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Patent License Carries Implied Rights for Customers

May 28, 2004

Decision icon Decision

Last Month at the Federal Circuit - June/July 2004

Judges: Bryson (author), Michel, and Linn

In Jacobs v. Nintendo of America, Inc., No. 03- 1297 (Fed. Cir. May 28, 2004), the Federal Circuit affirmed a SJ that Nintendo of America, Inc. (“Nintendo”), being a customer of Analog Devices, Inc. (“Analog”), could not infringe, given an existing license between Jordan Spencer Jacobs and Analog.

Jacobs owns U.S. Patent No. 5,059,958 (“the ‘958 patent”), which concerns a tilt-sensitive joystick for a video-game controller.

In July 2001, Jacobs settled a case against Analog and agreed to license Analog to the ‘958 patent. After settling with Analog, Jacobs then sued Nintendo for infringement of the ‘958 patent. As an Analog customer, Nintendo moved for SJ of noninfringement based on the ‘958 patent license. The district court ruled that because the settlement agreement between Jacobs and Analog permitted Analog to sell accelerometers for use in tilt-sensitive control boxes, such as the ones manufactured and sold by Nintendo, Nintendo had an implied license to use the Analog accelerometers in such control boxes.

On appeal, the Federal Circuit agreed with the district court. The Court rejected Jacobs’s argument that the Jacobs-Analog agreement was only a bare license granting Analog the right not to be sued for making, using, or selling accelerometers for use in tilt-sensitive control boxes, but such right did not extend to such customers like Nintendo. Such an interpretation, the Federal Circuit ruled, would violate the basic contract principle that a party may not assign a right, receive consideration for it, and then take steps that would render the right commercially worthless. Jacobs knew that Analog was not in the business of making game controls, so there is no reason to believe that Analog would have bargained for a right that would not protect its customers.