District Court Sets for Trial Issue Whether License Agreement Providing for Royalty Based on Worldwide Sales Not Covered by National Patent Reflected Parties' Intent and Was Patent Misuse

The World in U.S. Courts: Spring 2016 - Intellectual Property: Patent

Tessera, Inc. v. UTAC (Taiwan) Corp., U.S. District Court for the Northern District of California, January 15, 2016

The District Court in California issued a decision on summary judgment that interpreted a complicated license agreement for the use of technology to assemble semiconductor integrated circuits. The defendant licensee sought clarification of the order to confirm that the contract imposed a license fee only on sales covered by relevant national patents and not, as the plaintiff licensor argued, on all sales worldwide.

The Court first noted that the parties are sophisticated and thus held to know that national patent laws—specifically including those in the U.S.—do not grant extraterritorial rights. The Court also noted that U.S. patentees are not permitted to claim royalties on sales having no connection with the U.S. Having said that, however, it also observed that parties remain free to incorporate royalties on U.S.-based sales in alternative ways that may be easier to administer, including based on worldwide sales where a worldwide license under the laws of multiple jurisdictions has been agreed to. Indeed, the licensor in this case sought to introduce "extrinsic" evidence (i.e., evidence outside the actual language of the contract) that the licensee had actually paid royalties on exactly such a worldwide basis prior to the dispute that led to the litigation. The Court concluded that the extrinsic evidence could properly be considered, but that the weight to be given to it could only be assessed by a jury at trial. The Court also reserved for later decision the question whether the licensor's interpretation that the royalty should be based on worldwide sales violated the U.S. antitrust limitations on collecting royalties on sales outside the scope of a patent, and therefore constituted patent misuse.

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