Issue 06/68 | December 18, 2006
Recent Ruling Adds Strength to Sophisticated Patent Licensing Programs

Corporate patent departments are feeling the pressure to maximize their patent holdings — much like corporate executives feel the pressure from "Wall Street" to increase shareholder earnings. Fortunately, a recent ruling from the United States District Court for the District of Columbia (Judge Paul Friedman) in Minebea Co. v. Papst (August 2006), gives sophisticated patent licensing programs some guidance on how to maximize royalty income.

Papst owns both patents on hard disk drives and patents on the motors for those hard disk drives. Papst collects royalties from both the suppliers of the motors and the manufacturers of the hard disk drives that use those motors. Minebea charged Papst with patent misuse. Minebea claimed that Papst was trying to exact "double royalties." Minebea argued that it already was paying Papst to license its motor patents and that Minebea's customers should not have to pay a separate licensing fee to Papst for use of Papst's hard disk drive patents.

Judge Friedman found that Papst's program reflected "sound patent licensing practice." 444 F. Supp. 2d at 126 n.41. He explained that:

"Minebea and its customers do not pay for the same patent rights on the same products. Minebea has paid Papst a single royalty payment to directly infringe Papst's motor patents and to indirectly infringe Papst's drive patents by virtue of its motor sales. Minebea never paid for any rights to directly infringe the drive patents and thus did not pay for any rights with regard to disk drive products....

"Although Papst does collect two sets of royalties on its drive patents — one from directly Minebea, and one directly from Minebea's customers — these royalties pay for different sets of rights that apply to different products. Minebea pays Papst for the right to indirectly infringe the drive patents by its sale of motor products; the customers must pay Papst for the right to directly infringe the drive patents by their manufacture of disk drive products." 444 F. Supp. 2d at 212.

Judge Friedman's opinion supports a licensing program that maximizes royalty income by collecting royalties at multiple levels in the distribution chain. This is advantageous not only to the patent owner, but also to the licensees. Often no one licensee can afford to pay the entire royalty that would adequately compensate the patent owner for the full value of the patented technology. Under a multitier licensing system like Papst's, the burden of royalty payments can be spread proportionately among the licensees according to the technological benefit they receive and their ability to pay. The patentee gets its full compensation and no licensee has to pay more that its fair share.

For more information on this topic, please contact Jerold B. Schnayer (jbschnayer@welshkatz.com), Daniel R. Cherry (drcherry@welshkatz.com) or Steven E. Feldman (sefeldman@welshkatz.com) or visit www.welshkatz.com.

The information contained in this email is provided for informational purposes only and does not represent legal advice. Neither the APLF nor the author intends to create an attorney client relationship by providing this information to you through this message.

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