Implied License: Purchases from Licensed Manufacturer Come with Implied License to Practice the Invention (Regardless of Non-Infringing Uses)

Patent,

Zenith Electronics v. PDI Communications (Fed. Cir. 2008) [Part II] [Read Part I discussing anticipation]

Zenith’s patented remote TV control system is designed for hospital use. The invention includes both a remote “pillow speakers” and a TV receiver. Zenith accused PDI of infringing even though PDI had purchased Zenith-authorized remote pillow speakers from licensed manufacturers. PDI had, however, purchased off-brand TVs and receivers – Zenith wanted its own TVs to be used.

On summary judgment, the district court found that PDI could not infringe Zenith’s patent because the defendant was practicing the invention under an implied license from the patentee. On appeal, the CAFC affirmed.

Implied License: Under the first sale doctrine, a license to practice an invention will be implied when the patentee (or its licensee) sells a device that has “no non-infringing uses” under circumstances that “plainly indicate that the grant of a license should be inferred.” The no non-infringing use requirement is lifted when the patentee expressly licenses a manufacturer to sell its products for infringing uses. (Jacobs v. Nintendo).

Here, PDI purchased the pillow speakers from manufacturers expressly authorized to sell products for uses that would infringe the Zenith patent. Thus, potential non-infringing uses are “irrelevant” to the question of implied license. Interestingly, the Zenith licenses include aspirations that Zenith TV-equipment will be used. Those aspirations however are “simply the seller’s hope or wish, rather than an enforceable restriction.”

“We agree with the district court that customers who purchase pillow speakers from [the licensed manufacturers] Curbell, MedTek, and Crest obtain an implied license to use those pillow speakers in combination with any compatible television—not just Zenith televisions. That implied license is derived from the express licenses in place between Zenith and the manufacturers.”

Notes

  • This situation is similar to that of Quanta, now pending at the Supreme Court. However, in that case, the license made explicit restrictions.
  • This decision also is an interesting parallel to the recent DataTreasury decision. In that case, the CAFC decided that the restrictive burden (a requirement to arbitrate disputes) was not actionable to a subsequent purchaser. Here, the CAFC decided that the beneficial license to practice does automatically extend to the purchaser of a patented good. This is like the law of real covenants where the benefit of a covenant flows to the subsequent purchaser much more easily than the burden. (There is a difference here between purchasing a patent in DataTreasury and purchasing a patented good in Zenith.)
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27 thoughts on “Implied License: Purchases from Licensed Manufacturer Come with Implied License to Practice the Invention (Regardless of Non-Infringing Uses)”

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  17. 11

    “The argument would be that the airline company directly infringes your U.S. patent…”

    Your argument breaks down on its first prong. Temporary presence of an aircraft in the US is not infringement, at least under the terms of Section 272. If you can’t prove direct infringement, you don’t have inducement.

  18. 10

    Lee,
    It seems there may be induced infringement on the part of the composite manufacturer in Japan/EU. If a foreign composite manufacturer provides sales literature or other types of advertisement, or has its engineers work with the aircraft manufacturer’s engineers, encouraging, boasting and facilitating use of the composite in transcontinental aircraft, then certainly an argument can be made that that sales literature, advertisement, or engineering support, is inducing “use” of the composite in the U.S. The argument would be that the airline company directly infringes your U.S. patent, and the foreign composite manufacturer is inducing (i.e. aiding and abetting) such direct infringement. It may be difficult to prove such induced infringement though, seeing that the link from the foreign composite manufacturer to the airline company has the intermediary aircraft manufacturer, and also with all the potential language barriers. I imagine discovery in such a case would get quite costly. Foreign patent protection may be prudent.

  19. 9

    Lee,
    You might want to speak to an attorney about 35 U.S.C. s. 272. The answer to your question is probably no, it would not infringe.

  20. 8

    Unrelated question: I’m working with a startup company that has created a vastly improved carbon composite for, inter alia, use in planes. We have began to secure US patent protection but I am wondering about filing in Japan/EU. Specifically, if a plane manufactured abroad using our composite materials is flown as an international flight to the US does it then infringe our patent? I worked some time ago at the ITC dealing with import infringement but my gut feeling is that unless the plane started flying domestic routes it wouldn’t infringe due to my perceived dispensation regarding a plane here only on the last leg of an international flight. I’d appreciate any insight.

  21. 7

    Bruce

    You’ve got a good point and I tried to post a reply, but Dennis’ “spam filter” has got a hair trigger that prevents posting. It’s really annoying to waste that time of a dead comment, as there is not a hint of a cuss word to be seen. Seems to happen more and more on PatObv.

  22. 6

    Dude wrote: “I don’t think P can assert any control over U. The CAFC solution of labeling the speakers to prevent U from using them with other TV’s doesn’t seem like it was too well thought out.”

    I agree that P can’t/shouldn’t be allowed to assert any control over U.

    However, if I understand the situation, PDI is “B”, not “U”. It is the un-named licensed manufacturers from whom “PDI had purchased Zenith-authorized remote pillow speakers” who are “A” and it is the hospitals who bought the systems from PDI who are “U” (maybe).

    Zenith had the right (which they did not exercise) to require the speaker manufacturers (A) to include a license restriction when they OEMed the speakers to PDI (B). Contracts are filled with Terms & Conditions and a restriction that the speakers were only to be used with Zenith TV’s could certainly have been included.

    The hospitals who bought the systems are end-users in some sense, but because of the nature of the purchasing process, where prices, terms and conditions are all negotiated, they too could be covered by a restriction.

    Over-the-counter sales to individual end users, of course, are an entirely different matter.

  23. 5

    “Why aren’t product notices and even express ‘notifications’ just expressions of the ‘seller’s hope or wish’? It’s hard to believe that if the license required the licensee/manufacturer to tell the buyer that ‘Zenith would really like you to use these speakers with a Zenith television,’ the court would have concluded that the buyer was restricted here.”

    The court in this case didn’t have to reach this issue. The comment about the disclaimer notice is misleading. The court said nothing about the efficacy of such a disclaimer, but instead said that a requirement in the license to use such disclaimers would be evidence that Zenith intended to limit the scope of the license. Instead, Zenith apparently granted a very broad EXPRESS license to the speaker manufacturer. The implied license to the ultimate user of the speakers follows from that express license.

    I don’t think this analysis should be very controversial. There are lots of ways to restrict (or attempt to restrict) a licensee’s conduct; Zenith didn’t even try when drafting the license. Too bad for them that the licensee actually chose to exercise the full scope of its license.

  24. 4

    Hey Dude,

    Re: “Seems like the world needs more lawyers, not fewer.”

    And more ordinary inventors too.
    Also seems like the world needs more peace makers and fewer soldiers.
    And one statesman leader candidate We the American People could all love.

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  25. 3

    Seems like the analysis, and the law, needs to distinguish component purchasers in the course of manufacture from end user purchasers.

    Patentee (P) licenses to A the right to produce and sell component. A makes and sells the component in bulk to B. B assembles final product and sells to end-user, U.

    Surely P’s license to A can require that the component supply contract between A and B limit how B uses the component or what B manufacturers with the component. U would not be a party to such a contract and would not be constrained in its use of the component.

    The trick for P is to write the license to A in a way that keeps the patented component made and sold by A out of the hands of U until the component is incorporated into a product acceptable to P.

    I don’t think P can assert any control over U. The CAFC solution of labeling the speakers to prevent U from using them with other TV’s doesn’t seem like it was too well thought out.

    Seems like the world needs more lawyers, not fewer.

  26. 2

    It’s interesting that the Federal Circuit offers the following method by which Zenith could have restricted the rights it licensed: “the agreements [between Zenith and the speaker manufacturers] could have required the manufacturers to label each pillow speaker with a disclaimer informing purchasers that they are only licensed to use the pillow speakers with Zenith televisions.”

    This seems to go further than Mallinckrodt, where the court did not decide whether such a product notice would impose an enforceable limitation. It’s not clear what difference from Mallinckrodt the court might have in mind here. Maybe the requirement of notice in the express license would make that license conditional, and thus negate the first-sale doctrine, regardless of the enforceability of the product notice? But if the product notice itself would be of no legal significance, why would a requirement that the manufacturer provide such a notice be decisive? This problem exists with the court’s approach in Quanta, also, where the license with Intel required that Intel “notify” its customers of a limitation.

    Why aren’t product notices and even express “notifications” just expressions of the “seller’s hope or wish”? It’s hard to believe that if the license required the licensee/manufacturer to tell the buyer that “Zenith would really like you to use these speakers with a Zenith television,” the court would have concluded that the buyer was restricted here. But without a serious effort by the court to determine whether the buyer is contractually bound by whatever the licensee/manufacturer is required to do or say, it’s hard to see where any restriction comes from. The court took contract seriously in Repeat-O-Type, but not in these other cases.

    Or maybe the idea is that a product notice might or might not create an binding restriction (Mallinckrodt), but will serve to negate an implied license? But, again, how clear would the notice need to be? “Use with Zenith televisions preferred”? “Please use with Zenith televisions”? “Use only with Zenith televisions”? Would this sort of notice negate an implied license even if there were no explicit requirement in the license that the manufacturer add the product notice? It is the license requirement that the court focuses on here.

  27. 1

    I was a little confused when I read this post–it says that the CAFC reversed, but the the language upholds the district court’s decision. The CAFC in fact affirmed the district court on this issue:

    “In sum, we affirm the district court’s grant of summary judgment that the ’301 patent is not infringed due to the existence of an implied license. We agree with the district court that customers who purchase pillow speakers from Curbell, MedTek, and Crest obtain an implied license to use those pillow speakers in combination with any compatible television—not just Zenith televisions. That implied license is derived from the express licenses in place between Zenith and the manufacturers.”

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