Property, intangible

a blog about ownership of intellectual property rights and its licensing

Licensed Confusion

Koninklijke Philips Electronics N.V. v. Cinram International Inc. is, for the most part, about whether an “essential” patent in a patent pool was necessarily an infringed one (it’s not – or the license would not have said “for the avoidance of doubt, in the event that the manufacture by Licensee of CD-Discs within the Territory would not infringe any of the Licensed Patents, Licensee shall have no obligation to report and pay royalties in respect of CD-Discs manufactured within the Territory and which are sold for final use within the Territory . . . .”).

But the case also points out the perils of licensing in complex enterprise structures. The patent in suit, U.S. Patent No. 5,068,846, is owned by U.S. Philips Corporation. The patent license was in the name of the parent, Koninklijke Philips Electronics N.V. This made room for the defendant to argue that no one had standing to sue for breach of contract – Koninklijke didn’t because it didn’t own the patents, and U.S. Philips because it wasn’t a party to the contract.

Koninklijke produced a “rabbit from the hat” in the form of a General Services Agreement, which said that U.S. Philips agreed to assign the patents at a future, unspecified date. The court agreed with the defendant that this was an impermissible attempt by Koninklijke to reverse pierce the corporate veil: “Under New York law, a parent corporation may not pierce the corporate veil it set up for its own benefit in order to advance the claims of the subsidiary.”

Koninklijke was nevertheless successful because there is no requirement that one delegate the right to license intellectual property in writing, so Koninklijke had the authority to obligate U.S. Philips. “Under New York law, even if a party subjectively does not intend to be legally bound, if his actions, gauged by an objective standard, support the conclusion that he accepted the agreement, he will be legally bound to honor the contract.” Both the patent owner and the licensor were parties to the suit, and all necessary plaintiffs were parties to the suit.

This isn’t the first time Philips has been vulnerable because the wrong entity acted. In U.S. Philips Corp. v. Iwasaki Elec. Co. Ltd., the notice of infringement of a patent owned by U.S. Philips was sent on Philips International B.V. letterhead. The district court held that the letter was not adequate to put the accused infringer on notice of infringement because of the misidentification, but, fortunately for Philips, the decision was reversed on appeal.

Koninklijke Philips Electronics N.V. v. Cinram International Inc., No. 1:07-cv-00970-RJH, 2009 WL 783441 (S.D.N.Y. Mar. 27, 2009). U.S. Philips Corp. v. Iwasaki Elec. Co., Ltd., 505 F.3d 1371 (Fed. Cir. 2007).

© 2009 Pamela Chestek

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