License Practitioners Beware the Macom Imbroglio!

By: John Hession

JMH Headshot Photo 2015 (M0846571xB1386)Business and legal professionals beware of your Field of Use restrictions. Practitioners involved in constructing and drafting license agreements should pay particular attention to a U.S. Court of Appeals case decided in the Central District of California, Macom Technology Solutions Holdings, Inc. v. Infineon Technologies AG (January 29, 2018).  In the Macom case, the licensor Infineon sought to terminate a license agreement with its licensee, Macom, because Macom was alleged to have been commercially exploiting the licensed patents and technology outside the Field of Use. The license agreement defined a Field of Use as gallium nitride (GaN) patents and technology, and Infineon licensed to Macom GaN-on-silicon technology and the right to practice the GaN patents. However, it should be noted that Macom and Infineon shared the rights to practice the licensed patents in the Field of Use. The licensor Infineon sought to terminate the license agreement with Macom on the principle that the violation of the Field of Use restriction by the licensee Macom was a material breach of the license agreement.

Contrary to the expectations of many license practitioners and business development professionals, the Court of Appeals upheld a lower court’s finding that the licensee’s activity outside the prescribed Field of Use was not a breach of the material terms of the license agreement. The Court held that the language of the license grant did not convey a covenant or obligation by the licensee Macom to refrain from commercially exploiting the patents outside the Field of Use. The Court noted that the license agreement did not provide for a specific obligation of the licensee not to operate outside of the Field of Use. The Court believed that the licensor Infineon could always rely on the rights of a patent holder to sue Macom for patent infringement.

Because of the Macom decision, practitioners representing licensors should now be alerted to include in their license agreements provisions providing for an express covenant of the licensee to not operate or commercially exploit the licensed patents outside the Field of Use, and to also provide that any such violation of the scope or terms of the license, including a violation of the Field of Use limitations, constitutes a material breach of the license agreement. Universally, most practitioners would have assumed Macom’s activity would be a breach of the license terms and the Field of Use restrictions, resulting in grounds for termination. We are now warned, however, to expressly include these provisions in license agreements, as such prohibitions on activities outside the Field of Use are not implied as part of the exclusive license grant. Surprising decisions make for more surprising drafting requirements in the future.

For more information, please contact John Hession.