The U.S. Court of Appeals for the Federal Circuit affirmed the district court’s summary judgment decision that a settlement agreement between the patent owner Jacobs and a supplier permitted the supplier to sell infringing devices for use by its manufacturing customers, including the defendant Nintendo. Jacobs v. Nintendo of Am., Inc., Case Nos. 03-1297, 2004 U.S. App. LEXIS 10515 (Fed. Cir. May 28, 2004).
Prior to bringing the underlying lawsuit against Nintendo, Jacobs brought a patent infringement action against Analog Devices, Inc. (Analog) for selling accelerometers for use in tilt-sensitive control boxes. Jacobs charged that the accelerometers infringed upon its U.S. Patent No. 5,059,958 (the `958 patent), and thereafter entered into a settlement and licensing agreement with Analog. In the agreement, Jacobs granted Analog two critical rights: the right to be free from suit based on the `958 patent and the right to sell micromachined accelerometers for use in tilt-sensitive control boxes.
Thereafter, Jacobs brought a patent infringement action against Nintendo, charging infringement of the `958 patent by selling tilt-sensitive control boxes that incorporated the Analog accelerometers. Nintendo moved for summary judgment of non-infringement, asserting its acts were protected by the Jacobs-Analog agreement. The district court agreed, concluding "for Jacobs to bar Analog’s customer Nintendo from using Analog’s accelerometers in the products expressly referred to in the settlement agreement would undermine the provision of the agreement permitting the sale of accelerometers ‘for use in tilt-sensitive control boxes.’" The district court explained that Jacobs should not be permitted to do "through the back door—by suing a customer of Analog—what he cannot do through the front door, i.e., by suing Analog."
On appeal, Jacobs pressed the argument based upon the non-infringing use doctrine articulated in Met-Coil Systems Corp. v. Korners Unlimited, Inc. According to Jacobs, in order for Nintendo to enjoy an implied license, it had to establish that Analog’s accelerometers had no non-infringing uses. The Federal Circuit distinguished Met-Coil from the present case, explaining that "the doctrine applies when a patentee or its licensee sells an article and the question is whether the sale carries with it a license to engage in conduct that would infringe the patent owner’s rights. In that setting, absent an express agreement between the parties, determining whether the sale conveys with it the implied right to use the article in an infringing manner may depend on whether there is any non-infringing use for the article." However, the Court concluded that the doctrine does not apply where, as in the present case, the Jacobs-Analog agreement authorized Analog to sell its accelerometers for use in the allegedly infringing control boxes.
Affirming the district court’s grant of summary judgment, the Federal Circuit barred Jacobs from interfering with Analog customers’ right to use the accelerometers for that authorized purpose. The Court found that interpretation in accordance with the basic contract principle that a party may not assign a right, receive consideration for it and then take steps that would render the right commercially worthless.
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