The U.S. Court of Appeals for the Federal Circuit issued a mixed decision upholding a district court's grant of summary judgment for non-infringement of one patent and vacating a grant of summary judgment for non-infringement of another patent. Zenith Electronics Corp. v. PDI Communication Systems, Inc., Case No. 04-4796 (Fed. Cir., April 16, 2008) (Schall, J.). Perhaps anticipating the imminent Supreme Court decision in Quanta , the Court devoted much of its discussion to an explanation of the circumstances under which the Federal Circuit will infer an implied patent license to a third-party user of a patented article.
Zenith asserted two patents against PDI Communication Systems. The patents generally relate to televisions and wired remote control devices found in pillow speakers used in hospital rooms. Three companies— Curbell Electronics, MedTek, Inc. and Crest Electronics (the pillow speaker manufacturers)—manufacture and distribute digital pillow speakers pursuant to a patent licenses that they have from Zenith in one of the two patents. Although the patent covers only pillow speakers, the pillow speaker manufacturers specifically designed their pillow speakers to operate using Zenith control codes. After PDI began marketing an LCD television that was compatible with the digital pillow speakers but that used Zenith control codes, Zenith filed suit, asserting that PDI was directly infringing its patents by testing and operating its televisions with pillow speakers and indirectly infringing by supplying televisions and encouraging its customers to operate the televisions using pillow speakers.
Among other defenses, PDI asserted it had an implied license that precluded Zenith's infringement claims.
The Federal Circuit affirmed, noting that the license agreements for the one patent that was licensed explicitly authorize the speaker manufacturers to sell pillow speakers for uses covered by the licensed patent. The Court noted that Zenith could have placed restrictions on third-party use when it granted licenses to the pillow manufacturers but did not. Since the manufacturers were expressly authorized to manufacture pillow speakers for all purposes, the Court concluded that customers who purchase pillow speakers from these authorized manufacturers obtain an implied license to use those pillow speakers in combination with any compatible television—not just Zenith televisions.
In contrast, the Federal Circuit found no implied license in the other, unlicensed patent in suit. Thus, to the extent that the district court's grant of summary judgment of implied license defense included that patent, the Federal Circuit vacated the ruling.
As to the district court's grant of summary judgment on PDI's anticipation defense, the Federal Circuit reversed. PDI defended against the infringement charge, raising what is colloquially known as a "practicing prior art" defense; a sort of hybrid non-infringement defense that requires only a preponderance of the evidence standard to prove. However, as the Court reminded us, in order to invalidate by anticipation the more stringent clear and convincing standard must be met. The Court noted that "mere proof that the prior art is identical, in all material respects, to an allegedly infringing product cannot constitute clear and convincing evidence of invalidity." Only where the appropriate burden of proof is established, can the maxim "[t]hat which infringes if later, anticipates if earlier" be applied.
Practice Note: The Federal Circuit's extensive discussion of implied patent licenses is likely to soon be upstaged by the impending Supreme Court decision in QuantaComputer v. LG Electronics. Under the Supreme Court precedent on the doctrine of patent exhaustion, once a patentee grants a license to the patented invention and the licensee sells patented goods under its license, the patentee is prohibited from enforcing post-sale restrictions on use or resale by authorized purchasers or downstream users of the patented goods. At issue in Quanta is whether a Federal Circuit line of cases which allow a patentee to contract around the doctrine of patent exhaustion by imposing express restrictions in its patent license grants are in conflict with Supreme Court precedent.
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