Patent Abuse/Misuse

The right to make, use, or sell items which embody a patent may be granted by a patent holder to others by way of a "license." A license is simply a consent to make, use, or sell, generally limited in duration, field of use, geographic territory, or number of units produced. A license may also provide a consent to less than the full array of patent rights (make, use, sell, or import).

However, patent holders must remember that a patent is a legal monopoly, and monopoly is not favored in the U.S. As a result, patent holders must be mindful of the limitations on exercising patent rights, particularly in the context of licensing, where "patent misuse" has been found in several contexts. The "common thread" in finding misuse is often the existence of a "tie-in," i.e., the conditioning of consent upon things outside the bounds of the patent monopoly. Examples include:

Term of Patent Licensing

For instance, an agreement calling for royalty payments beyond the life of the patent is unenforceable. However, payment for transfer of a patent in installments which go beyond the term of the patent is enforceable, where the requirement to make such payments was agreed for the convenience of the parties (as in a financing arrangement).

Grant Back

Similarly, the right to improvements on an invention conceived by a license is unenforceable if it effects a restraint of trade or creates monopoly (as where a clause requires assignment of improvements whose scope extends far beyond that of the patent being licensed).

Product Scope

Similarly, an agreement between patent holder and licensee not to deal in competing products may be unenforceable as misuse. However, the payment of royalties based on the value of an item of which only some components are patented is not misuse where that basis is adopted for the convenience of the parties.

Geographical Scope

Similarly, an agreement to pay royalties on product sold outside the jurisdiction in which a patent is effective in exchange for a license within such jurisdiction is unenforceable as misuse.