Exhausting Method Claims

By Dennis Crouch

LifeScan v. Shasta Tech (Fed. Cir. 2013)

The doctrine of patent exhaustion is something of a mess following the Supreme Court case of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). Here, the Federal Circuit relies on Quanta to find that a patented method of using a blood-glucose meter and test strips was exhausted (and therefore unenforceable) when the meters being used were received as gifts from the patentee. The case is an interesting and important read for patent strategists. Although the patentee lost here, the case implies several strategies that future patentees can use to avoid a similar outcome.

LifeScan’s business model is interesting. It essentially gives-away its OneTouch blood-glucose meters but then makes money by selling the disposable test strips required to perform the test. The company’s patent covers the combined use of the meter and the strips to measure glucose levels. U.S. Patent No. 7,250,105. Shasta sells knock-off versions of the lifeScan strips designed to be used in LifeScan OneTouch meters. LifeScan tried, but it was unable to obtain a patent on the strips themselves because of extensive prior art in the area.

Although Shasta does not actually perform the patented method, it does sell a product particularly designed to perform that method and also encourages its customers to perform the method. Thus, in 2011, LifeScan sued Shasta for inducing infringement and contributory infringement under 35 U.S.C. § 271(b) and (c). LifeScan also requested a preliminary injunction that was granted by N.D. California District Court Judge Edward Davila. The law of appellate procedure allows for immediate appeal of preliminary injunction decisions, leading to the present decision.

On appeal, the Federal Circuit reversed the preliminary injunction – finding that Shasta’s use of the patented method was excused under the principles of patent exhaustion.

A patent offers exclusive rights to control the sale of goods covered by the patent. However, long ago, courts determined that a patent right should not confer power to control the entire downstream marketplace for goods. The non-statutory patent exhaustion doctrine achieves this goal by finding patent rights are exhausted or used-up vis-à-vis a particular patented good once the patentee authorizes its original sale or release into the marketplace. This concept is codified in copyright law under 17 U.S.C. § 109 that states “the owner of a particular copy … lawfully made under this title … is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.”

Exhausting a patented method: In at least two different cases, the Supreme Court has applied the exhaustion doctrine to method-of-use claims. United States v. Univis Lens Co., 316 U.S. 241 (1942) and Quanta. Method claims are an odd-fit to the doctrine since the underlying product being sold will not necessarily be used to perform the method and may have been purchased for some other purpose. In Univis, the court wrote that the sale of an article that “embodies essential features” of a patented invention exhausted the patent-holder’s rights in that particular article. Then, in Quanta, the court particularly stated that “method patents [are] exhausted by the sale of an item that embodied the method” and confirmed the “embodies essential features” test from Univis. In particular, the Quanta court noted an important factor for determining “substantial embodiment” of the patent is whether additional “inventive” steps are required and the scope of reasonable noninfringing uses. In Quanta, additional physical hardware was required to make Intel’s chipsets into a workable system, but the court held that the chipsets exhausted LG’s patent covering a method of using the system since the “additional step necessary to practice the patent[s was] the application of common processes or the addition of standard parts.”

Here, the appellate panel found that LifeScan’s meter substantially embodies the essential features of the method-of-use patent. It turns out that this is seemingly a quite easy case because there are no “reasonable and intended” non-infringing uses of the meter. Using a clever argument, LifeScan proposed that the method-of-use claim included inventive features separate and apart from the meter’s function. However, the appellate panel rejected that argument based upon its reading of the patent and prior art – finding that the inventive “key” to the patent was the meter’s inherent comparing function. Here, the majority appeared comfortable following Supreme Court principles in this area that suggest deconstructing the patented claim into its points of novelty or inventiveness.

From a policy perspective, the court wrote that this is also the right decision:

Rejecting a claim of exhaustion in this case would be particularly problematic because LifeScan would be permitted to eliminate competition in the sale of the strips even though the strips do not embody the claimed invention and are themselves not patentable.

Killing a business model: LifeScan finally argued that exhaustion should not apply because it gives-away its meters for free and thus receives no “reward” for its patent. As a matter of first-impression for the Federal Circuit, the court held that “in the case of an authorized and unconditional transfer of title, the absence of consideration is no barrier to the application of patent exhaustion principles.” For this result, the court looked back to 17th century English Common Law principles regarding restraints on the alienation of chattels as part of a whole-interest transfer– finding that such restraints were (and are) typically barred regardless of whether the transfer was by gift or by sale. See also UMG Recordings, Inc. v. Augusto, 628 F.3d 1175 (9th Cir. 2011)(copyright).

The majority was penned by Judge Dyk who was joined by Judge Prost.

Writing in Dissent, Judge Reyna argued that essential features of the patented method were embodied by the test strips and that, as a result, sale of the meter cannot exhaust the patented method.

= = = = =

Linking Exhaustion and Inducement: A commonly stated patent law linking principle is “That which infringes if later, anticipates if earlier.” Peters v. Active Manufacturing Co., 129 U.S. 530 (1889). Emerging from this case and Quanta appears to be another parallel – this time linking infringement and exhaustion. The principle could generally be stated that a patentees transfer actions exhaust a patent if those same actions, when done by another, would constitute infringement. Emerging from Quanta and LifeScan is the recognition that the principle applies even when the underlying claim is inducement and contributory infringement.

43 thoughts on “Exhausting Method Claims

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  2. This fact pattern sounds like Motion Pictures Patent Corporation. The modern origin for patent exhaustion and the first sale doctrine.

    1. To quote from the Motion Pictures case, and referring to a “use” restriction requiring the purchasers of a patented projector to only use films containing “the invention” of the patent on the projector, “Such a restriction is invalid because such a film is obviously not any part of the invention of the patent in suit….”It must be emphasized that Morgan Envelope relied on the unpatentability of the toilet paper roll, Univis “put to one side” whether the result there would have been different if the finisher practiced a different patent in finishing the lenses, and Quanta emphasized that the polishing steps performed by the purchasers of the Univis Lens blanks were conventional, relying heavily on the novelty analysis of the government brief in Univis that the sole novelty was in the process steps for making the lens blanks. Applying this analysis, the Court held in Quanta that purchasers of the Intel products did not practice any of the novel elements of the LG patents, which the Court describes as the “material” elements. Taken together, if the sole novelty is in the part sold or transferred, there is exhaustion. The Supreme Court is however careful not to extend exhaustion to a separate patent on a supply, or if the sole novelty is not in the part of the combination sold.

  3. If one has a patented machine, one can base royalties on its use. If one has a patented method, similarly, one can base royalties on its practice.Thus if one leased the tester machines and required royalties based on use or practice of the method, there should no exhaustion, should there? The sale of test strips to the end user certainly would contribute to the infringement — perhaps as inducement?

    1. Now, what would happen if the patentee sold the test strips to the end user, but at the same time forgave use for use of the test strips purchased from the patentee?

  4. Test strips are just going to follow the trail blazed by ink cartridges: make non-manufacturer test strips not work (or difficult to work around) thanks to some code or validation check.The result, though, seems spot on in this case.

    1. What if the patentee simply leased the machines and required royalties based on use, but gave the test strips away for free?

      1. I don’t think there’s anything “simple” about that arrangement, Ned. It’s the opposite of “simple”, relative to “buy my device and use it freely for its intended purpose.”I don’t think the intent of the exhaustion principle is to prevent patentees from controlling who gets to use their patented devices and methods. It’s to prevent unbargained double-dipping and downstream control of post-sale activities.

        1. If I remember correctly (and I may not), there is a case involving Medtronics that had a combination apparatus claim of A + B. (Think razor and blade as an example). The court allowed the patent owner to include a use restriction in the sale document (think printed insert in the package of the razor and blade) that told the purchaser that he was receiving only a license to use the patented combination and that any use of a blade from a third party in the razor would violate the license.One (or two) more facts: the patent also has a claim covering the apparatus A (the razor, per se). But the apparatus B was unpatentable because of prior art.If I have remembered correctly, couldn’t the method patent owner authorize the use of the patented method with a similar restriction?

          1. John, you are getting closer to the crux of the matter.One needs to separate out the notion of patent for an item from the notion of patent for a method.The dissent attempts to do this, but then falls prey to the same type of reasoning by focusing on the item of the strip.Remember people, a method patent can be completely valid and be comprised of steps wherein none of each of the steps, taken alone have any patentable characteristics.It’s a red herring to chase after “inventive concepts” from a parsed claim.”new use of an old machine” anyone?

            1. “new use of an old machine” anyone?We’re talking about when the sale of a machine constitutes exhaustion of a patent claim. It’s never a “red herring” to look at the item that was sold, how that item relates to the claim in question, and how that item relates to the art in that field.

            2. The conversation is more than what you posit. It is in fact a red herring to constrain the conversation only to the limited example you wish to speak of. Do you not understand the meaning of “new use of an old machine?’ Or is that “gobbledygook” for you as well since you do not want to understand it?Clearly, a new patent purely on a new use of an old machine cannot be exhausted by the mere sale of the old machine. The case that such a new patent is owned by someone other than the owner of the old machine is clearly present.Come, join a substantive discussion here.

            3. Instead of vapid trolling comments on conversations between Ned and I , Malcolm, why don’t you engage on something substantive (here, for example)?

  5. Both the majority and dissent focused on whether the test strips constituted an essential feature of the patented combination. But, since the patentee tried to obtain a patent on the test strips and failed, the result here was foreclosed. The sole novelty was in the method and not in the apparatus. Protecting unpatentable (as opposed to unpatented) components of a patented combination is not possible under the patent law.Now, had the test strips been the patentable feature? That would have presented an entirely different case. The court relied on Morgan Envelope for that proposition. There the Supreme Court held the patent on the toilet paper roles “invalid” as a step in finding that sole novelty was in the toilet paper fixture, which, when sold, exhausted the patent.

    1. The court also took pains to point out that in Univis the Supreme Court discussed that the last step in the patented process, grinding the lens blanks into finished lenses, was entirely conventional. The entire novelty there lay in the lens blanks themselves.Had the case been different, had the last step been material to the invention or separately patented was a reserved issue in Univis Lens and in Quanta. The result is arguably different: cf. Leed & Catlin 2.

    2. The patentee here filed a continuation application, 11/772,714, directed to the test strips per se. They abandoned the application after the FAOM. The examiner rejected the application as anticipated over prior art that showed a test strip having two active terminals and a common reference.In other words, had the court not found exhaustion, the patentee would have effectively obtained a patent on the prior art test strips sold for use with the machines it sold/gave away.

  6. Nice write up, Dennis. This excerpt does seem to encapsulate the “problem” with finding infringement in cases like this (a problem which the Federal Circuit astutely recognized):LifeScan would be permitted to eliminate competition in the sale of the strips even though the strips do not embody the claimed invention and are themselves not patentable.Put another way, you can invent and patent a new device for storing cookies. And you can claim the new device with a cookie in it. But you can’t sue a cookie manufacturer for contibutory infringement merely because the cookie manufacturer tells its customers that its cookies fit inside your storage device.the majority appeared comfortable following Supreme Court principles in this area that suggest deconstructing the patented claim into its points of novelty or inventiveness.I’m glad they are feeling comfortable. They should feel comfortable. There’s nothing wrong with performing that “deconstruction” during the course of an analysis of a patent claim. It’s called “understanding how the invention relates to the unpatented prior art and/or ineligible subject matter, two areas which patentees are not allowed to control with their patents.”

    1. If the cookies were specially adapted for use in the infringing method, had no non infringing use (because of this), were not staple items of commerce (because of this), they would be infringing under 271(c) but for the fact that, as the court here held, they were not a material part of the invention.Your cookie analogy fails 271(c) on too many fronts to be totally apt. Not being material to the patented invention seems to be the key. The fact that the patentee tried to get a separate patent on the test strips and failed was what did him in.

      1. Your cookie analogy fails 271(c) on too many fronts to be totally apt. Not being material to the patented invention seems to be the key.Yes. But cookies are old and I can’t think of an example of an invention of the type, “A device for storing [old X], comprising (a), (b), (c), and further comprising [old X] stored within said device” where [old X] would be deemed to be “material” to the “patented invention”.Can you?Also, I don’t like this “material to the patented invention” test. It misses the point and it’s confusing because every element in the claims (and surely the claims are “the patented invention”) is “material” to the claims. The point is that I have purchased a patented device and yet somehow I am still infringing a patent if I use that device (which I paid for) (i) for its only purpose or (ii) for an obvious (unpatentable) or patent-ineligible purpose. That can’t be the right result. If it were, the patentee could double-dip you endlessly. Sure, you bought the box with the device in it at the store. But you didn’t license my method claim covering the process of opening the box; or my claim to a method of taking the device out of the box; or my claim to a method of assembling the two components of the device in the box according to the instructions on the side of the box; or my claim to a method of plugging the assembled device into the wall. “Didn’t you stop and ask yourself why the device was so cheap?” You get the idea.The “test”, then, is simply this: is a purchaser of a device infringing a claim by using the device in its only substantial way or in an obvious (unpatentable) method? If so, that claim is exhausted upon purchase of the device.

        1. I think your question fails when you ask about “the purchaser of an infringing device…” Now assume for the moment that a programmed computer was eligible subject matter. You buy a computer. Did you infringe? You then buy the covered software and install it on your computer. Do you infringe? Do you exhaust the patent simply by buying the old elements of a combination? NO!A claim covers a the combination of a novel phonograph and a novel record. Both elements are novel. You buy the phonograph from the patentee. Have you infringed? No. You buy the record from the patentee, have you infringed? No. Then you buy a record from a third party. Have you infringed? Arguably, yes.Cf. Leed & Catlin No. 2, Morgan Envelope, Univis Lens.Thus we determine materiality of the component under consideration for 271(c) purposes by whether it is itself an essential feature of the invention and essentiality is determined by patentiblity. If it is an essential part of the patented combination, and it meets all the other criteria of 271(c), it makes no difference if you bought the other elements from the patentee.

          1. Ned: I think your question fails when you ask about “the purchaser of an infringing device…”Those aren’t my words so the quotation marks are a little odd … But I see your point. Let me see if I can clarify with a couple edits:Is a purchaser of a device an infringer of a patent claim when he/she uses that device in its only substantial way or in an obvious (unpatentable) method? If so, that claim is exhausted (with respect to that purchaser) upon purchase (from the patentee) of the device and any patentable (novel, non-obvious) components recited in the claim that are necessary to use the device.In the case of a bona fide (and valid) “combination claim” reciting an unpatentable device and another unpatentable component, exhaustion of a claim won’t follow from mere purchase of the device (and only the device) from the patentee because infringement of the patentee’s claim will not result from using the device “in its only substantial way” or in “an obvious method”.

            1. Actually, this point was addressed by the Supreme Court in Leed & Catlin. The court held that buyer does not get the right to reconstruct the combination again and again and again and again.This was also the point the Supremes made in Monsanto. The buyer of the seed has a right to plant that seed, but not its offspring. The Supreme Court has been consistent on this point from Leeds to Monsanto. But, where the consumable is something unpatentable or old, like the toilet paper roll in Morgan Envelope, then exhaustion does apply such that the constant reconstruction is not infringement.

            2. this point was addressed by the Supreme Court in Leed & Catlin.Exactly which point are you referring to?The court held that buyer does not get the right to reconstruct the combination again and again and again and again.Let’s say there’s a combination patent reciting two novel components with no other uses except to be combined. What if I buy the components from the patentee “again and again and again”? If the components have no other substantial use except to be assembled, then purchasing the separate unassembled components from the patentee would seem to exhaust the patent on the combination each time they are purchased.In any event, I think I’ve come up with a better test for exhaustion than this “material to the invention” test.

            3. From Leeds & Catlin 2, “The right of substitution or “resupply” of an element depends upon the same test. The license granted to a purchaser of a patented combination is to preserve its fitness for use so far as it may be affected by wear or breakage. Beyond this there is no license.”It is necessary to point out that the combination in Leeds was of a novel record and a novel phonograph. The Court had earlier distinguished Morgan Envelope on the basis that the addition of a non novel paper roll to a novel fixture was not a proper combination such that supplying the paper roll for use in the fixture purchased from the patentee was not an infringement.Today we simply observe that the sale of staples is not an infringement under 271(c). But if the item sold is meets all the requirements of 271(c), it is an infringement. If the sale is not for repairing or replacing worn out parts, the components sold are used in remaking the combination, which is, under even Monsanto, not within the scope of exhaustion.

          2. “You buy a computer. Did you infringe? “If you play out the vapid and debunked “House” argument, then the minute you buy a computer you have infringed all future improvements to that machine.There’s an old case called Morse that has something to say about that type of ‘logic.’

            1. anon, I was simply pointing out that when a patented combination involves both old and new elements, that is not infringement to make, use and sell the old elements. Under any theory.Materiality in 271(c) relates to novelty. The component or material has to be a material part of the novelty of the combination or method. If the element itself is old, it has a substantial non infringing use.

            2. “Materiality in 271(c) relates to novelty.”That is a mistake the majority made, as pointed out by the dissent.Materiality has to do with, well, materiality. IT has nothing to do with whether or not he item is patentable on its own. There already is the use of the staple goods concept to cover that, so there is no need to delve into whether or not a patent was obtained.One question to consider: what else could the strips be used for? Can they actually be used for anything else in any other type of meter?If the answer is not, then the only use is to violate the method and you have your answer as to infringement. If the strips have an alternative use, then you may have other questions to ask. But here, kicking up the dust as to whether the strips themselves had obtained a patent is decidedly unhelpful.

            3. anon, I see. Your definition of materiality is … materiality. What you do by focusing solely on the other elements of 271(c) is to give no meaning to “materiality,” essentially reading it out of the statute.

            4. How am I reading out materiality by focusing on materiality?I am eliminating the mistake as pointed out by the dissent – nothing more.

            5. Anon, you prove materiality only by showing that the component is not a staple, etc. You give no meaning to materiality.

            6. What I give is sufficient – what you attempt is error.You are confusing things and saying that materiality is not enough for materiality, and that you need patentability for materiality – such is simply not so.

        2. “Also, I don’t like this “material to the patented invention” test. It misses the point and it’s confusing because every element in the claims (and surely the claims are “the patented invention”) is “material” to the claims.”Bravo.

          1. Unfortunately, the rest of the post is a bit of a strawman. It is unstated whether or not valid separate patents for the various methods have been obtained that would “double-dip you endlessly.”If actual valid patents exist for each of the subsequent different uses, then there is no double-dipping, is there?

        3. This thread is so close to the alternative (and correct) way to view the hypothetical at the end of this post. A purchaser of a device that can be used only one way (blood glucose measurement) with only specific other materials (test strip designed for the device) does not infringe the combination claim because the purchaser has an implied license to use the device in the combination. Because the user does not infringe, the seller of third party test strips cannot be inducing infringement.Using the exhaustion doctrine is using a square peg for a round hole, and messes up the law of exhaustion, as we see here.

  7. Exhaustion will remain a mess until Monsanto is dealt with appropriately.Facets to think about: – intended use – nexus with essential patent features – let into the stream of commerce – not protecting a business model – tie in with something unpatented

    1. The result in Bowman v. Monsanto hinged on the replicative nature of the claimed composition. That’s not an issue in this case, which is why the majority didn’t bother with Bowman.

      1. Malcolm, but replication is an issue because the method is infringed each time the apparatus is used. As well, had this been framed as an apparatus patent, the final claimed apparatus would be constructed (as opposed to reconstructed) each time the test strip was affixed.Monsanto is apt in this regard.The difference is that the consumable part in this case, the test strip, is not novel, while in Monsanto, the seed embodies the invention.The case most on point is Morgan Envelope, where the novelty was in the toilet paper hanger and not in the rolls of toilet paper. But the Supreme Court had to find the patent on the rolls of toilet paper “invalid” to come to this result.

        1. replication is an issue because the method is infringed each time the apparatus is used”Using an apparatus” is not “replicating an apparatus”, unless the apparatus is self-replicative and you are “using the apparatus” to replicate itself.The majority was correct to focus on these other Supreme Court cases and not Monsanto because the facts in Monsanto are very different from the facts in those cases and in this case. Are some of the considerations the same in each of these cases (including Monsanto)? Sure, because some of the same considerations arise in all patent cases. But that’s a far cry from suggesting, as the dissent did, that Monsanto “controls” the outcome in this case or that there’s some worrying “conflict” between the majority’s exhaustion analysis here and the analysis in Monsanto.

          1. “”Using an apparatus” is not “replicating an apparatus”, unless the apparatus is self-replicative and you are “using the apparatus” to replicate itself.”And if that use is both the intended use of the sale and is the nexus with the essential patent features…?

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