Antitrust Law Daily Wrap Up, ANTITRUST—D. Del.: Philips Electronic moves forward with patent misuse defense, (May 19, 2015)

By Greg Hammond, J.D.

In a patent infringement suit concerning a physiological monitor and signal processing device, Philips Electronic North America Corp. could proceed with its patent misuse defense. The federal district court in Wilmington determined that the patent misuse claim was adequately pleaded and was not barred by the law of the case (Masimo Corp. v. Philips Electronic North America Corp., May 18, 2015, Stark, L.).

Background. In February 2009, Masimo Corp.—a manufacturer of non-invasive patient monitoring technologies—filed suit against Philips, alleging that Philips infringed 14 patents. Philips asserted a patent misuse affirmative defense and brought antitrust counterclaims against Masimo for alleged violations of the Sherman and Clayton Acts. Both the patent misuse defense and antitrust counterclaims were separately bifurcated and stayed, pending a determination of patent validity. Philips subsequently admitted infringement on two patents concerning a signal processing device and physiological monitor. The case was before the court on Masimo’s motion for judgment on the pleadings with regard to the patent misuse defense.

Sufficiency. Masimo argued that Philips’ pleadings, taken as true, established only antitrust violations that cannot sustain a claim for patent misuse. The court rejected this argument, finding that Philips’ amended answer “plainly alleges patent misuse.” Specifically, Philips alleged, “Massimo has engaged in a systematic campaign to broaden the scope of its patent rights with anticompetitive effect. As a result, Masimo has misused the…’222 [and] ‘984…patents, and is barred from asserting them against Philips under the equitable doctrine of patent misuse.”

Patent misuse. Under its patent misuse affirmative defense, Philips argued that Masimo improperly expanded the scope of its patent rights over the claimed pulse oximetry system by tying the sales of its patented monitors to the sales of staple goods, including cables and sensors that could also be produced by competitors. Specifically, Philips asserts Masimo did this by using: (1) patent licensing and distribution agreements; (2) a technological lock-out; and (3) bundled discounts, all of which foreclose competition from non-infringing rival cables and sensors.

The court first determined that Philips stated a claim for per se patent misuse, because it alleged that Masimo conditioned sales of its patented monitors on customers’ agreements to purchase Masimo sensors and cables, and by conditioning licenses of its monitor-related patents on the licensees’ agreement to require customers to purchase Masimo sensors and cables. The sensors and cables, according to Philips’ allegations, are unpatented commodity products that would otherwise face competition from a variety of other products.

Certain exemptions that do not constitute patent misuse were also not applicable in this case, the court found, because Masimo failed to demonstrate that competitors in the pulse oximetry market would have contributorily infringed its patents by selling their own sensors or cables, and Philips sufficiently alleged Masimo had market power. The court additionally found that to the extent Philips had not stated a claim for per se patent misuse, it had at minimum provided notice of a patent misuse claim that, taken as true, states patent misuse when evaluated under the rule of reason.

Lastly, the court rejected Masimo’s argument that Philips’ claim must fail because Philips did not allege that staple cables and sensors are “entirely separate products.” Philips, according to the court, expressly alleged that staple sensors and cables are each separate products, each of which compete in separate product markets from monitors. Cables were never recited in either of the patents-at-issue, and the claimed invention is not over an individual sensor. Rather, the claimed invention of each of the asserted claims is over a pulse oximetry system as a whole.

Law of the case. Massimo also contended that Philips’ affirmative defense was barred by the law of the case. The court rejected this argument, however, finding first that Masimo’s reliance on law of the case doctrine assumes that the court could broaden the scope of Masimo’s patent rights, which it cannot. Second, the court found that Philips did not expressly or implicitly concede that Masimo’s patent rights extend to all sensors and cables in the pulse oximetry market. Consequently, the law of the case on direct infringement did not establish Masimo has separate rights over rival cables and sensors sold without the claimed system. The motion for judgment on the pleadings was therefore denied.

The case number is 09-80-LPS.

Attorneys: Julia Heaney (Morris, Nichols, Arsht & Tunnell, LLP) and Joseph R. Re (Knobbe, Martens, Olson & Bear, LLP) for Masimo Corp. Richard L. Horwitz (Potter, Anderson & Corroon, LLP), Brian A. Rosenthal and Steven Yovits (Mayer Brown, LLP), William Rooklidge (Gibson Dunn), Gregory A. Castanias and Sasha Mayergoyz (Jones Day) for defendants.

Companies: Masimo Corp.; Philips Electronic North America Corp.; Philips Medizin Systeme Böblingen GmbH

Cases: Antitrust DelawareNews