Refusal to License Patents

The Core Right to Exclude

• 35 U.S.C. § 154(a)(1) grants the patent owner the right to exclude others from making, using, offering for sale, or selling the patented invention
• The right to EXCLUDE includes the right to refuse to license — a patent owner cannot be required to affirmatively share the invention with anyone

Historical Foundation

• Continental Paper Bag Co. v. Eastern Paper Bag Co. (S.Ct. 1908): the Supreme Court held that a patent owner could enforce its patent even if it had never used the patent and had no intention of using it
• The right to exclude encompasses the right to refuse to deal
• The fact that a refusal eliminates competition in a market does not make the refusal unlawful

Why the Right to Refuse is Important

• It allows patent holders to maintain exclusivity as a competitive advantage
• It allows patent holders to demand higher royalties rather than being forced to license at any price
• It preserves the patent holder's choice of business model (vertical integration vs. licensing)

Unilateral Refusal

• Simply refusing to license at any price
• Generally lawful

Conditional Refusal

• Refusing to license unless the licensee also licenses back competing patents, or refuses to license to certain competitors, or attaches other conditions
• Conditional refusals can raise antitrust concerns (tying; exclusive dealing)

The Policy Tradeoff

• The right to refuse to license creates a tension with antitrust goals
• Courts have consistently resolved this tension in favor of the patent right, finding that a unilateral refusal to license is not normally an antitrust violation, because the patent system itself created the right to exclude.

The General Rule — Refusal to License is Lawful

• Courts have consistently held that unilateral refusal to license a patent is NOT an antitrust violation even if the refuser has monopoly power and the refusal harms competition
• VERIZON COMMUNICATIONS v. LAW OFFICES OF CURTIS TRINKO (S.Ct. 2004): the Supreme Court reinforced that there is no general duty to deal with competitors
• Unilateral refusal to deal is only an antitrust violation in extreme circumstances where: (1) the refusal terminates a prior course of dealing, AND (2) there is no legitimate business justification for the termination
• ASPEN SKIING CO. v. ASPEN HIGHLANDS SKIING CORP. (S.Ct. 1985): found antitrust liability for refusal to deal where the defendant had previously shared joint tickets with the plaintiff and then abruptly terminated the arrangement to harm a competitor — the refusal was irrational except for its exclusionary purpose

Essential Facilities Doctrine

• The controversial theory that a monopolist who controls an essential facility (one a competitor cannot practically duplicate) must provide access
• Courts have been skeptical of this doctrine in patent cases
• Trinko rejected it

Conditional Refusal Raising Antitrust Concerns

• Refusing to license UNLESS the competitor pays supracompetitive royalties (above FRAND rates for standard-essential patents) can raise antitrust concerns
• Refusing to license UNLESS the competitor agrees not to challenge the patent's validity
• Refusing to license to certain types of customers or restricting licensee's market (vertical restrictions)

Leverage of Standard-essential Patents

• The most important exception to the general rule — if a patent owner committed to FRAND licensing during standard adoption, then refuses to license on FRAND terms, this is: a breach of the FRAND contract
• Potentially a violation of § 2 of the Sherman Act (attempted monopolization through breach of FRAND commitment)
• A basis for injunctive relief in patent cases to be denied (eBay four-factor test)

International Distinction

• The EU and some other jurisdictions are more willing to find antitrust liability for refusal to license by dominant companies
• EU competition law recognizes an essential facilities doctrine more broadly than US law
• US companies that refuse to license SEPs in EU markets should evaluate EU competition law exposure separately.

Why FRAND Matters

• If a patent holder could refuse to license or demand exorbitant royalties for SEPs after a standard is adopted, it could hold up the entire industry
• Once an industry adopts a standard and invests in building products for that standard, they have no practical alternative — creating lock-in that the SEP holder can exploit
• The FRAND commitment is the price of having the patent included in the standard

Breach of FRAND Obligations

• If a SEP holder committed to FRAND licensing and then: refuses to license at all
• Demands unreasonably high royalties (royalty stacking)
• Refuses to license to downstream implementers (only licensing to manufacturers but not component suppliers)
• This constitutes breach of the FRAND contract
• The aggrieved party (the implementer) can: sue for breach of contract
• Seek specific performance of the FRAND commitment
• Assert antitrust violations for refusal to deal in violation of FRAND

Injunctions and Seps

• eBay v. MercExchange (S.Ct. 2006) eliminated the automatic grant of permanent injunctions in patent cases and required application of the four-factor test
• Courts have consistently found that SEP holders who have committed to FRAND licensing cannot easily obtain permanent injunctions because: they have indicated willingness to license (undercuts irreparable harm showing)
• Monetary damages (FRAND royalty) are an adequate remedy
• The public interest generally disfavors injunctions on standardized technology
• ITC AND SEPs: the ITC has a separate analysis for SEPs and generally declines to grant exclusion orders for SEPs where FRAND commitments exist

Calculation of FRAND Royalties

• The subject of enormous litigation
• Courts use methodologies like: comparable license analysis
• Top-down analysis (total industry revenue × reasonable royalty rate ÷ number of SEPs)
• Smallest salable patent-practicing unit (SSPPU) analysis to avoid royalty stacking.

The General Rule in the US — no General Compulsory Patent Licensing

• Unlike many other countries, the United States does NOT have a general compulsory patent licensing regime
• A US patent owner cannot typically be forced to license its patent to a competitor under normal commercial circumstances

(1) Government Use (28 U.s.c. § 1498)

• The US government may use any patented invention without the patent owner's consent
• The government's contractor may also use the patent on behalf of the government
• The patent owner is entitled to reasonable compensation
• This is the most commonly invoked US compulsory license
• Pharmaceutical companies have feared this provision might be invoked during public health crises

(2) Bayh-dole March-in Rights

• For inventions developed with federal funding, 35 U.S.C. § 203 allows the government to grant compulsory licenses if the patent holder: fails to achieve practical application of the invention
• Fails to satisfy health or safety needs
• Fails to meet requirements for public use specified by federal regulations
• March-in rights have been petitioned many times (often for high-drug prices) but NEVER invoked by the NIH or any other agency as of 2025

International Compulsory Licensing — TRIPS Agreement

• TRIPS Agreement Article 31 (and the 2001 Doha Declaration) allows member states to grant compulsory licenses for: national emergencies and other circumstances of extreme urgency
• Public non-commercial use
• Anti-competitive practices (to remedy)
• WTO members have used compulsory licensing for AIDS drugs and other medications
• The US has generally opposed compulsory licensing of pharmaceutical patents internationally

Practical Significance

• For US patent strategy, compulsory licensing risks are low except: for government procurement contracts where § 1498 applies
• For federally funded research subject to Bayh-Dole
• For standard-essential patents where FRAND commitments substitute for compulsory licensing in some respects.