A Patent Licensee’s Infringing Activity Outside a Licensed Field of Use Does Not Breach the License

Abstract

A patent license agreement with a field of use provision limiting the scope of the licensed activity did not contractually obligate the licensee to refrain from acting outside the scope of the field of use. As a result, a licensee’s infringing activity outside the scope of the field of use did not breach the license agreement, and a patent licensor was preliminarily enjoined from treating a license agreement as terminated by a material breach.

Patent license agreements may limit the scope of licensed activities to a certain field of use for the patented technology. In a recent case, the Federal Circuit considered whether a field of use provision imposed a contractual obligation on the licensee to refrain from acting outside the defined field of use.

Background

MACOM sold their GaN semiconductor patents to Infineon and received a license back to practice the patents in a defined "Field of Use" and exclusively practice the patents in an "Exclusive Field." Infineon later accused MACOM of breaching the agreement by making and selling products outside the Field of Use of the license agreement and terminated the agreement, claiming that MACOM’s activity was a material breach of the agreement. 

MACOM admitted its activity infringed the licensed patents, but claimed its sales were minimal and that any breach had been cured. It then asked a court to declare that the license agreement was wrongly terminated and remained in effect, and to enjoin Infineon from treating the license agreement as being terminated. The court granted a preliminary injunction ordering that the license agreement remain in full force.

The MACOM Decision

On appeal, Infineon argued that a preliminary injunction was not warranted because MACOM’s activity breached the following license agreement provision and the implied covenant of good faith and fair dealing: 

[Infineon] hereby grants to [MACOM] the following: a) a worldwide, royalty-free, fully paid exclusive license in the Field of Use only, with the right to sublicense in the Field of Use only, to use the Licensed Patents to design, develop, make, have made, use, offer to sell, sell and service Products.

The Federal Circuit disagreed, finding that this language simply conveys a license to MACOM, which is a promise by the licensor not to sue and nothing more. The language does not suggest a promise or obligation of MACOM to not exceed the field of use. Nor does the implied covenant of good faith and fair dealing impose such an express obligation.

The Federal Circuit also found that MACOM would be irreparably harmed without a preliminary injunction. If the agreement were terminated, MACOM would lose its exclusive license to practice the licensed patents in the Exclusive Field, and lose sales from customers who purchase MACOM’s products because such products were exclusively available from MACOM. 

Although the license agreement did not affirmatively preclude and would not be materially breached by MACOM operating outside the Field of Use, Infineon could still sue MACOM for patent infringement for unlicensed infringing activity outside the Field of Use.

Strategy and Conclusion

Including a provision that affirmatively precludes a licensee from operating outside the licensed field of use may be helpful in establishing a contractual right to terminate a license agreement if licensee operates outside the field of use and to sue for breach of contract, rather than merely relying on rights to sue for patent infringement.

Further Information
The MACOM decision can be found here.