Most-Favored-Licensee Provision Did Not Provide a License to Newly-Acquired Patents or Patents that Did Not Trigger the Provision

Abstract

The Federal Circuit found a license agreement’s “most-favored licensee” provision, that could be triggered by assertion of patents that were otherwise not addressed in the remainder of the license agreement, only applied to patents owned by the licensor at the time of the agreement and provided a future license only to such patents that triggered the provision.

Licensees sometimes attempt to obtain "most-favored-licensee" provisions to avoid the disadvantage of having a subsequent licensee get better terms or a greater scope of rights. Such a provision is intended to allow the original licensee access to those more favorable terms or that greater scope of rights if certain conditions are later met. In Wi-LAN USA, Inc. v. Ericsson, Inc., the Federal Circuit considered whether the most-favored-licensee provision of a patent license agreement created a license under patents later acquired by the licensor that did not trigger the provision.

Background

Wi-LAN and Ericsson entered into an Agreement providing a license to certain identified patents, and a most-favored licensee provision (MFL) under which Wi-LAN granted Ericsson a non-exclusive license to "patents not already addressed under this Agreement and which are infringed or alleged to be infringed by" products using one of two wireless industry standards. Subsequently, Wi-LAN sued Ericsson in the Southern District of Florida for infringing wireless communication patents that Wi-LAN acquired after the execution of the Agreement. Ericsson moved for summary judgment against Wi-LAN, arguing that the MFL provision entitled it to a license under the patents subsequently acquired by Wi-LAN. The district court agreed with Ericsson and granted summary judgment in its favor. On appeal, however, the Federal Circuit disagreed with Ericsson and held that the MFL provision only applied to patents owned or controlled by Wi-LAN as of the effective date of the Agreement. On remand to the district court, Ericsson continued to argue that the MFL provision granted it a license under the patents Wi-LAN subsequently acquired and asserted. Specifically, Ericsson argued that the Agreement’s MFL provision was triggered by Wi-LAN’s assertion of an unrelated patent that it owned at the time it executed the agreement with Ericsson against certain third parties based on products using the industry standard technology referenced in the MFL provision. Once triggered, Ericsson argued that the MFL entitled it to the terms of any future license not only for this unrelated patent but also to any other patents covering that industry standard technology including the patents Wi-LAN subsequently acquired and was asserting against Ericsson. Applying the Federal Circuit’s finding that the MFL provision only applied to patents owned or controlled by Wi-LAN as of the effective date of the Agreement, the district court found that the MFL provision did not apply to the newly-acquired patents being asserted by Wi-LAN against Ericsson.

The Wi-LAN Decision by the Federal Circuit

On appeal for the second time, the Federal Circuit interpreted the MFL provision as limited to the patent that triggered the MFL provision and that the MFL provision could only be triggered by assertion of patents owned or controlled by Wi-LAN at the time the Agreement was executed. The majority opinion found the MFL provision related to the "licensing of patents not already addressed" under the Agreement that are infringed or alleged to be infringed. It also concluded that the MFL provision discussed the rights extended to Ericsson in terms of those patents rather than products including the industry standard technology. Therefore, it rejected Ericsson’s proposed interpretation that the MFL provision was based on the scope of rights granted on such products. A concurring opinion offered a different interpretation, finding the MFL provision to be defined in terms of products that incorporate technology that meets one of the two recited industry standards, and not in terms of patents. Nonetheless, because the accused products do not use such technology, the concurring opinion agreed that the MFL provision did not apply to bar Wi-LAN’s infringement suit.

Strategy and Conclusion

This case illustrates issues that may arise from most-favored licensee provisions and how the scope of future licenses is defined under those provisions.

Further Information

The Wi-LAN decision can be found here.