Contractual Expansion of the Scope of Patent Infringement Through Field-of-use Licensing

ABSTRACT Patentees sometimes employ field-of-use licenses, under which they grant the right to use their inventions, but only in specified ways. Field-of-use licensing is often procompetitive, because the ability to provide different licensing terms for different users can encourage broader licensing of inventions. But in recent cases, the Court of Appeals for the Federal Circuit and several district courts have upheld field-of-use licenses that prohibited activities that would otherwise have been permitted by patent law, such as the repair and resale of patented products. By treating any violation of a license agreement as patent infringement, and by upholding license provisions that prohibited previously permitted activities, the courts have allowed patentees to expand the scope of patent infringement liability. This Article describes the dramatic expansion of patent law that has resulted, and it advocates a test that would require a patentee to show that the conduct it challenges would be infringement in the absence of a license before it can seek to make it infringement by license. The Article also briefly compares these effects in patent law to the analogous effects of shrink-wrap licenses and the DMCA in copyright law, and it assesses the potential for similar expansion of patent infringement liability in Europe. TABLE OF CONTENTS INTRODUCTION I. THE LEGAL FRAMEWORK FOR FIELD-OF-USE LICENSING A. The Supreme Court B. The Federal Circuit C. The IP Guidelines D. Field-of-Use Licensing Rules in Europe II. THE U.S. APPROACH IN THE LOWER COURTS A. Recent Cases 1. Lexmark 2. Ottawa Plant Food 3. The Monsanto Cases B. Shortcomings in the Courts' Contract and Patent Analyses 1. Contract Analysis 2. Patent Analysis III. FIELD-OF-USE LICENSING AND THE SCOPE OF PATENT INFRINGEMENT A. The Scope of Infringement 1. Making and Repair 2. Selling and Reselling 3. Self-Replicating Products B. Restrictions on Downstream Purchasers IV. THE BENEFITS OF USE LICENSING A. Free Riding 1. "Free Riding" in Downstream Markets 2. Patents Related to the Use at Issue B. Price Discrimination and Financing 1. Price Discrimination in Related Markets 2. Price Discrimination Through Contract 3. Exceptional Cases Requiring Patent Protection CONCLUSION INTRODUCTION Patentees have a variety of options for licensing their patented inventions. One common technique is the field-of-use license, under which the patentee grants the right to use the patented invention, but only in a specified way. Field-of-use licensing is generally seen as procompetitive, because the ability to provide different licensing terms for different users can encourage broader licensing of inventions. (1) For example, the Supreme Court has upheld a field-of-use licensing arrangement under which several patentees licensed third parties to manufacture audio amplifiers using their patented technologies, but only for home use. (2) This arrangement allowed the patentees to reserve the right to manufacture for commercial use, which was apparently more profitable, while still allowing the technologies to be used broadly for home applications. (3) If licensing had required the patentees to share the commercial business as well, they might not have licensed the technologies for home use at all. But field-of-use licensing need not always be procompetitive. The anticompetitive concerns can be especially great when the patentee imposes restrictions on the ultimate purchasers of the patented products rather than on manufacturing licensees. (4) In recent U.S. cases, patentees have used field-of-use licensing to prevent purchasers of patented products from repairing those products, and to enforce distribution restraints. (5) In these contexts, the use restrictions might not have facilitated broader licensing. …