Guest Post: Territorial Thinking Misguides on International Exhaustion Doctrine

Guest Post by John Rothchild, Associate Dean and Associate Professor at Wayne State University Law School. Rothchild's 2011 article Exhausting Extraterritoriality is published in the Santa Clara Law Review.

The Supreme Court granted certiorari in Kirtsaeng v. John Wiley & Sons, Inc., No. 11-697, to settle the question whether exhaustion of a copyright owner's public distribution right results from a first sale of a copy or phonorecord that was manufactured, with the authorization of the copyright owner, outside the territorial limits of the United States. The outcome of the case, however, could have broader ramifications: in particular, it could bear upon an analogous international exhaustion issue with respect to patents.

Under § 109(a) of the Copyright Act, a copyright owner's right to control public distribution of a physical embodiment of a copyrighted work — such as a book, a music CD, the label attached to a shampoo bottle, or a brand-signifying logo engraved on the back of a watch — is exhausted once there has been an authorized first sale of that object. In international contexts application of this rule presents some special issues. One of those is how the first-sale rule interacts with the copyright owner's right to control importation of copies of her work under § 602(a) of the Copyright Act. The Supreme Court largely resolved that issue in Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135 (1998), holding that the first-sale rule is a limitation on the importation right. The remaining issue, and one with enormous practical consequences, is how the first-sale rule applies to copies that are manufactured abroad. The issue turns on the interpretation of critical language in § 109(a), which provides that the distribution right is exhausted only with respect to a copy "lawfully made under this title." This is the issue facing the Court in Kirtsaeng, which was argued on October 29.

One possible outcome of Kirtsaeng is a rejection of the holding of the court below that "lawfully made under this title" means "made, with the authorization of the copyright owner, at a location within the territorial limits of the United States." The petitioner, who invoked (so far unsuccessfully) the first-sale rule in an effort to justify his unauthorized importation and resale in the United States of textbooks manufactured and first sold abroad, urges that the Court instead interpret that language along the lines suggested by Judge Murtha's dissent in the case below, as meaning something like "made with the authorization of the U.S. copyright holder." See John Wiley & Sons, Inc. v. Kirtsaeng, 654 F.3d 210, 226 (2d.Cir.2011) (Murtha, J., dissenting). Following such an interpretation, "lawfully made under this title" would not speak to the geographical provenance of the copy, but would refer only to whether the making of the copy was permissible as judged by the Copyright Act's allocation of rights.

Such a holding would deflate the mistaken view that giving legal significance, with respect to the operation of a U.S. law, to conduct occurring outside the United States inevitably amounts to impermissible extraterritorial application of that law. This view underlies the holdings of some courts that a sale of a patented article that occurs outside the United States does not exhaust the patentee's rights with respect to that article. The Court's resolution of this issue in Kirtsaeng therefore could have a significant impact on international exhaustion of patent rights.

A misguided application of the rule that the patent and copyright laws do not apply extraterritorially underlies holdings of the courts in both of these subject matters. Consider copyright first. In the first case addressing international exhaustion, a federal district court interpreted "lawfully made under this title" as if it read "lawfully made within the United States," concluding that no exhaustion occurs by virtue of the sale of copies that were manufactured outside the United States. It justified this result as necessary to avoid extraterritorial application of the Copyright Act, explaining: "The protection afforded by the United States Code does not extend beyond the borders of this country unless the Code expressly states." Columbia Broadcasting System, Inc. v. Scorpio Music Distributors, Inc., 569 F. Supp. 47, 49 (E.D.Pa.1983), aff'd mem., 738 F.2d 424 (3d Cir.1984). The Ninth Circuit subsequently arrived at the same outcome in several cases of its own, which were likewise predicated on an overly expansive view of what constitutes extraterritorial application of a statute. See Omega S.A. v. Costco Wholesale Corp., 541 F.3d 982, 987 (9th Cir.2008) ("applying § 109(a) to foreign-made copies would violate the presumption against the extraterritorial application of U.S. law"), aff'd by an equally divided Court, 131 S.Ct. 565 (2010).

That same mistaken view of what constitutes extraterritorial application of U.S. law underlies the doctrine that a first sale abroad cannot exhaust a U.S. patent. The Federal Circuit adopted this doctrine in the Jazz Photo case, setting it forth as if it were self-evident but offering no justification for it. See Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1105 (Fed.Cir.2001) (exhaustion occurs "when a patented device has been lawfully sold in the United States"). Four years later, in a follow-on case, the Federal Circuit court offered this rationale for its holding in Jazz Photo:

[T]his court in Jazz stated that only [single-use cameras] sold within the United States under a United States patent qualify for the repair defense under the exhaustion doctrine. Moreover, Fuji's foreign sales can never occur under a United States patent because the United States patent system does not provide for extraterritorial effect.

Fuji Photo Film Co., Ltd. v. Jazz Photo Corp., 394 F.3d 1368, 1376 (Fed.Cir.2005).

If the Supreme Court decides Kirtsaeng in favor of the interpretation of "lawfully made under this title" urged by the petitioner and dissenting Judge Murtha, this rationale goes out the window. In other words, the Court will have declared that it is not an extraterritorial application of the Copyright Act for the scope of a copyright owner's public distribution right to depend on the transfer of ownership of an article that was manufactured outside the territorial limits of the United States. That conclusion would likewise undermine the rationale of the Federal Circuit's rejection of international exhaustion in the patent context, since it would then not be an extraterritorial application of the Patent Act for exhaustion to depend on a first sale that occurred abroad. One court has declared that the Jazz Photo rejection of international patent exhaustion has already been overruled sub silentio by the Supreme Court's decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). See LG Electronics, Inc. v. Hitachi, Ltd., 655 F. Supp. 2d 1036, 1044-45 (N.D.Cal.2009). The outcome of Kirtsaeng could resolve the issue.

Rejection of a geographical limitation on what conduct results in exhaustion of rights would be a welcome return to first principles under both patent and copyright law. The relevant first principle is that the owner of an intellectual property right, whether a patent or a copyright, is entitled to only a single reward attributable to the sale of an article that embodies the protected intellectual property: "[T]he ultimate question embodied in the 'first sale' doctrine [is] 'whether or not there has been such a disposition of the article that it may fairly be said that the patentee [or copyright proprietor] has received his reward for the use of the article'. . . ." (third alteration in original) (quoting United States v. Masonite, 316 U.S. 265, 278 (1942)). Platt & Munk Co. v. Republic Graphics, Inc., 315 F.2d 847, 854 (2d Cir. 1963). An overly expansive application of the rule that the patent and copyright laws do not have extraterritorial effect has allowed patent and copyright owners to extract greater rewards from their intellectual property rights than Congress intended.

63 thoughts on “Guest Post: Territorial Thinking Misguides on International Exhaustion Doctrine

  1. Offer for sale and sale are simply two different things Ned.

    Each have their own factors and thus, even if a sale itself may not be infringing (the sale itself is extra territorial), the OFFER may yet still be infringing (the Offer made within the territory).

    Do you really not grasp that?

  2. IANAE, I think the facts were a bit different.  The contract was completed.  Offer and sale were completed.  Performance the contract was intended to be in the US, but that never happened.

    While the case went on offer, there was a contract.  I am not sure "sell" requires an actual delivery.  Therefore, I think there was a sale as well.

    Based on this, I think the facts are a foreign sale with intended performance in the use that was intended to infringe.  But that intended infringement never happened.  The foreign sale itself was not in the US.  I see a big problem with jurisdiction here.

    The US Supreme Court has time and again said that foreign sales are not infringement of US patents.  Thus, a foreign sale of devices that might infringe is not infringement even if the devices are intended to be imported.  Importation is the infringement.  But if that never happens there is no infringement at all.

    I think, therefor, the Federal Circuit erred big time.

  3. if the sale itself in not infringing, is the offer?

    Didn’t we have such a case just recently, where an infringing article was offered for sale but a non-infringing article was later sold pursuant to the same offer?

    That’s not even what confused me about the case. What confused me was that someone thought damages were appropriate on those facts.

  4. They are.

    An offer is simply different from a completed sale.

    This is simple stuff Ned. Is it against your commercial interests to not recognize the clear law that “offer for sale” of itself constitutes infringement?

  5. My content still stands – untouched by the arrows of those only too eager to shoot.

    Your lack of content still stands too.

    At least you are not outright lying. That’s a plus.

  6. Leo, I think the question is important.  If the transaction in question was an offer that was accepted, it is a sale.  If such a sale does not infringe, I think it completely wrong to consider the offer to infringe.  The two cannot be separated, nor should they be.

  7. you have had to work much harder at posting about your agenda

    If you say so, anon. I haven’t noticed.

    Since Dennis outed you, I have noticed a shocking change in the number of sockpuppets commenting here and slapping you on the back for your awesomeness, though. Do you miss that great feeling of commiserating with your imaginary friends? Nobody else does.

  8. You were the one ‘dancing in the streets’ with Prometheus

    I’m still dancing!

    providing a link that you clearly did not read that lead to your self-defeat

    I read the link and only you and your twin brother know what the phrase “self-defeat” means in this context.

    Here’s what I know: the USPTO is rejecting Prometheus-type claims under 101 on a regular basis. That’s a good thing. It’s something I’ve wanted for many, many years. It’s like Christmas every day for me. And it’s only going to get better.

    In any case, it’s not “true” that I’ve “self-defeated”, under any ordinary understanding of that term. The opposite is true. I’m still here. Prometheus lost, 9-0.

    What’s also true is this:

    you engaged in endless sockpuppetry here for years, denied doing it in real time, all in a pathetic attempt to persuade everyone that you were part of a “majority” of readers who were somehow underrepresented? Until finally Dennis revealed your sad game to everybody (a fact that you have yet to admit to, which is even more pathetic).

    When you’re ready to admit what you did and apologize … oh, what I’m saying. That’s never going to happen. You don’t have the spine.

  9. Since anon won’t answer, I’ll give it a shot. If an offer is made and is accepted, you have at least infringement via the “offer to sell” prong of the statute. In some contexts, an agreement is considered a “sale,” while in others you need to complete the transfer before you have a sale. I don’t know whether this question has been addressed in the context of 35 USC 271. But since “offer to sell” is now an infringement in its own right, this question doesn’t seem very important any more.

  10. anon, I asked a simple question and would like a simple answer.
     
    A offers B, B accepts.  This is a sale.  Is it even proper to assert "offer for sale" as a theory? 
     

     

  11. n spreading your lame smears and lies willy-nilly?

    They are not lame smears or lies – the truth is my perfect defense. And as I already posted, using you as an example of what not to do is a perfectly legitimate post.

    If you don’t like it, you should have controlled yourself much earlier and not developed the reputation that you have. You were the one ‘dancing in the streets’ with Prometheus and providing a link that you clearly did not read that lead to your self-defeat. You are the one that self-defeats nearly every single time you try to engage in a substantive conversation. You are the one that thus typically avoids substantive conversations and descends into insults and flailing vacuous posts.

    Don’t like it? Hey, it’s completely in your power to change how you post.

    At least with Prof. Crouch coming out and saying outright lies are not allowed, you have had to work much harder at posting about your agenda.

  12. Yet again Ned, you choose to ignore the actual words of the law.

    Why is it so difficult for you to recognize “offer for sale” as a distinct from “sale?”

    This is black and white law that is downright quizzical that you refuse to recognize. You will have to excuse me as evidence points to you playing some game with the law instead of being open, honest and straightforward.

  13. I did not answer it because you still have ignored the law on offer for sale.

    It would be rather foolish to hold a conversation with you when you refuse to recognize a basic principle of law, would it not?

  14. Anon, so sorry, but I couldn’t find “inventive gist” in the Patent Act. Maybe I have to look harder.

    It’s there implicitly – just ask any of the Supreme Court Justices (but particularly Breyer).

  15. Anon, so sorry, but I couldn’t find “inventive gist” in the Patent Act. Maybe I have to look harder.
    Ned, as far as patented soybean seed goes, yes, it’s a specialized product that’s sold for the sole purpose of planting. These seed products are standardized, have antifungal coatings, and are treated in special ways to enhance germination and to mature at the same time, so that there’s a uniform harvest. In fact, the seed is only useful for planting; you can’t even make tofu from it, and feeding it to your chickens would be inadvisable. Because it’s only useful for planting, it’s actually sold with a license to grow a commercial crop. So it’s not like Monsato is selling you seed that’s only good for planting, and then sues you when you use it for its only and intended purpose.

    The soybeans you grow from that seed are another matter. They’re for consumption in food, making oils, tofu, soymeal, and so on. Anon makes it sound as if the only point of growing soybeans is to make seed for more soybeans. Not so. Like the tractor, the “inventive gist” of the patented soybean has nothing to do with its replication. It has everything to do with feeding people and livestock – “uses” that probably even Monsanto would say are not within the patent right.

    I’m not quite sure what “downstream control” is the concern here. Are you worried that Monsanto is going to sue tofu manufacturers and animal feed companies, trying to control the disposition of commodity soybeans down the stream of commerce? That’s not what this case is about.

  16. you are picking up from MM

    Hey, a–hole, you’re doing that thing again.

    Is this just an impossible habit of yours to overcome without parental help? You know, sort of like how you engaged in endless sockpuppetry here for years, denied doing it in real time, all in a pathetic attempt to persuade everyone that you were part of a “majority” of readers who were somehow underrepresented? Until finally Dennis revealed your sad game to everybody (a fact that you have yet to admit to, which is even more pathetic).

    Can you AT LEAST try to keep your a—hole personal attacks to comments that represent an attempt (however feeble) to respond to the person making the comment, rather than spreading your lame smears and lies willy-nilly?

    Thanks, man.

  17. anon, I don’t recall whether you ever answered this question:

    If an offer is accepted, is infringement by sale, offer to sell, both, only sell or only offer to sell?

  18. anon, Transocean has all the attributes of extending US patent protection to foreign sales. It is on point to the discussion of international exhaustion, which what is said to happen if one authorizes a foreign sale.

    Depending on the result in John Wiley & Sons, I think the Supreme Court might GVR Transocean if the good folks on the losing end request cert.

  19. This whole discussion ignores the fact the any rights that are exhausted are necessarily limitedcointry geographically.

    Except this is not true. The doctrine is based in equity – that you receive the just reward, and thus is not as bound by the “hyper-legal” constraint you seek to impose.

    Plainly put, once you relinquish your hold on an item – sell that item anywhere in the world, you have parted with it. Otherwise you have the ridiculous result that you can sell the exact same item to many people, each of a different country.

  20. What isludicrous Ned is your continued attempts at injecting Transocean and your purposeful misrepresentation of law by omitting “offer for sale.”

    You do not present an argument that can be discussed civilly until you clear up your egregious mistake.

  21. Is it that hard to obey the law? Is it that hard to seek out the proper territorial protection through territorial patent law? Do you really think that the new transnational patent rights (and that is what is really under discussion) have any basis in current law or doctrine ?

    Really?

  22. Just like buying one John Deere harvester doesn’t give a farmer the right to build unlimited copies of it in his barn

    Your example betrays you – these two are nothing alike. The “inventive gist” of the tractor has nothing to do with its replication. For the seed – everything.

  23. This whole discussion ignores the fact the any rights that are exhausted are necessarily limited geographically. I don’t have time to destroy anon’s argument, but the point is that it’s simply not possible to exhaust rights to Patent A by conduct in Country B because Patent A does not apply to conduct in Country B. Patent A offers no rights that are exhausted by the conduct (i.e., sale) in Country B.

  24. Monsanto couldn’t even begin to set a fair price.

    Pure unsupportable conjecture.

    Also, having a patent is no guarantee if having a profit – never has been.

    It’s not as if I don’t understand the Monsanto view (I do). It is just that that view does such violence to the exhaustion doctrine and provides far far far too much downstream control beyond any existing notion of patent rights that I need to see a far better justification for emasculating the exhaustion doctrine.

    Haven’t seen it yet.

  25. To suggest that the rights holder has received full compensation when selling into such a market is fiction.

    Hint: don’t sell.

    Or do sell after obtain the protection that country offers.

  26. Clearly a sale of a product in a country without patent protection cannot provide that,

    Paul you are entirely kicking up the dust I asked you not to kick up.

    It’s as if you are trying to purposefully make this more complicated.

    Simple question: did the patentee place the item in the stream of commerce for the price he himself set?

    You do not have to get more complicated than that.

  27. Moo, when you buy a product, you have a right to use it. I will grant you, you do not have the right to reproduce the product for sale. But with seeds, the use of a seed is planting it.

    Now, if one does not sell the seed of the crop, but replants that seed only, what then?

  28. Moo, “make,” “use,” “sell.”

    Those are the exclusive rights.

    You sell the seed of a patented plant, you have exhausted your rights in that seed. Surely, the farmer has the right to replant his harvest. Cf., ASGROW SEED COMPANY v. WINTERBOER, 513 US 179 (1995) link to bulk.resource.org

  29. Dear Anon,
    if the sale of a patented seed would exhaust patent rights in all progeny of that seed, Monsanto couldn’t even begin to set a fair price. Think about it – after selling your first seed, you would basically never make another sale. Your seed would be “out there” where everyone could make unlimited copies of it, rent free. It’s just impossible to capture a rational share of the invention’s value in a single sale – how much would you have to charge?
    Take soybeans alone. The U.S. produces around $30 – $40 billion per year in soybeans, more than 90% of which incorporate patented technology. Project that out for a couple of years and you’re talking hundreds of billions over a decade. The patentee’s expectation of receiving a small share of that value is not insane. Requiring him to capture that share in a single sale is.
    Contrary to what you say, I think the Supreme Court would greatly expand the exhaustion doctrine by holding against Monsanto. Just like buying one John Deere harvester doesn’t give a farmer the right to build unlimited copies of it in his barn, buying a bag of patented soybeans doesn’t give him the right to make unlimited copies of those either. That analogy holds true under the facts of THIS case too. Farmer Bowman bought patented commodity soybeans from a grain elevator; these soybeans are sold for any of a million uses, like poultry feed, cooking oil, biodiesel production, you name it. He could have used the purchased soybeans in these ways; nobody cares. The problem is that he produced truckloads of new patented soybeans that were never sold to him. I think the Federal Circuit was perfectly correct in saying that the first sale doctrine can’t apply to soybeans that were never sold.

  30. Also, in the copyright context, if there is a copyright but no enforcement, there is not copyright in reality. The market price for genuine copyrighted goods, like software or movies, may not be much different than the price of knockoffs. To suggest that the rights holder has received full compensation when selling into such a market is fiction.

    Regarding extra territorial application: consider Transocean. A contract executed abroad for “sale” of a machine for use in the US, but which was never completed because an actual infringement (use) never took place, was deemed to be an infringement nevertheless.

    If this is correct, then a sale abroad of goods for subsequent importation into the US, is an infringement even if none of the good are ever brought to the US. If that is OK, within the US jurisdiction, then a sale abroad of good that may be imported into the US because the sale is to a distributor that imports into the US would be an infringement regardless that the goods are not delivered.

    Next, if that is OK, within the jurisdiction of the US law, then any sale abroad is an infringement unless the importation into the US is absolutely forbidden.

    Ludicrous in my view. Such thinking totally erases the US border when it comes to patent law.

  31. I think that part of the confusion here is confusing the patent “first sale doctrine” with the “patent exhaustion” doctrine. The “first sale doctrine” originated in the common law preclusion of “restraints on alienation of chattels”, and was introduced into patent law in early Sup. Ct. cases. In particular, U.S. v. Univis Lens, 316 U.S., 241, 53 USPQ 404 (1942): “the first AUTHORIZED sale of an article embodying a patented invention (by either a patent owner or licensee) exhausts the patent rights in that article.” The Supreme Court later emphasized the “authorized” aspect in the General Talking Pictures case. A first sale under a reasonable field of use limited license with the first purchaser can preclude a unrestricted, non-infringing, re-sale by that purchaser outside of that license restriction agreement. General Talking Pictures Corporation V. Western Electric Company, Inc., Et Al., (Sup. Ct. 1938), The General Talking Pictures doctrine does NOT apply to a patent owner’s sale of a product to a customer that attempts to impose a restriction on what that or any subsequent customer may subsequently DO with the product.
    It has been noted that the current theory of the “patent exhaustion” doctrine is based on the idea “that the patentee should be able to collect royalties (or the equivalent thereof in enhanced sales price) for its patent once, but only once.” Clearly a sale of a product in a country without patent protection cannot provide that, much less a clear basis for an authorized or “implied license” under the patent laws of all other countries.
    The different names or titles used for these doctrines present legal research problems. For example, the Robert Harmon CAFC Treatise has this topic listed only under “Implied Licenses” at pp. 323 et al., instead of other applicable titles such as the “First Sale Doctrine”, “Exhaustion of Rights”, or “legal estoppel”. Likewise, some cases are treated as “gray market” case law issues. Furthermore, it has been noted although there would seem to be a clear logical interplay between either doctrine and the “repair vs. reconstruction” defense doctrine, that is also often considered separately.

  32. Not missing the pony at all, and not wondering why you don’t reply to all either. Even your face needs an occasional respite from Wallyball spikes (or haven’t you figured out yet how the Office can force the RCE decision well before the three year guarantee – amongst MANY of your choices not to respond).

  33. Comically missing the point again. And you wonder why I don’t think every single one of your precious posts is worth replying to.

  34. Well, I don’t have time to argue about this. The “doctrine” assumes there is protection in other countries.

    No. It does not. You clearly need to review the doctrine. I am not sure you understand what you are trying to discuss, but it is not exhaustion doctrine.

  35. As long as Monsanto doesn’t solve “it’s problem” by emasculating the exhaustion doctrine, then sure we can be happy.

    I note the snideness in your “invent something that does not yet exist” comment, and have to smile at yet another trait you are picking up from MM – self defeating. You do recognize that ALL true inventions are things that happen in a world in which those things don’t exist yet, right?

    Better trolling please.

  36. Well, I don’t have time to argue about this. The “doctrine” assumes there is protection in other countries.

    The fact is that countries don’t have black and white protection. Protection is over a wide spectrum and the cost of the goods the company gets depends on the how good the protection is.

    Companies are not free to sell or not sell. That ignores political pressures on companies to develop foreign countries IP.

    It may be that exhaustion should be treated as black and white, but it certainly is not black or white from a factual view of world IP.

  37. Monsanto is also free to invent a limited replication seed

    Monsanto is free to solve its problem in a way that doesn’t exist yet. There. That should settle the matter. Everybody’s happy. Right?

  38. Moocow,

    Why would that be insane? Monsanto sells its patented seed with the express use of the “inventive gist” tied to the using of that seed to grow. When you sell something for the express purpose of what the patented item is made for, you have exhausted your control of that item. If Monsanto wants to invent a self-replicating invention, in which the replication is in the primary use, then they need to price that first sale accordingly and strive to obtain what they think is a fair price – at that first sale. Don’t cry me a river because Monsanto makes a business decision to sell that first item at a lower price – that is their decision.

    Monsanto is also free to invent a limited replication seed in which the offspring of the first seed does not have the “inventive gist.” As I have laid out in other threads, the fact here that the sale is tied expressly to the “inventive gist” and that the use for which the sale was made directly implicates the make aspect cannot overcome the exhaustion doctrine as that doctrine is understood today.

    The question put to the Supreme Court is apt: if that Court finds for Monsanto, the Court will be rewriting the exhaustion doctrine and creating a loophole that a sale for the purpose for the invention does not exhaust. This would be an incredible expansion of patent rights, eviscerating the concept of secondary markets. While the Court may go there, I think that they will not. I look to the oral arguments in the Kirtsaeng case (and the trouncing there of attempted expanded IP rights) as an indicator that the Court is not willing to expand patent law to such great extent, even for self-replicating inventions.

    The facts of this case work against that expansion. The facts of this case tie too closely the purpose of the actual sale to the use of the “inventive gist.” I think the repair doctrine is simply inapposite here for reasons I have already stated on other threads.

    Your comment about insanity indicates to me that you do not understand what the doctrine of exhaustion entails, that you have no real world experience with secondary markets, or both. Can you put some additional meat on the bones of your mere conclusory “that’s insane” statement?

  39. It is not a black and white question outside the U.S.

    Point of fact, it is a black and white question. It is a black and white question everywhere.

    Did the rights holder place their item in the stream of commerce (anywhere) and receive their asking price?

    If yes, then exhaustion.

    Pure.

    Simple.

    If no, then you are talking about whether or not the location of that placement in the stream has patent law, and has the rights holder availed itself of that patent law. Further, in those locations where patents exist (I am specifically thinking of US), in the “no” scenario, there still exists protection against importation afforded by the patents that were obtained.

    Your “dilemma” is a false one. You seem to want a universal patent protection without the effort of obtaining that patent protection in each territory. You speak of “illegal knock-offs” on a false basis, as my comments already cover the situations in which such arise. Either you have a patent in that territory and the “illegal knock-off” is truly an illegal knock-off and patent law should curtail that activity, or you do not have a patent in that territory and the “illegal knock-off” is in fact NOT an illegal knock-off.

    Companies STILL hold the power to make the decision to pursue patents in those countries they want to introduce their goods or not. If they choose not to, they cannot complain that their items are copied. If they choose to do so, then they need to seek the patent law remedies in that territory.

    It’s as simple as that.

    This attempt at obfuscation based on the desire of segregating territories is a pure business – and extra legal – maneuver. It is completely outside the bounds of the first principle of exhaustion.

    This just won’t work unless the companies can prevent these goods from coming into the U.S.

    In other words, you need to be more clear about “these goods.”

    If you are talking about “these goods” being illicit goods placed in the stream of commerce by someone other than the patentee (or his privies), patent law DOES work to prevent these goods from coming into the U.S. (and in other territories, if such protection was sought). But if you are talking about “these goods” sold by the patentee in a different territory, (i.e. genuine goods simply sold in a different market), then the patentee has received their asking price, and cannot control the downstream market. That type of power is beyond the intent of patents. That type of power is exactly what the first principle of exhaustion is meant to curtail.

    Whether you agree or not is really not at issue as to what the doctrine is and what that doctrine is meant to do. That doctrine is clear and simple. If you do not want that doctrine, then that is a different argument, and one, like Paul F. Morgan, you need to actually make a case for. So far, all I have seen is “want” and that “want” based on extra-legal business maneuvers simply is not compelling.

  40. Anon, I don’t agree. It is not a black and white question outside the U.S.

    The U.S. does not enforce its IP rights in foreign countries well. And, there are some good policy reasons for this that include ramping up other countries. The problem is that it puts companies in terrible positions of either not licensing and then ending up with 100 percent illegal knock-offs or licensing at a very cheap price to compete with the knock-off.

    This just won’t work unless the companies can prevent these goods from coming into the U.S.

  41. Anon, not sure what you’re saying here. Do you mean to say that when Monsanto sells a bag of patented seed, it has exhausted its patent rights in all progeny of that seed? That would be quite insane.

  42. What I say is true regardless of other countries and whatever IP law they have.

    It comes down to a simple question: did the rights holds choose to place their items into the stream of commerce?

    If he answer is yes, then they have earned their reward and have chosen their risks. Everyone plays by the same rules. You sell – you exhaust.

  43. Anon, what you say would be true if the other countries had the same IP protection we do. They don’t. The company’s choice may be to take some royalty that is based on a market that does not enforce IP.

  44. How could it have been readily apparent? Any cursory reading of the extant case law would have compelled a contrary result. Prior to the Jazz Photo case, the previous appellate court to weigh in on the issue was the Second Circuit in 1920 in the Curtiss Aeroplane case, 266 F. 71. From 1920 until the Jazz Photo case, a number of district courts followed Cirtiss Aeroplane, holding that authorized foreign sales exhaust US patent rights (as well as foreign patent rights).

    Consider the Supreme Court’s strong language in Keeler v. Standard Folding-Bed, 157 US 659: “[O]ne who buys patented articles from one authorized to sell them becomes possessed of an absolute property right in such articles, unrestricted in time or place.”

    The Jazz Photo opinion made no mention of this case law, and, instead, relied on Boesch v. Graf, a case that had nothing to do with international exhaustion because the foreign sales were not authorized by the patent holder.

    Can you cite a pre-Jazz Photo case that supports the proposition that you allege is readily apparent?

  45. Sorry Paul – but that’s the concept behind exhaustion: you sell it once, you get the benefit, but then you surrender the downstream (i.e. secondary market) control.

    It seems that you want more than that.

    Either that, or you are not reading my post carefully enough. The importation protection is surely in place if the original item was not placed in commerce by the patentee. This fully covers the state in which a patentee only seeks territorial protection in the United States – and only sells in the United States. In that case, any items coming in (excluding secondary markets which fall under exhaustion anyway) fall to the proper protection of patent law.

    Point blank – there is no “disincentive” for U.S. manufacturing and exporting. Unless of course, by “disincentive” you mean a complete abrogation of exhaustion in the first principle (which you will need to defend in a much more affirmative manner). A sale – even an international sale – STILL means that the patentee has received his asking price for his item. What is bizarre is you wishing the exhaustion doctrine away with NO rationale or reasoning, far beyond any understood basis of what the patent right entails.

  46. Re: “Now if someone tries to import into the US those ‘other goods,’ patent law is in place to protect the patentee.”
    No it isn’t if there is an exhaustion of all patent rights all over the world by any sale of products anywhere else, unless the U.S. patent owner forgoes all internationall sales. That a bizare disincentive for U.S. manufacturing and exporting.

  47. Dennis, the author above is attacking the Fed. Cir. Jazz Photo patent decisions as as “mistaken view” and for “[setting] it forth as if it were self-evident but offering no justification for it.”
    [Indeed, there was no need for the Court to explain it. It was readily apparent from the facts to a patent practitioner.]
    This author is not limiting his views to such a more narrow scheme.

  48. Paul, I think you are conflating rights and rip-offs.

    No one is saying that pirated goods (goods placed in the stream of commerce by someone other than the rights holder) should not be controlled – in the proper country under the country’s proper patent laws.

    The issue here is different. The issue here is that the goods are genuine and are being placed in the stream of commerce by the very rights holder. That rights holder places his goods in commerce and is rewarded for that.

    Pure.

    Simple.

    No need to kick up any other dust on the issue. The exhaustion doctrine as a first principle is sound.

    The plain fact of the matter is that the holder of the rights also has the power to place his goods into the stream of commerce. It matters not at all if that person makes a decision to so place his goods into commerce in a place that he does not have patent coverage (enforceable or otherwise). The rights holder and the rights holder alone has made that decision. The rights holder has taken his reward (and the risk that accompanies that reward).

    I am not unaware of the effect this may have that goods may be kept out of countries that do not offer “good enough” patent protection. (to this I say – GOOD, maybe that will be an impetus to treat IP better). But to say that such a situation begs for the law to read as you indicate is too much. If a patent holder does not enter another country with his goods – either under patent protection or not (fully his choice and no one elses), then there is NO law being broken with the unpatented item being made in that country. Now if someone tries to import into the US those ‘other goods,’ patent law is in place to protect the patentee. Again – no harm.

    This all makes PERFECT sense. You get coverage where you choose to engage a country’s patent system. No more. No less.

  49. The relevant first principle is that the owner of an intellectual property right, whether a patent or a copyright, is entitled to only a single reward attributable to the sale of an article that embodies the protected intellectual property

    This first principle also applies to the Monsanto case.

  50. This (c) context needs to be understood with the right context.

    What else is a U.S. company going to do? If you don’t authorize the sale do reap the narrow margin of a few that are willing to pay a few more pennies for an official copy, then you get nothing.

    So, the court is probably creating some kind of fiction (typical) as if the U.S. company really has a choice. If the foreign country doesn’t enforce the laws as well as the U.S., then you can’t really assume anything.

  51. Paul – In the (c) context, the accused infringer is asking that the US copyright be exhausted when the US copyright owner authorizes the foreign sale. In that scenario,an unauthorized foreign sale would not exhaust the US rights. This is a more narrow scheme than what you suggested above.

  52. The theory of any foreign sale exhausting U.S. patent rights simply makes no sense if the first sale is in another country in which the U.S. patent owner does not have any, or comparable, patent rights. Including countries in which patent rights are so poorly enforced that infringing copies sell at the same price as licensed copies. That is, anywhere in the world that the foreign sales price does not include any, or inadequate, compensation for the same kind of patent rights as a U.S. patent provideds. The vast majority of U.S. patents have no equivalent patent in China and other major sources of unlicensed imports infringing U.S. patents.

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