It's an easy way to boost revenue. It allows businesses to squeeze additional value from their patents, garnering royalties at every step down the supply chain. No wonder a large--and growing--number of companies use this technique.
There's just one small problem. It may be illegal.
"Until 1992 ... the imposition of post-sale conditions on use of the [patented] product ... was widely thought to be unenforceable," says James Dabney, a partner in Fried, Frank, Harris, Shriver & Jacobson. "That was changed by Mallinckrodt."
Over time, an increasingly large number of businesses have relied on Mallinckrodt to impose downstream restrictions on their inventions. The Supreme Court, in Quanta, was widely expected to rule on whether Mallinckrodt was good law. But the Court sidestepped the issue by narrowly interpreting the license agreement so that it was not a conditional license.
"Given the Federal Circuit's approach, patentees will still be free to do most of what they have done in the past, until the Supreme Court rules again. ... And who knows when that will be?" says Mark Patterson, who teaches patent and antitrust law at Fordham Law School.