Barnes & Noble’s patent-misuse claim v. Microsoft: not dead yet!

February 2, 2012

On Tuesday, administrative law judge Theodore Essex of the U.S. International Trade Commission dealt a blow to Barnes & Noble. As the bookseller heads into trial next week on Microsoft’s claim that its e-readers infringe four Microsoft patents, Essex dismissed Barnes & Noble’s patent-misuse defense. B&N, you’ll recall, has waged an aggressive antitrust campaign against Microsoft, claiming that Microsoft is attempting to squelch the Android operating system by improperly asserting its patents. But next week’s trial won’t consider whatever evidence Barnes & Noble’s antitrust lawyers — at Cravath, Swaine & Moore and Boies, Schiller & Flexner — have amassed. The ALJ will determine only the validity of Microsoft’s patents and whether Barnes & Noble infringes them.

Florian Mueller of FOSS Patents, who was the first to report on Essex’s patent-misuse ruling, interpreted the dismissal as a broad repudiation of Barnes & Noble’s antitrust case against Microsoft. I’m not so sure about that — and my understanding is that when the ITC case is over, the bookseller can and will fire up its patent-misuse claims in the parallel Seattle federal court litigation between Barnes & Noble and Microsoft.

The ITC docket is a journalist’s nightmare. Just about every substantive document is confidential, including Microsoft’s brief on patent misuse, the ITC staff’s recommendation on the B&N defense, and Essex’s ruling, so we don’t know for sure why Essex ruled the way he did. But there’s guidance in the leading en banc decision on patent misuse by the U.S. Court of Appeals for the Federal Circuit. In its August 2010 opinion in Princo Corporation v. International Trade Commission, the Federal Circuit held that the ITC should construe patent-misuse defenses narrowly, looking only at the patent-holder’s assertion of the patents at issue in the underlying infringement case.

As a matter of law, that ruling spelled doom for Barnes & Noble’s antitrust case at the ITC. The bookseller’s argument, remember, is that Microsoft is using whatever ammunition it can pull from its entire patent portfolio — and not just the four patents at issue in the ITC case — to squelch competition from Android. Barnes & Noble’s theory is that Microsoft bullies Android users into unfavorable licensing deals by asserting infringement of an array of trivial patents.

Last March the bookseller asked the Justice Department’s Antitrust Division to petition the ITC to dismiss Microsoft’s case based on its antitrust allegations. The Justice Department didn’t. And the licensing and confidentiality agreements Microsoft has reached with other Android users, which were part of Barnes & Noble’s presentation to Justice, are not relevant under the Federal Circuit’s interpretation of patent misuse at the ITC.

But they could be important in federal court. At the same time Microsoft sued Barnes & Noble at the ITC, it filed a parallel infringement suit in Seattle federal court. Barnes & Noble filed a patent-misuse counterclaim in the Seattle case before it was stayed last June. When the ITC case concludes, the federal court litigation could become active again, whichever way the ITC comes out. If Barnes & Noble is serious about its antitrust counterclaims against Microsoft, it can push forward in the Seattle case even if it prevails at the ITC. If, on the other hand, Microsoft wins at the ITC, that’s all the more reason for the bookseller to assert its patent-misuse defense in federal court.

Microsoft deputy general counsel David Howard said in a statement: “[Tuesday’s] action by the ITC makes clear that Barnes & Noble’s patent misuse defense was meritless. This case is only about one thing — patent infringement by Barnes & Noble’s Android-based devices. We remain as open as ever to extending a license to Barnes & Noble, and invite them to join the many other major device makers in paying for the Microsoft-developed intellectual property they use in their devices.” (Microsoft is represented at the ITC by Sidley Austin; Orrick, Herrington & Sutcliffe; Woodcock Washburn; and Adduci, Mastriani and Schaumberg.) I reached out to Microsoft’s press office to ask about patent misuse in the Seattle case but didn’t get an immediate response.

Barnes & Noble counsel at Cravath didn’t return my calls. David Boies of Boies Schiller was unavailable for comment. The bookseller is also represented in the ITC case by Quinn Emanuel Urquhart & Sullivan and Kenyon & Kenyon.

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