Court Rules in Favor of Phillips in CD Flap

(CN) - The Federal Circuit has ruled in favor of electronics giant Philips in a dispute over patents for recordable compact discs.

In an 8-2 en banc decision, the circuit court rejected Princo Corp.'s patent misuse defense, declaring that an agreement between Philips and Sony standardizing the manufacture of CD-Rs was not unlawful.

The two companies published standards for CD-Rs in what became known as the "Orange Book," so that newer discs would work on players designed for earlier generation compact discs.

Philips accused Princo of infringing on its patents after it stopped paying fees under the terms of a licensing agreement.

In response, Princo claimed that the licenses were anticompetitive because Philips improperly suppressed alternative technical standards.

But the appeals court sided with the electronics giant, affirming a United States International Trade Commission decision in its favor.

"In this case the assertion of misuse arises not from the terms of the license itself but rather from an alleged collateral agreement between Sony and Philips," Judge William Bryson wrote for the court. "In that setting, the doctrine of patent misuse does not immunize Princo against the legal effect of its acts of infringement."

Judge Bryson rejected Princo's assertion that Sony and Philips' agreement not to include a license known as the "Lagadec patent" in the Orange Book had "anticompetitive effects."

Sony developed the patent to solve the problem of how to write data on to the discs using consumer CD reader/writers. But the two companies eventually settled on an alternative technology.

"The record, and the findings of the Commission, make clear that the Lagadec technology lacked both the technical and the commercial prospects that would have made it a possible basis for a product that could compete with Orange-Book-compliant discs in the data storage market," the judge said.

He added that the agreement had "no bearing on the physical or temporal scope of the patents in suit."

Judge Timothy Dyk dissented from the majority opinion and was joined by Judge Arthur Gajarsa.

Dyk argued that the court failed "to provide adequate protection against the suppression of nascent technology" giving "patent holders free rein to prevent the development of potentially competitive technologies except in the most extreme and unlikely circumstances."

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