erroneous indication that Mark is a patent attorney.

[klaviernista]

To clarify, my confusion on this point stems from the fact that most of the patent misuse cases I've read involve impermissible tying requirements.  I.e., "If you want to buy X, which is patented, you have to buy Y, which is not patented (and which you don't really want)."  In my question, the license would not involve tying, because it is not conditioning the sale or license of a patented product on the sale or license of an unpatented product.  Rather, it is conditioned on the licensor's agreement "not" to sell a competitor's technology.

That said, I still wonder whether it would fall under the guise of patent misuse, as requiring the licensor not to sell comepting technology could arguably be considered as an attempt to improperly extend to scope of rights under the patent. 

I agree that a conversation with an antitrust specialist is probably warranted.  I'm just trying to get a feel for the landscape before I contact one.

[klaviernista]

I don't see why you couldn't simply do a standard requirements contract that would effectively block out all competitors.  Of course, you'd only have leverage if (i) the cheaper, inferior goods also infringe your patent(s) or (ii) they really want at least some of your products.

Not a bad idea.  It would be a bit of an exercise to get a requirements contract to fit in our case, because what we are licensing is the right to "sell" a
"technology," and not a patented "product" per se.  A better way to put it would be that the "products" in question incorporated patented "technology."  Its a bit like the mach 4 razor blades.  The blades themselves are patented, but the overall device is not.   We would be licensing something akin to the patented method for making the blades.

[joeinventor]

Interesting question, will follow this thread.
No legal advice, but I don't see an issue given that the licensee has an apparent choice of either marketing an inferior product without a license, or foregoing that to accept a license for some superior technology. No implied "market power". 
Selling both would undermine the licensing income for the licensor, so he has a legitimate interest.

[Isaac]

Small world.  I know Mark too.  Back when I was in law school, I drafted a couple of papers for one of my school's law journals.  Mark graciously served as my "attorney advisor" on one of those articles.  He is very nice . . . and an extremely good patent attorney.

Mark's a very smart guy, but I don't think he's a patent attorney.  I think his undergrad degree is in Economics.

[JimIvey]

Its a bit like the mach 4 razor blades.  The blades themselves are patented, but the overall device is not.   We would be licensing something akin to the patented method for making the blades.

Sorry for responding in substance so late after the topic died off, but I'm curious....

Would the contract be something like, "You can use our technology to make and sell razor blades that use our technology so long as you make no razor blades that do not use our technology"?  If so, my hunch is that it's not kosher.  Just a hunch, though.

I'm not sure how the razor handle (overall device) would fit in.  Would you require that they not make razor handles for blades that don't use your technology?

The economics of razors always interests me.  Every couple years, I get a new razor (blade and handle) in the mail.  The replacement blades are like $5 each -- a package of 4 costing $20 or more.  If you follow recommendations from the mfr and others, you change your blade every week.  $260 per year!  I'd grow a beard, but most women I meet prefer me clean-shaven and ladies of the evening are expensive.

Regards.

[klaviernista]

Small world.  I know Mark too.  Back when I was in law school, I drafted a couple of papers for one of my school's law journals.  Mark graciously served as my "attorney advisor" on one of those articles.  He is very nice . . . and an extremely good patent attorney.

Mark's a very smart guy, but I don't think he's a patent attorney.  I think his undergrad degree is in Economics.

Huh.  What do you know?  I just assumed he was given all the articles on the patent system he has authored.  Go figure.

Anyway, I stand by my other comments, and now confine my remarks to an opinion of Mark's abilities as a "mere" general attorney (as opposed to a patent attorney).

[klaviernista]

Would the contract be something like, "You can use our technology to make and sell razor blades that use our technology so long as you make no razor blades that do not use our technology"?  If so, my hunch is that it's not kosher.  Just a hunch, though.

That's aboiut right, thought I would word it differently. Basically, the license would be conditioned on the exclusive use of the licensed technology for a particular purpose.  If the licensor uses other technology for that purpose (which they would be free to do), their license to use the licensed technology would terminate immediately.  So, its not that the licensee would be "forbidden" from using another technology.  Rather, the license itself would be conditioned on their "not" using another technology. 

Having now done some research on the issue, it looks like what I was trying to ask about is the antitrust implications of an "exclusive dealings" license/contract.  According to the 1995 U.S. Antitrust Division guidlines on licensing IP (which appars to still be valid):

" In the intellectual property context, exclusive dealing occurs when a license prevents the licensee from licensing, selling, distributing, or using competing technologies. Exclusive dealing arrangements are evaluated under the rule of reason. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961) (evaluating legality of exclusive dealing under section 1 of the Sherman Act and section 3 of the Clayton Act); Beltone Electronics Corp., 100 F.T.C. 68 (1982) (evaluating legality of exclusive dealing under section 5 of the Federal Trade Commission Act). In determining whether an exclusive dealing arrangement is likely to reduce competition in a relevant market, the Agencies will take into account the extent to which the arrangement (1) promotes the exploitation and development of the licensor's technology and (2) anticompetitively forecloses the exploitation and development of, or otherwise constrains competition among, competing technologies.

      The likelihood that exclusive dealing may have anticompetitive effects is related, inter alia, to the degree of foreclosure in the relevant market, the duration of the exclusive dealing arrangement, and other characteristics of the input and output markets, such as concentration, difficulty of entry, and the responsiveness of supply and demand to changes in price in the relevant markets. (See sections 4.1.1 and 4.1.2.) If the Agencies determine that a particular exclusive dealing arrangement may have an anticompetitive effect, they will evaluate the extent to which the restraint encourages licensees to develop and market the licensed technology (or specialized applications of that technology), increases licensors' incentives to develop or refine the licensed technology, or otherwise increases competition and enhances output in a relevant market. (See section 4.2 and Example 8.)
"

http://www.justice.gov/atr/public/guidelines/0558.htm#t54

[klaviernista]

I'm not sure how the razor handle (overall device) would fit in.  Would you require that they not make razor handles for blades that don't use your technology?

In our instance, we would not put any limitations on the licensors ability with regard to razor handles.  In our case, it wouldn;t make sense to.  Think of it as a scenario where there is a universal razor handle that can accpet all blades, regardless of manufacturer.  That is the case I am contemplating.  The technology in question relates to a component of a much larger process.  While the component itself changes the efficiency of the process dramatically, the process itself doesn't change must in principal or operation.