Using a Patent or Copyright Misuse Defense in Counterfeit Cases

Using a Patent or Copyright Misuse Defense in Counterfeit Cases

When companies sue for patent or copyright infringement based on counterfeit goods, the accused infringers often raise a defense called “patent misuse” or “copyright misuse.” This defense argues that the patent or copyright holder is improperly using their intellectual property rights to obtain an unfair competitive advantage.

For example, a company might claim that a competitor is infringing its patent by selling a knockoff product. But if the patent holder is trying to eliminate competition by suing anyone who makes a similar product, rather than just protecting their specific patented invention, the defendant could claim patent misuse.

What is Patent Misuse?

The patent misuse defense originated to prevent patent holders from abusing their rights. The law says patents can only be used for their intended purpose – to protect a specific invention. They can’t be used to gain unfair competitive advantage or eliminate competition more broadly.

Patent misuse occurs when a patent holder tries to improperly expand the scope of their patent. Or they use the patent for anticompetitive purposes beyond just protecting their invention. If a defendant can show patent misuse, the patent may be ruled unenforceable until the misuse ends.

For example, a patent holder might try to require licensees to purchase other products along with the patented product. This type of illegal “tying” arrangement is one form of patent misuse. The patent holder is leveraging their patent to gain market share in multiple products, not just protecting the specific patented invention.

What is Copyright Misuse?

Copyright misuse is similar. It prevents copyright holders from using their copyrights to stifle competition, rather than just protecting their creative works. If a copyright holder uses their copyright to gain a monopoly or unfair advantage outside the scope of their copyright, a defendant can claim copyright misuse.

For example, a company might claim a competitor is infringing its copyright by selling a knockoff product with a similar creative design. But if the copyright holder is trying to eliminate any products with a similar style, rather than just protecting its specific creative elements, the defendant could claim copyright misuse.

Using Misuse Defenses in Counterfeit Cases

Counterfeit goods often involve exact replicas carrying the same trademark or protected elements copied directly from the original product. This type of clear-cut infringement makes misuse defenses difficult. But there are some scenarios where a misuse argument may apply:

• The copyright or patent holder has a history of overly aggressive lawsuits against any similar products, rather than focused protection of their IP.
• The IP rights are ambiguous, yet the holder aims to block entire product categories, not just specific infringing items.
• The alleged infringement involves a modified or evolved design, not an exact replica, but the holder claims it’s still derivative.

In these types of cases, the accused infringer could potentially argue the IP holder is misusing their rights to eliminate competition broadly. But the specifics of each case matter.

Pros of Raising a Misuse Defense

Some potential benefits if a misuse defense succeeds include:

• The infringed IP may be ruled unenforceable until the misuse ends.
• It raises scrutiny of the IP holder’s motivations and business practices.
• The defendant avoids liability for infringement damages.
• It sets a precedent to limit the IP holder’s anti-competitive overreach.

In some cases, a successful misuse defense can even lead to invalidating part or all of a patent or copyright. This restricts the IP holder’s rights and opens the door to more competition.

Cons of Raising a Misuse Defense

Potential downsides of claiming patent or copyright misuse include:

• It’s challenging to prove the IP holder’s intent is anti-competitive rather than just protective.
• The defense can fail even if the IP holder is overreaching, leaving the defendant liable.
• It provokes close scrutiny of the defendant’s own motivations and conduct.
• The discovery process can be lengthy and expensive for both parties.
• It’s an uncertain defense that depends on the judge’s discretion.

Unless there is clear evidence of anti-competitive intent, misuse claims are hard to prove. So defendants should weigh the costs and risks before raising this defense.

Examples of Patent Misuse in Case Law

Here are some examples of successful patent misuse defenses in court cases:

• Morton Salt Co. v. G.S. Suppiger Co. – The patent holder leased its salt depositing machines only to customers who agreed to buy its salt. This tying arrangement was ruled patent misuse.
• Motion Pictures Patents Co. v. Universal Film Co. – The patent holder required movie projector licensees to show only its films. This blocking of competitors’ films was patent misuse.
• Lasercomb America, Inc. v. Reynolds – The software copyright holder banned licensees from developing any competing software. This restraint of trade was copyright misuse.

These examples show how misuse defenses can succeed when IP rights are exploited to gain unfair competitive advantage. But the specific facts of each case determine the outcome.

Strategies for Defendants

If you are the defendant in an infringement lawsuit, here are some strategies to consider regarding misuse defenses:

• Gather evidence about the IP holder’s anti-competitive conduct or statements demonstrating intent to block competition.
• Develop clear arguments how their IP rights overreach the protected invention or work.
• Research whether courts have rejected the IP holder’s claims against similar products.
• Demonstrate how your product differs from their protected IP, if applicable.
• Be prepared for added litigation costs and delays if you claim misuse.

Any evidence showing the IP holder is using litigation to stifle competition, not just protect its IP, will help support a misuse defense.

Strategies for IP Holders

If your company is the plaintiff asserting IP rights, you can take these steps to prevent misuse claims:

• Clearly identify the specific protected IP elements and how the defendant copied them.
• Avoid any statements or conduct that could suggest you aim to block competition broadly.
• Demonstrate willingness to allow competitors who don’t infringe your IP rights.
• Develop lawful licensing programs enabling fair competition.
• Consult experienced IP attorneys to ensure you stay within the lawful scope of your rights.

By focusing infringement claims on protecting your specific IP – not eliminating competition – you can reduce the risk of a successful misuse defense.

The Bottom Line

Patent and copyright misuse defenses remain difficult to prove. But they can provide a valuable counterattack against overzealous IP holders in some cases. Defendants should carefully assess the risks and gather solid evidence before pursuing this strategy. Meanwhile, IP owners can protect their rights while avoiding misuse claims through reasonable enforcement focused on true infringement.

With careful case-by-case analysis, misuse defenses can curb abusive IP litigation while still respecting legitimate intellectual property rights. The law aims to strike a balance between incentives for innovation and maintaining fair competition.