NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition is not citable as precedent. It is a public record. 

## United States Court of Appeals for the Federal Circuit

05-1388 U.S. PHILIPS CORPORATION, Plaintiff-Appellee,

v. PRINCO CORPORATION and PRINCO AMERICA CORPORATION, Defendants-Appellants.

___________________________ DECIDED: March 27, 2006

___________________________ Before BRYSON, LINN, and DYK, Circuit Judges

. PER CURIAM. Princo Corporation and Princo America Corporation (co llectively “Princo”) appeal from a decision of the United States District Court for the Southern District of New York, which granted summary judgment to U.S. Ph ilips Corporation and di smissed Princo’s patent misuse claim. Based on its interpretation of 35 U.S. C. § 271(d)(5), the district court concluded that Philips’s package licensing did not constitute patent misuse as a result of unlawful tying. Because this court, in U.S. Philips Corp. v. International Trade Commission , 424 F.3d 1179, 1186 (Fed. Cir. 2005), has recently interpreted section 271(d)(5) differently, we vacate and remand

.05-1388 2 I Philips owns patents to technology for manufacturing recordable compact discs (“CD-Rs”) and rewritable compact discs (“CD-RW s”). Philips grants licenses to those patents through package licensing. Under its licenses, Philips requires licensees to pay a royalty based on the number of discs manufac tured, regardless of how many of the patents are actually used in the manufactu ring process. A manufacturer is not permitted to license Philips’s disc patents indi vidually and does not have the option of paying a lower royalty rate for a license to fewer than all the patents in the package. In 1997, Princo entered into a CD-R lic ense agreement with Philips. Shortly thereafter, however, Princo stopped paying the licensing fees, and Philips terminated the CD-R license agreement. In January 2002, Philips filed the instant action, charging Princo with patent infringement. Philips also filed a complaint wit h the International Trade Commission, claiming that Princo’s importation of CD-Rs and CD-RWs violated 19 U.S.C. § 1337. The district court stayed the infringement suit pending completion of the Commission’s investigation. The Commission found Philips guilty of pat ent misuse based on its conclusion that Philips’s licensing program effects an unlawful tying arrangement between licenses to patents that are essential to manufactu re CD-Rs or CD-RWs and licenses to patents that are not essential to t he manufacturing process. On appeal, this court reversed the Commission’s decision. U.S. Philips Corp. v. Int’l Trade Comm’n , 424 F.3d. 1179, 1182 (Fed. Cir. 2005). We concluded that a pa ckage licensing agreement that includes both essential and nonessential patents “does not co mpel the customer to use the patentee’s technology.” Id. at 1190. In addition, we held that the Commission had failed to05-1388 3 acknowledge the procompetitive benefits of package licensing. Id. at 1192. We noted that package licensing “reduces transaction co sts by eliminating the need for multiple contracts and reducing licensors’ admin istrative and monitoring costs.” Id. Moreover, we noted that package licensing has the procompetitive effect of “reducing the degree of uncertainty associated with investment dec isions” because it “provides the parties a way of ensuring that a singl e licensing fee will cover all t he patents needed to practice a particular technology.” Id. at 1193. Accordingly, we hel d that “the analysis that led the Commission to apply the rule of per se illegality to Philips’s package licensing agreements was legally flawed.” Id. We also concluded that the Commission erred in its rule of reason analysis. 424 F.3d at 1198. We explained t hat there was no showing t hat “any manufacturer had actually refused to consider alternatives to the technology cover ed by [the nonessential] patents or . . . that any commercially vi able alternative actually existed.” Id. Thus, we held that there was insufficient evidence to support the Commission’s conclusion that including nonessential patents in Philips’s patent package had an actual anticompetitive effect. Id. at 1195. We also held that t he Commission failed to give adequate consideration to the procom petitive effects of package lic ensing and did not properly acknowledge problems associated with licensi ng each patent individually, “such as the transaction costs associated with maki ng individual patent-by-patent royalty determinations and monitoring possible infringem ent of patents that pa rticular licensees chose not to license.” Id. at 1198. Consequently, we remanded for further proceedings so the Commission could “address all of the issues presented by the administrative law judge’s decision under both the per se and rule of reason analysis.” Id.05-1388 4 In a second pertinent developm ent postdating the district court’s decision, the Supreme Court recently reexam ined whether, in antitrust tying cases, courts should recognize a presumption of mark et power in a patented product. Ill. Tool Works, Inc. v. Independent Ink, Inc. , No. 04-1329 (U.S. Mar. 1, 2006). Although that case arose in the context of an antitrust clai m, the Supreme Court comm ented on the defense of patent misuse, noting that Congress had “narrow[ed] the patent misuse defense” with the enactment of 35 U.S.C. § 271(d)(5). Id. , slip op. at 12. In the instant case, the district court based its summary judgment ruling on section 271(d)(5). The court in terpreted that statute to set forth the limits of the doctrine of patent misuse in the context of tying arrangements. Under se ction 271(d)(5), the court held, “an unlawful tie exists when a buyer is forced to purchase either a license in a patent for a second product or to purchase the second product itself.” The court added that multiple patents cove ring a single product “do not implicate the statute,” and that requiring a buyer to ac quire rights in additional patents covering the same product “does not constitute use of a patent to control a separate unpatented product.” Accordingly, the court held that Philips’ s package licensing of patents for a single product “is not tying within the meaning of § 271(d)(5)” and therefore could not constitute patent misuse. II Section 271(d)(5) designates specific prac tices as not constituting patent misuse. In particular, the statute provi des that it is not patent misu se for a patentee to “condition[ ] the license of any rights to [a] patent . . . on the acquisition of a license to rights in another patent . . . unless, in view of the circumstances, the patent owner has market05-1388 5 power in the relevant market for the patent . . . on which the license . . . is conditioned.” In our decision in the first Philips case, we held that secti on 271(d)(5) “does not define the scope of the defense of patent misuse, but merely provides a safe harbor against the charge of patent misuse for certain ki nds of conduct by patentees.” 424 F.3d at 1186. In Illinois Tool Works the Supreme Court advanced a similar characterization of section 271(d)(5), stating t hat “Congress included a provision in its codification that excluded some conduct . . . from the sc ope of the patent misuse doctrine.” Ill. Tool Works , slip op. at 11. The district court interpreted section 271(d )(5) not as a safe harbor provision, but as a definition of patent misuse in the c ontext of tying arrangem ents. Moreover, the district court concluded that section 271(d)(5) defines patent misuse in that context as present only “when a buyer is forced to pur chase either a license in a patent for a second product or to purchase the second pr oduct itself” and that “multiple patents covering a single product do not implicate the st atute.” That interpretation of section 271(d)(5) is inconsistent with the proper construction of the statute, which provides a safe harbor for certain conduct, not a compr ehensive definition of patent misuse. In addition, the court erred in r eading the statute to preclude a finding of patent misuse unless the tied patents involved multiple produc ts. Accordingly, without suggesting that the court reached the wrong ultimate conclusi on on the issue of patent misuse, we hold that the court erred by relying on section 271( d)(5) as the basis for its decision. We therefore vacate the district court’s dismissal of Princo’s patent misuse claim and remand for further consideration in light of this court’s decision in Philips and the Supreme Court’s decision in Illinois Tool Works

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