En banc Federal Circuit affirms Mallinkrodt, notwithstanding Quanta

By Jason Rantanen

Lexmark International, Inc. v. Impression Products (Fed. Cir. 2016) (en banc) Download Opinion
Majority opinion authored by Judge Taranto, with Judge Dyk dissenting (joined by Judge Hughes)

 This morning the Federal Circuit issued its en banc opinion in the closely watched Lexmark case.  In a behemoth 92 page opinion by Judge Taranto, the court held that the limitations on the exhaustion doctrine set out in its 1992 Mallinkrodt and 2001 Jazz Photo opinions remain good law, notwithstanding the Supreme Court’s intervening decisions in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) and Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013).

From the majority opinion:

First, we adhere to the holding of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that a patentee, when selling a patented article subject to a
single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. Under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles; Mallinckrodt held that there is no sound legal basis for denying the same ability to the patentee that makes and sells the articles itself. We find Mallinckrodt’s principle to remain sound after the Supreme Court’s decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), in which the Court did not have before it or address a patentee sale at all, let alone one made subject to a restriction, but a sale made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.

Second, we adhere to the holding of Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), that a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. Jazz Photo’s no-exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise-infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.

Judge Dyk, joined by Judge Hughes, disagreed:

I agree with the government that Mallinckrodt was wrong when decided, and in any event cannot be reconciled with the Supreme Court’s recent decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). We exceed our role as a subordinate court by declining to follow the explicit domestic exhaustion rule announced by the Supreme Court.

They also would take a presumption-based approach to international exhaustion that would treat exhaustion as a default rule:

Second, I would retain Jazz Photo insofar as it holds that a foreign sale does not in all circumstances lead to exhaustion of United States patent rights. But, in my view, a foreign sale does result in exhaustion if an authorized seller has not explicitly reserved the United States patent rights.

My sense is that Supreme Court review is likely given the tensions between Quanta and the Mallinkrodt rule that Judge Dyk and others have identified.  In my view, Judges Dyk and Hughes have the better reading of the pre-Mallinkrodt Supreme Court decisions and the effect of Quanta.  And given the Supreme Court’s tendency to look to patent law statutes when deciding non-statutory issues in copyright law (such as in MGM v. Grokster), I’m not convinced that, should it grant cert, the Supreme Court is going to feel as strongly that patent law’s exhaustion doctrine is different because it is non-statutory while copyright law’s is statutory.

96 thoughts on “En banc Federal Circuit affirms Mallinkrodt, notwithstanding Quanta

  1. We all know there are some hardcore Republicans and Repulibertarian types who comment here.

    Let’s hear your recommendations for the next Supreme Court justice. After all, if your dreams come true, we’ll be electing that person, too.

    Step up.

    1. How about one that is good for patents and understand the modern information age. Will overturn Citizens United. Is pro choice. Is pro gay rights. Is pro labor unions.

      1. How about one that recognizes and respects the rule of law, the separation of powers, the notion that ALL three branches of the government operate UNDER the Constitution and that not any one branch is above the Constitution, and recognizes the difference between statutory law and common law?

        And yes, one that understands innovation, the patent system, and that the Useful Arts is more than just “technology,” while also appreciating technology.

        And maybe one that is outside of the Ivy League school of thought…

        Aside from that, one that is not embroiled in race, gender or political leanings of any kind.

        1. That is just ridiculous anon. You may as well as for peace on Earth and eternal youth.

          We will get not one of the things you asked for. Maybe a justice from a Midwestern university.

          1. Sad, is it not that the mere possibility that my “wish list” would engender a comment like “That is just ridiculous

            Every aspect I wish for would be the attribute of an outstanding Justice.

    2. MM, If there had not been so much hardball politics under Obama, he might have been able to get a moderate, like Kennedy, appointed. But the O-man has not built up a lot of good will across the bench, and he will no reap what he hath sown.

      If Sanders/Hillary are doing well, then it really makes no difference if he waits. If Trump? I doubt if he would care to nominate a conservative.

      Cruz and Rubio? Conservative.

      1. Obama had hardball politics? Haven’t the Republicans voted some insane number of times to repeal Obamacare? And now they refuse to examine any possible nomination? “The party of no” I think is an appropriate moniker for the GOP.

        Personally, I think both sides are ridiculous, but the GOP saddles easily as much blame as the Dems.

        1. PatentBob, the O-man pushed O-care through without deigning to make a single compromise to get a single, not one, Republican vote. In the history of really important legislation, even including he civil rights legislation back after the Civil War, I don’t think Congress has passed such important and sweeping legislation without a single vote from the opposite party.

        2. but the GOP saddles easily as much blame as the Dems.

          Easily MORE so.

          But that certainly does not mean that the Dems are anywhere close to being angels.

          Both groups remain at heart politicians.

  2. Good argument by a Scotus blog author for 9th Circuit Judge Paul Watford:

    link to scotusblog.com

    Watford was confirmed by the Senate in 2012 by a vote of sixty-one to thirty-four, which is a filibuster-proof majority. Nine Republicans voted in favor of his nomination. That gives the Administration considerable ammunition to argue publicly that Republicans, by refusing to process the nomination, are blocking someone who is recognized to be qualified.

    Logistically, the fact that Watford was vetted so recently also makes it practical for the president to nominate him in relatively short order. There is some imperative to move quickly, because each passing week strengthens the intuitive appeal of the Republican argument that it is too close to the election to confirm the nominee. Conversely, a nomination that is announced quickly allows Democrats to press the bumper sticker point that Republicans would leave the Supreme Court unable to resolve many close cases for essentially “a year.”

    Other names floated in the article: CA Attorney General Kamala Harris; attorney General Loretta Lynch; Judge Sri Srinivasan of the D.C. Circuit; Patricia Millett of the DC circuit.

    Personally, I think another woman on the court would be ideal. But the argument for nominating Watford is a good one.

      1. Speaking of which:

        Justice Scalia Dead Following 30-year Battle With Social Progress

        That’s right up there with Onion’s all-time classic from January 17, 2001: “Bush: ‘Our Long National Nightmare Of Peace And Prosperity Is Finally Over'”

        Over at Scotusblog, I noticed Lyle Denniston predicting that in the future Scalia will be seen as one of the Supreme Court’s finest legal minds. I’m here to bet my life that is most definitely not going to be what Scalia is remembered for.

    1. Funny. It appears that Goldstein has read my mind and is now leaning towards Loretta Lynch, rather than Watford:

      link to scotusblog.com

      Her history as a career prosecutor makes it very difficult to paint her as excessively liberal. … The fact that Lynch was vetted so recently for Attorney General also makes it practical for the president to nominate [her] in relatively short order.

      I think the administration would relish the prospect of Republicans either refusing to give Lynch a vote or seeming to treat her unfairly in the confirmation process. Either eventuality would motivate both black and women voters. (Homeland Security Advisor Lisa Monaco, who is white and substantially younger (forty seven), is another potential female nominee.)

      There’s a good discussion of Ted Cruz’ political strategery as well. Anyone here have any idea who Cruz’ favorite nominees are? Surely he’s got some real winners on his short list …

  3. Watching the 72nd Republican debate of this election season. Opening questions relate to the Supreme Court vacancy and what’s going to happen.

    Trump: It’s awful that Scalia decided to die right now. Conservatism took a big hit and the Senate needs to delay delay delay because, hey, conservatism.

    Kasich: This country is filled with whiny crybabies and I count myself and most Republicans among them. We can’t handle the divisiveness in an election year.

    Carson: I read the twitters and people said nasty things about Scalia. Stop being mean.

    Rubio: Scalia was the greatest judge ever and it’s been 80 years since a lame duck president nominated a justice. 80 years is a magical number so we have to obey tradition.

    Jeb! : Obama isn’t going to pick a justice that Republicans like, which is totally different from what a Republican would do and if you believe I have some beautiful land in Florida to sell you.

    Cruz: We are one Justice away from a country where the government will come to your house, take your guns, ab0rt your baby and make you eat arugula.

    1. The solution to the justice problem is simple. Start to follow the Constitution. When a contention issue comes up admit that there is no clear way to decide the issue based on the Constitution and that a constitutional amendment is needed to clarify the issue.

      We should start with abortion and guns. People have to stop seeing an appointment of a judge as a way to get the legislation or Constitutional amendment they want.

      And, yes, the federal circuit is worse. The Google judges were selected, vetted, and approved for Obama nomination. They are not judges but legislators appointed by Google.

      1. If we did this, then what we would get is people pushing for Constitutional amendments and not the Fed. Cir. judge of their choice or the justice of their choice to make legislation. (e.g., Taranto in the Fed. Cir. or Ginsburg in the SCOTUS, both of whom act like legislators with no regard for the Constitution or the law.)

      2. People have to stop seeing an appointment of a judge as a way to get the legislation or Constitutional amendment they want.

        Of all people, it was Ned Heller that presented a link to a paper written by Judge O’Malley that called for all amici to STOP asking the judicial branch to exercise this very type of law making.

      1. The fact that this one justice change from conservative to liberal could radically change laws in this country means something—that we are not following the Constitution. That the game that is being played is get your judge in and they will make the laws you want. (Same deal in spades at the Fed. Cir.)

      2. Scalia wrote a concurrence last year where he said patents were not a right at all — neither public nor private — but a form of government regulation subject to ordinary executive administration.

          1. Oops. I was afraid I’d remembered that wrong as soon as I wrote it.

            It was Thomas and Alito in the dissent to Teva. Scalia didn’t say it, though I expect he’d have come along. My favorite Scalia patent opinion was Bilski.

  4. There is or ought to be a significant difference in a Mallinckrodt product sale situation between the first purchaser who is on full notice of and has an express or implied contractual agreement for the “single-use/no-resale restriction,” versus “downstream buyers” re-purchasing the product without such notice or contractual agreement. That is a classic restraint on the alienation of chattels [a prohibition which goes back all the way back to medieval England* and is cited in several very early U.S. Sup Ct. patent cases] and U.S. patent infringement suit exhaustion for that product by its first sale in the U.S. by the owner or licensee of that patent.
    The Jazz Photo situation is very different.

    *distinguished from “real property” law on restraints running with the land.

    1. How do you see this in comparison to the sale of see genetically modified seed that fully lacks any type of notice or contractual agreement (from say a grain silo)….?

      1. To better explicate:

        Consider a well-known Supreme Court decision wherein a giant mega corporation took a nigh destitute 80 year old man all the way to the nation’s highest court to stop that man from buying seed on the open market and using seed for one of the things that seed has always been used for: planting.

        That mega corp DID have a full notice agreement for the sale of a first generation seed. That full notice agreement ALLOWED the purchasers of that first generation seed to sell the next generation product seed (a product from – gasp – planting) WITHOUT restraints of any kind to a middle man market vendor.

        Note that mega corp COULD HAVE attached a provision to their own first sale that prevented such a “next generation” sale to occur in such an uncontrolled and unfettered manner.

        They choose not to (and priced their first sale accordingly).

        So then, let’s take a look at this next generation product.

        That next generation product is sold unconditionally by one party to another.

        ZERO conditions, so there is no chance of any type of notice riding along with that actual product,

        Then, a SECOND sale occurs in the open market, between the beneficiary of the first sale (again, a sale without constraint or notice) and a third party.

        This product on the open market now has undergone TWO unrestrained and fully open sales.

        Now – this explicitly sold product is taken by the person who is the beneficiary of the second public sale and and is applied to a task that that product has ALWAYS been applied to (seed is planted).

        Dear Paul F. Morgan, how does your view of the “classic restraint on the the alienation of chattels” fit into this fact pattern?

          1. Paul,

            You were not paying attention.

            The second generation seed – the product of the first seed sold by Monsanto is indeed sold twice.

            From the farmer that Monsanto sold the first generation seed to to the grain silo operator, and then

            from the grain silo operator to Bowman.

            The first sail is the one that Monsanto could have – but did not – place any restrictions on its contract.

            That first sale is s sale complete and unfettered.

            The second sale is also complete and unfettered.

            Are you done trying to avoid the issue and want to lend your expertise?

            (the bet with my Vegas bookie is even odds on this one – you might actually share some cogent legal thinking here)

            1. Anon,

              Just throwing in my two-cents-worth (though I suspect you might think I’m over-valuing my contribution) . . .

              The first sale doctrine does not exhaust a patentee’s right to exclude the making of the patented invention. The Supreme Course chose not to create an exception for inventions capable of self-replication, even if the invention is something typically used for self-replication (e.g., seeds for crops). The Court decided that the need to protect and encourage innovation outweighed the public interest in expanding exhaustion of IP rights.

              If Mr. Bowman had used the twice-sold 2nd-generation seed for anything except making a third generation of seeds to plant and grow crops (thereby infringing Monsanto’s exclusive right of “making“), he likely would have been in the clear, patent-wise.

              The obvious problem: what duty, if any, falls upon the acquirer a self-replicating product, intending to make use of the self-replication, to protect him- or herself from patent infringement suits when they do not know if the product is covered by one or more active patents (e.g., second-sale, etc.)?

              As unfair as that burden is to the farmers, creating a farmer-protecting carve-out that would not be unfairly exploitable to the detriment of patent-holders seems nigh impossible.

              Hopefully, brighter minds than mine (hold your tongue, Anon! 😉 will a find a solution more tenable than the status quo: let the courts decide on a case-by-case basis, and hope justice prevails.

              1. My dear Count Dobu,

                You have missed the point and have your conclusion backwards.

                The irony of the case presented is that the Court DID create an exception not otherwise there. It is NOT that they refused to create a new exception. The Court did create a carve-out and it was not a carve-out for the indigent farmer: the carve out was for Big Corp.

                Look again at the plain facts: there was not one but two sales without any strings attached.

                Sales without any strings attached are sales that exhaust ALL of the individual sticks in the bundle of rights.

                ALL of them – and all the separate ones including the right of making.

                The only contractual item that Monsanto included was for the first buyer not to make more than once. But Monsanto expressly allowed that first next generation to be sold WITHOUT any strings, including that very string of “do not make.”

                This lack of “encumbering and notifying down the chain that they too are encumbering” is a plain fact here.

                What the Court did with that fact is change the normal view of law.

                This thing the Court did was unprecedented, and had NO basis in either the law as written by Congress NOR any other common law view of a full and unencumbered sale. The purchasers of those sales – first the purchaser that is the silo operator, and then the purchaser who is anyone buying from the silo operator have ZERO notice at the time of sale of any such encumbrance.

                It is only when the buyer has been provided notice at the time of the sale that he is NOT buying all of the sticks that the point (as I am “gently” reminding Paul F. Morgan) of not exhausting rights comes into play per the “classic restraint on the alienation of chattels” – I would still love to see how (or even if) Paul sees this.

                At this point, it is far LESS a matter of “finding a solution more tenable ” and far MORE realizing that a solution in fact needs to be found.

                One simply does not know TO find a solution to a problem that one does not recognize a solution is still needed for that problem.

                1. Anon,

                  IP rights exhaustion has always been limited to the individual product of the authorized sale. Your version of the First Sale Doctrine would disastrously undermine patent law, allowing anyone to purchase one authorized copy of an item, and then manufacture, use, and sell as many copies as suits them.

                  As you must know, this cannot be, and is not, how exhaustion works.

                  The patent-holder still has his or her full “bundle of sticks” with respect to the making of any new copies of the patented invention. Self-replicating inventions don’t get a “free pass” — i.e., no carve-out.

                  1. Dobu,

                    You need to remember the actual item under discussion: seeds and what has been the primary use of that item for like forever: making.

                    Your response here neglects that very important aspect and must be modified (any other item simply does NOT have as a principle use the self-replication of “make”)

                    My version does not in fact bring the parade of horribles that you want to invoke.

                    This is NOT a carve-out free pass – this is merely recognizing what IS.

              2. Thinking about your post Count Dobu – why is it that you think that only the stick of “making” is the only stick transgressed by Bowman?

                Did Bowman have any notice that it was only “making” that was a patent infringement at the time of the second sale of the actual 2nd generation product from the grain silo? Did (magically) ALL the other sticks somehow disappear from that 2nd generation product? How did those other sticks disappear?

                Plainly put, there is ZERO reason to focus only on the stick of “making,” and (as I had pointed out previously), if you are going to invoke the stick of making as somehow still being active, then all the other sticks MUST be active as well.

                THINK.

                The necessary implication here that the single stick of “making” is still active means that ALL the sticks in those next generation seeds must also be active (the whole “new item” thing does not magically restrict itself).

                The grain silo operators are every bit as infringers as they are selling that 2nd generation seed (and selling too is a stick in the bundle of rights).

                Just because Monsanto did not go after silo operators (yet), does NOT mean that those other sticks have been (again, magically) dedicated to the public.

                Let’s see some critical thinking out there and let’s see the necessary implications of the Court’s new carve out.

                The world does indeed turn, even if it is merely I that notes the turning. 😉

                1. Anon –

                  Re “only the stick of ‘making’ is the only stick transgressed by Bowman?“:

                  Because IP rights had been exhausted in the seeds he purchased. The new seeds he made were not purchased, First Sale does not apply, the IP rights were not exhausted, and he infringed Monsanto’s exclusive right to make.

                  Re “How did those other sticks disappear?

                  Again, exhaustion.

                  Re “if you are going to invoke the stick of making as somehow still being active, then all the other sticks MUST be active as well.

                  Negative. All sticks in the original sold product have been exhausted. Making a new copy of the patented invention — no sale, no exhaustion.

                  Re “THINK.“:

                  Accuse Others Of Not Doing That Which Anon Is Not Doing, much? AOONDTWAIND?

                  Re “The necessary implication here that the single stick of “making” is still active means that ALL the sticks in those next generation seeds must also be active “:

                  Wrong. All sticks are exhausted in the sold product. All sticks (including the “making” stick) are still active in the invention. You don’t get authorization to make new copies of patented items just because you purchased an authorized copy.

                  1. The invention is IN the replication.

                    So there is no utility UNLESS the seeds are put into the ground. For this item – this invention – use MUST include “make.”

                    Further, as above, you do need to recognize the difference in the invention that does so necessarily involve “make.” Your attempt at the “use of making copies” is simply not on point in this example.

                    Sorry Dobu, the world has turned thus like forever.

                    Your attempt to accuse me of not thinking just does not fit. I suggest that instead of spending your time attempting to be clever, that you yourself actually think through THIS example.

                    But let’s take a moment and play along with where you want this to go and look at the other part of my comments that you are not addressing – even assuming for a moment that your view prevails – what then of ALL graineries? Surely then, they are active infrinegrs because they sell all NEW products – the once made after the first generation (and likely multiple generations). Should all graineries ante up to Monsanto for Monsanto’s lack of control in its initial sales agreement to not allow a full and unfettered (and without notice) sale TO the graineries?

                  2. (the graineries are not limited to buying from those that buy directly from Monsanto – after all, Bowman sold his items back to the graineries)

                  3. (and further, can the items – not the original items bought under contract from Monsanto – but the 2nd generation – which you claim to be not exhausted at all – does not ANY sale violate Monsanto’s sticks? Even that sale TO the graineries?

                    If you are going to hang your hat on the “cannot make” angle, your petard and your hat needs to be differentiated.

                  4. Anon,

                    Soybean seeds can be used for more than just making more soybean seeds: feedstock, soybean oil, human consumption, etc.. Otherwise, farmers wouldn’t be investing in them as a crop.

                    I’m not interested in pursuing the chicken-or-the-egg issue. I do not know (or care) if the patent is on the seed, the plant or both. Once you have created unauthorized copies of the patented article, you are infringing.

                    The farmers that have contracted with Monsanto are making authorized copies when they plant the purchased seeds, grow the plants from those seeds, harvest the next generation of seeds from those plants, and sell those to graineries, soybean processors, et al. Such licensing must necessarily be in the contract for farmers to have any use for Monsanto’s products.

                    I did not write that exhaustion fails to apply to the 2nd-gen seeds. It does. However, anyone who produced authorized 2nd-gen copies will probably still be subject to contractual obligations that limit their disposition.

                    The downstream purchasers receive their soybeans free of any obvious encumbrances. Unfortunately for farmers, who make their livings by copying purchased products, strict-liability patent law places an unfair burden on them to make sure they’re making authorized copies. As you are so fond of pointing out, “there’s no such thing as ‘innocent infringement'”.

                    I consider that a huge problem with how patented organisms are being viewed by the patent office and the courts, and that is why I pointed it out in my first post in this exchange.

                  5. You still have not recognized the nature of seed which MUST include within “use” the known and obvious “make.”

                    You dance around this with the n0tion of other uses – for which no one is arguing. The point (as you so artfully stated) though is “invention.”

                    It matters not whether you want to play “chicken or egg” – it does matter that the ONLY use for which the invention relates it that selfsame use of “make.” ALL other uses that you refer to do NOT intersect with the invention.

                    The very reason why a premium CAN BE charged for the Monsanto product in the very first instance is the use of “make.”

                    This is known.

                    Monsanto CAN limit its buyers contractual rights – and does – but does so in an incomplete manner.

                    You keep on missing this critical point.

                    You talk instead about “ Such licensing must necessarily be in the contract for farmers to have any use for Monsanto’s products.” and focus on the other uses that have NOTHING to do with the invention. You also neglect that the contract that Monsanto drafted (with all the obvious implications of holding contract imperfections against the drafter) does NOT carry on the protection of 2nd plus obvious and natural use of “make” against anyone except that first and original sale. The missing provision of “and agree to not let anyone buy the product of that first sale for the use of make” necessarily means that Monsanto has chosen to let that use go public.

                    Oh, I agree with the implication of “gee, such an onerous condition might make the value of that first sale a lot less in the eyes of farmers buying that original seed,” but hey – that onus is NOT on the farmers – it is on Monsanto.

                    Monsanto does NOT use that language – thus the sale of the original seed buyer of the 2nd generation product to the silo operator is a complete and unfettered sale of ALL natural uses of the seed.
                    Clearly, you have not yet thought deeply enough on this point. You tripped and wanted to think that the use of “make” does not apply, since for most goods, the use of “make” is NOT a natural use. But with THIS good, such IS a natural use, and IS included in the sale of the good. This is clearly seen in the limitations that ARE drafted against the first purchaser from Monsanto. If your view were to hold, then Monsanto would not need to include even that provision. The presence of that provision – coupled with the lack of a parallel downstream provision clearly means exactly what I have postulated.

                    Your position is STILL caught in an unexplained attempt to treat sticks in the bundle or property rights differently, when no such ability to differently treat is contractually present for anyone else but the first original buyer from Monsanto.

                    Might there be a legal problem with a contract that would force that original buyer from Monsanto to turn around and force the same type of conditions on whomever buys the 2nd gen product? Might such a term then force silo operators to NOT co-mingle seed that is Monsanto seed with seed that is not Monsanto seed?

                    Perhaps. But that is a separate issue, and one not associated with either exhaustion or Paul Morgan’s “classic restraint on the alienation of chattels” which my first comment – and providing of this case – addresses.

                    Paul has not (yet) addressed this.

                    And neither have you (fully and with attention to the actual contracts – and loss of rights involved).

                    As I said: this takes some critical thinking and must include all of the parties (beyond the actual Monsanto-Bowman legal case which did not address the full picture) and all of the repercussions for the product of seed, which DOES necessarily have the use of “make” – and always has had that use – as an obvious and natural use (quite distinct from other products in which the replication factor just does not apply).

    2. Paul, I think the point you make is the reason Coke made his and why restraints on chattels are against the law.

      The question is whether the patent owner passed title. It is that simple, or it should be.

      1. Ned, I agree with you. The argument should be about whether Lexmark can “lease” the single use ink cartridge (must be destroyed or returned, enforced by software cartridge). I don’t see why we cannot characterize it as such.

        For example, Lexmark uses chips that do the same thing as software license check for the software on my computer (albeit circumvented by third parties). That would satisfy copyright law such that it is considered it a lease rather a sale (and no exhaustion would occur)(even though no return is required).

        Instead, we play the charade that Lexmark performed a “sale” with conditions on subsequent use, which don’t fit nicely with in the general legal framework.

        If I was forced to support the majority’s interpretation of General Talking Pictures, I would call the sale a lease for single use coupled with license to use; the restriction being that the item must be destroyed or returned. This makes General Talking Pictures directly on point [the transfer from end user to remanufacturer exceeds the license, thus any subsequent transfers etc are outside the license].

        Is there a problem with this? Yeah, like in copyright, a proliferation of leased items.

        I guess my main point is patent law allows for a bundle of sticks: how do you give someone the right to use without the right to further transfer? If there is no independent way, aren’t we collapsing the right to use and the right to sell? I guess, no, you can still sue an unauthorized made and used product that practices the invention on the basis of use alone. But that creates an odd asymmetry that is not mandated by the statute (i.e., the function of exclusion versus relationship is discontinuous [a wholly unrelated person can be excluded; a related person cannot be limited])

        1. how do you give someone the right to use without the right to further transfer?

          You, the seller (and patent owner, or under authority of patent owner) simply up front say to the purchaser: “Hey, you are only purchasing “X” out of all the normal things that a purchaser may typically purchase (such as “X,” “Y,” and “Z”).

          Don’t like it? Don’t buy it.

          And yes, we very much slide down that slippery slope of “scrivining” with sales masquerading as “leases.”

          But aside from that (and that is a topic definitely worth exploring in more detail – there are two other things that could be looked at.

          First, there’s this little thing about not buying it and instead buying a knock-off.

          Second, there’s this little thing about buying someone else’s effort to get around the restricted sale.

          In the first, you have a merging of functionality (which should wreck any attempt to use copyright as a block), but you still have to consider equivalence, and that will come down to whether the patent protects the method or the object, and whether the knock off is an equivalent to the claim or merely an alternate.

          In the second, you have your typical notice issue (for sure, the knock off producer is NOT going to be giving the end user notice) and a question of which party should be stopped. Of course, since “use” by itself is still infringement – even if that use is “just” the end use consumer (think wifi at the coffee shop infringer is still an infringer), the notion of notice becomes a little muddled.

          Time to reread the decision – lots to soak in.

      2. s whether the patent owner passed title. It is that simple, or it should be.

        Feel free Ned to apply your “pass title” view on the TWO public sales I listed above (noting that the first passing of title COULD have been controlled by the patent holder, but was chosen NOT to be).

        1. What kind of “title” do the farmers who bought original side from Monsanto have in the 2nd generation seed that is a direct product of those farmer’s use of “make?”

          Yes there are limitations agreed to at the time of the sale and thus there is some notice.

          But – critically – those limitations are flawed (as to the drafter of the limitations, Monsanto) and those limitations allow an UNlimited sale of that product to other third parties.

          What kind of “title” do the silo operators who bought the non-original side from the farmers have (including ANY limitations on the obvious and known use of “make?)?

          Yes there are NO limitations agreed to at the time of the sale and thus there is NO notice.

          ALL normal and obvious uses thus are exhausted.

          What kind of “title” do purchasers of grain from a silo have?

          Follow the logic.

          Monsanto loses control based on their own contract at the point of sale to the silo operators. They COULD have attached protection to any 2nd generation product that results from a direct sale of the original seed, and they CHOSE not to.

          These are the facts presented.

          How do these facts – and the fact that the use of “make” is a well known and recognized use (thus the presence of partial protection in the Monsanto-farmer first sale contract) – play into the “classic restraint on the alienation of chattels”…?

    3. I see no problem with enforcing such on downstream buyers of encumbered personal property.

      Lets analogous to the other personal property regime: UCC Secured Transactions.

      What happens if you transfer a secured collateral without authorization? Proliferation of secured collateral:
      UCC 9-102(a)
      “(12) “Collateral” means the property subject to a security interest or agricultural lien. The term includes:
      (A) proceeds to which a security interest attaches;
      (B) accounts, chattel paper, payment intangibles, and promissory notes that have been sold; and
      (C) goods that are the subject of a consignment.

      (64) “Proceeds”, except as used in Section 9-609(b), means the following property:
      (A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral;
      (B) whatever is collected on, or distributed on account of, collateral;
      (C) rights arising out of collateral;
      (D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral; or
      (E) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral.”

      So if A outside the scope of his agreement with secured party transfers to B the collateral X for proceeds Y. Both the proceeds Y and collateral X are secured and are now collateral. If B subsequently transfers collateral X for proceeds Z ………. etc.

      Secured party can go after anyone he can trace, and can satisfy his debt once. That party can seek recompense against the party that conveyed collateral without removing the encumbrance etc back down the chain.

      That said, there are special rules (e.g., for cash proceeds and chattel paper etc) and there are limits (lowest intermediate balance rule; notice). But no one is screaming about the 1600’s rule against restraint on alienation.

      We give secured creditors the right to go after anyone; why not let the patent owner go after the one person who has the patented product (and satisfy his “debt” once for the unauthorized transfer).

      I do agree that notice is required; not at issue in this case – Impression was on notice.

      1. drop by,

        Please feel free to add your comments to the situation wherein notice is an issue (the Monsanto-Bowman fact pattern above).

        thanks

  5. I agree that Dyk has the better argument. If nothing else, it’s a comprehensible argument with a sounder policy rationale and its more consistent with the Supreme Court’s recent holdings.

    If you want to exclude with your patent, then exclude. If you want to license your patent, then license your patent. If you want to sell, then price your product accordingly. You don’t get to have it both ways.

    1. Damm property owners milking the system and getting a price that reflects “sale” when all that they are really doing is “leasing” you a one shot use.

      Next thing you know, damm car buyers won’t be selling you an actual car complete, but will be only “leasing” you all of that controlling software, and what you will be buying will just be that [Old Box]…

      😉

  6. This is what J. Dyk writes after his intellectually disingenuous MCM decision?

    “We exceed our role as a subordinate court by declining to follow the explicit[] rule announced by the Supreme Court.”

    Is he mentally ill?

    1. David, Dyk should have said about McCormick Harvesting that it did not directly involve the issue of a statute. That would have been honest.

      On ignoring the conflict between Patlex and ex parte Wood and also Lockwood? Now that, to me at least, was a bit much. As Nies said in Lockwood, it was impossible to reconcile Patlex with a constitutional right to a trial by jury for validity. Of course, Dyk said as much during oral argument as well. He suggested that they could overturn Lockwood and deny patent owners all access to a jury for validity.

      His opinion did not go there, and I think it was because of ex parte Wood.

    2. “David, Dyk should have said about McCormick Harvesting that it did not directly involve the issue of a statute. That would have been honest.

      On ignoring the conflict between Patlex and ex parte Wood and also Lockwood? Now that, to me at least, was a bit much. As Nies said in Lockwood, it was impossible to reconcile Patlex with a constitutional right to a trial by jury for validity. Of course, Dyk said as much during oral argument as well. He suggested that they could overturn Lockwood and deny patent owners all access to a jury for validity.

      His opinion did not go there, and I think it was because of ex parte Wood.”

      Ned – you are overthinking this. The SCOTUS has repeatedly held – and I mean repeatedly – that IP & land patent validity must be resolved in the Art III courts. The is the rule per the Court. It seems utterly crazy to me that more people aren’t up-in-arms about this.

      Can anyone recall a single instance where an appellate court has so openly flaunted established SCOTUS precedent? In the 90’s the 9th Cir did some strange things, but nothing like this.

      There is too much power in the one appellate court. It is time to disband the CAFC and send patent issues back to the regional circuits.

      1. There is too much power in the one appellate court. It is time to disband the CAFC and send patent issues back to the regional circuits.

        Won’t help.

        In fact, that will likely make things only worse.

        It is not unbridled power that you are seeing – it is the lessons learned from the Supreme Court itself that the CAFC is putting in play. This apple has not fallen far from the tree.

      2. David, “There is too much power in the one appellate court. It is time to disband the CAFC and send patent issues back to the regional circuits.”

        The Chief Judge of the Seventh Circuit believes this is absolutely necessary precisely because the Federal Circuit does not have to answer to anyone but the Supreme Court, and that Court simply cannot take every one of its flaking decisions for review.

      3. David: The SCOTUS has repeatedly held – and I mean repeatedly – that IP … patent validity must be resolved in the Art III courts.

        News flash: the term “IP patent” is one that Congress defines. It’s presently defined as as a highly qualified and limited right that can be nullified by the granting agency upon a reasonable showing that the granting agency was out to lunch when it handed out the “patent.”

        It seems utterly crazy to me that more people aren’t up-in-arms about this.

        You really need to step out of the bubble for a while. Talk to your neighbors (if you live in Texas, you might want to use your phone — they really love their “property rights” down there — LOL).

        1. Except you just made up the definition and that made-up definition is explicitly different than the one Congress actually has in place.

          (hint: think personal property and think unchanged by the AIA)

          1. “anon” you just made up the definition

            No, I didn’t.

            Hint: learn to write in English, using declarative sentences. You’ll seem a little less n u tty. Just a little less, of course, but you gotta start somewhere.

            1. ?

              You have some type of problem with the English of “you just made up that definition”….?

              It is a pretty simple, straight forward (even declarative) sentence.

              And yes, the definition of patent as property preceded – and was not changed by – the AIA.

              Maybe you should not only get a new script, maybe you should drop the AccuseOthersOfThatWhichMalcolmDoes, maybe you should just read the C R P that you post.

              Just maybe.

        2. MM, The term “IP patent” is one that Congress defines.

          From the majority opinion today:

          “Lord Coke’s 1628 statement does not address the
          Statute of Monopolies, enacted just a few years earlier, to
          which American patent law has often been traced. See
          Pennock v. Dialogue, 27 U.S. (2 Pet.) 1, 18, 20 (1829); J.M.
          Robinson & Co. v. Belt, 187 U.S. 41, 47 (1902).”

          Pennock at 18:

          “t is obvious to the careful inquirer, that many of the provisions of our patent act are derived from the principles and practice which have prevailed in the construction of that of England. It is doubtless true, as has been suggested at the bar, that where English statutes, such for instance, as the statute of frauds, and the statute of limitations; have been adopted into our own legislation; the known and settled construction of those statutes by courts of law, has been considered as silently incorporated into the acts, or has been received with all the weight of authority. Strictly speaking, that is not the case in respect to the English statute of monopolies; which contains an exception on which the grants of patents for inventions have issued in that country. The language of that clause of the statute is not, as we shall presently see, identical with ours; but the construction of it adopted by the English courts, and the principles and practice which have long regulated the grants of their patents, as they must have been known and are tacitly referred to in some of the provisions of our own statute, afford materials to illustrate it.”

          Pennock at 20:

          “Now, in point of fact, the statute of 21 Jac. ch. 3, commonly called the statute of monopolies, does contain exactly such a provision. That act, after prohibiting monopolies generally, contains, in the sixth section, an exception in favour of “letters patent and grants of privileges for fourteen years or under, of the sole working or making of any manner of new manufactures within this realm, to the true and first inventor and inventors of such manufactures, which others, at the time of making such letters patent and grants, shall not use.” Lord Coke, in his commentary upon this clause or proviso, (3 Inst. 184,) says that the letters patent “must be of such manufactures, which any other at the time of making such letters patent did not use; for albeit it were newly invented, yet if any other did use it at the making of the letters patent, or grant of the privilege, it is declared and enacted to be void by this act.” The use here referred to has always been understood to be a public use, and not a private or surreptitious use in fraud of the inventor.”

          Curtis (’67):

          “The modern doctrine, in England, and undoubtedly the
          doctrine of our law, is, that in the grant of a patent right,
          a contract, or, as it has been said, a bargain, takes place
          between the public and the patentee. As far as the old
          cases on the subject of monopolies furnish, like other
          cases of grants by the crown, rules and analogies for the
          construction of this species of grant, so far the history
          of monopolies has a bearing upon this branch of jurisprudence.
          But it should always be remembered that in the
          grant of a patent privilege, as now understood, a contract
          takes place between the public and the patentee, to be
          supported upon the ground of mutual considerations,
          and to be construed, in all its essential features of a
          bargain, like other contracts to which there are two
          parties, each having rights and interests, involved in its
          stipulations.”

          Id. at xxiii

          Art. I, Section 8:
          “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;”

          MM: our law is based on English Law. It’s interpretation flows directly from England, especially the Nielson case the held that patents do not extent to laws of nature, natural phenomena or principles in the abstract. Cf, Mayo; Morse; Le Roy v Tatam.

          There is a bargain. The inventor must be granted exclusive rights for a limited term.

          1. Curtis: In the grant of a patent privilege, as now understood, a contract takes place between the public and the patentee, to be supported upon the ground of mutual considerations, and to be construed, in all its essential features of a bargain, like other contracts to which there are two parties, each having rights and interests, involved in its stipulations.”

            The “two parties” are the patentee and the public. The “mutual considerations” and “the stipulations” are written down by Congress.

            Part of those stipulations is that the validity of granted patents are subject to review by the PTO after evidence is presented to the PTO showing that the PTO likely messed up.

            The bogus “constitutional crisis” that you and others are imagining is a lovely gift to your clients (in exchange for money) but it remains utterly bogus. And “English law” can blow itself.

            1. Your lack of respect for what property means is noted (again), Malcolm.

              Make sure that all of your “patent clients” understand how you really feel about this thing that supposedly you work to obtain for them.

              1. Ned,

                Malcolm does not think that the bargain set forth is property.

                Leastwise, not property that the patent holder actually “owns” after grant.

                Instead (and to play off of the sale/lease meme), all that the patent holder has done is “lease” a property from the government/”all the people-flag waiving emotional ploy.”

                So much for the Quid Pro Quo, eh?

              2. An important aspect here Ned is whether or not a patent was ever property.

                As I have previously made an analogy to, the issue becomes (if indeed we accept – even just for argument’s sake – that a patent is property) whether or not changes to the property made (even) by the branch of the government allocated authority to write the particular statutory law pass muster under a constitutional review that certain items – such as property – have.

                Simply and direct: Once property, that property obtains constitutional protects from laws changing that property.

                Malcolm compounds his anti-property view with a notion that there are NO constitutional protections even possible.

                That is just not so.

                Malcolm wants to be able to (blithely) state that Congress merely changed what the [insert description other than property] meaning of a patent was.

                The problem of course, is that once made, that item made is not so freely changed.

                We do not even have to “get” to the point that you are trying to get to (a constitutional setting of the Quid Pro Quo). Your point is simply not important to the actual protections that something already established have inured. Not that your point is unimportant for other things – I am not saying that. But for the most immediate aspect here, your point need not even be raised.

                One parallel (as I have previously noted) is voting rights.

                Once created, voting rights inure protections from changes that violate constitutional protections.

                Instead of being reasonable and actually accepting this facet of US law, all – and I do mean all – that you see from Malcolm is ad hominem attacks on the people bringing this very real issue up for discussion. He only makes a “passing yuks” and refuses to deal with the actual substantive legal point.

                He has simply not ever discussed (let alone acknowledged) controlling law on this issue.

                You would be better off being more on point and “guiding him” to the protections inured FOR that bargain, than whether or not the bargain is set forth in the Constitution.

                1. Malcolm wants to be able to (blithely) state that Congress merely changed what the [insert description other than property] meaning of a patent was.

                  That’s pretty much what Congress has been “blithely” doing since forever.

                  After you can still transfer or license your IPR-qualified-patent “rights” just like any other property right. Have fun! It’s still profitable, too, as long as your patent isn’t a pile of junk.

                  1. You rather missed the point there Malcolm that any such actions by Congress must pass constitutional scrutiny as the item that is property – once made so, is protected by that Constitution.

                    That is the crux of the matter here.

                    Takings of certain sticks in the bundle of that property – with NO remuneration or even chance of Article III review – the separate initiation aspect – just does NOT pass that constitutional scrutiny.

                    Like I said: this is not the first time that a law passed by Congress has failed constitutional scrutiny. In fact, we just had another IP law so fail (think National Football League).

        3. MM, The term “IP patent” is one that Congress defines.

          From the majority opinion today:

          “Lord Coke’s 1628 statement does not address the
          Statute of Monopolies, enacted just a few years earlier, to
          which American patent law has often been traced. See
          Pennock v. Dialogue, 27 U.S. (2 Pet.) 1, 18, 20 (1829); J.M.
          Robinson & Co. v. Belt, 187 U.S. 41, 47 (1902).”

          Pennock at 18:

          “t is obvious to the careful inquirer, that many of the provisions of our patent act are derived from the principles and practice which have prevailed in the construction of that of England. It is doubtless true, as has been suggested at the bar, that where English statutes, such for instance, as the statute of frauds, and the statute of limitations; have been adopted into our own legislation; the known and settled construction of those statutes by courts of law, has been considered as silently incorporated into the acts, or has been received with all the weight of authority. Strictly speaking, that is not the case in respect to the English statute of monopolies; which contains an exception on which the grants of patents for inventions have issued in that country. The language of that clause of the statute is not, as we shall presently see, identical with ours; but the construction of it adopted by the English courts, and the principles and practice which have long regulated the grants of their patents, as they must have been known and are tacitly referred to in some of the provisions of our own statute, afford materials to illustrate it.”

          Pennock at 20:

          “Now, in point of fact, the statute of 21 Jac. ch. 3, commonly called the statute of monopolies, does contain exactly such a provision. That act, after prohibiting monopolies generally, contains, in the sixth section, an exception in favour of “letters patent and grants of privileges for fourteen years or under, of the sole working or making of any manner of new manufactures within this realm, to the true and first inventor and inventors of such manufactures, which others, at the time of making such letters patent and grants, shall not use.” Lord Coke, in his commentary upon this clause or proviso, (3 Inst. 184,) says that the letters patent “must be of such manufactures, which any other at the time of making such letters patent did not use; for albeit it were newly invented, yet if any other did use it at the making of the letters patent, or grant of the privilege, it is declared and enacted to be void by this act.” The use here referred to has always been understood to be a public use, and not a private or surreptitious use in fraud of the inventor.”

          Curtis (’67):

          “The modern doctrine, in England, and undoubtedly the
          doctrine of our law, is, that in the grant of a patent right,
          a contract, or, as it has been said, a bargain, takes place
          between the public and the patentee. As far as the old
          cases on the subject of monopolies furnish, like other
          cases of grants by the crown, rules and analogies for the
          construction of this species of grant, so far the history
          of monopolies has a bearing upon this branch of jurisprudence.
          But it should always be remembered that in the
          grant of a patent privilege, as now understood, a contract
          takes place between the public and the patentee, to be
          supported upon the ground of mutual considerations,
          and to be construed, in all its essential features of a
          bargain, like other contracts to which there are two
          parties, each having rights and interests, involved in its
          stipulations.”

          Id. at xxiii

          Art. I, Section 8:
          “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;”

          MM: our law is based on English Law. It’s interpretation flows directly from England, especially the Nielson case the held that patents do not extent to laws of nature, natural phenomena or principles in the abstract. Cf, Mayo; Morse; Le Roy v Tatam.

          There is a bargain. The inventor must be granted exclusive rights for a limited term.

  7. Agreed.

    Dyk and Hughes:

    Contrary to the majority, Quanta’s reference to an
    “unconditional sale,” id. at 626, a reference appearing as
    well in other exhaustion cases, can hardly be read to
    contradict the Court’s central holding that post-sale
    restrictions are unenforceable under the patent laws. The
    language referring to “conditions” imposed on sale or
    “unconditional” sales is used in these cases in two different
    senses. On the one hand, there are cases in which
    such language is used to denote the existence of post-sale
    restrictions imposed by the patent holder. A.B. Dick and
    Motion Picture Patents fall into this category. A.B. Dick
    stated that exhaustion applied only if the sale was “unconditional[],”
    i.e., free of post-sale restrictions. 224 U.S.
    at 19. Motion Picture Patents, in overruling A.B. Dick,
    rejected the notion that a seller could impose “conditions,”
    i.e., restrictions on post-sale use. 243 U.S. at 514–15. The
    use of such language in those cases refutes the majority’s
    theory, since Motion Picture Patents holds that conditions
    (i.e., restrictions) are not permissible under the patent
    laws.

    In the few other cases that use the “unconditional
    sales” language, the reference to an “unconditional” sale is
    to a sale in which title passes, not to a sale in which no
    restrictions are imposed.4 The contemporaneous understanding
    of “conditional sale” was as a security device,
    i.e., an “agreement to sell upon a condition to be performed.”
    Harkness v. Russell, 118 U.S. 663, 665 (1886); see
    also Motion Picture Patents, 243 U.S. at 520–21 (Holmes,
    J., dissenting) (“[A] conditional sale retaining the title
    until a future event after delivery has been decided to be
    lawful again and again by this court.”).5

    That the use of the term “unconditional” in those cases
    is not referring to a sale without restrictions is crystal
    clear from Quanta itself, where the Court stated that
    Motion Picture Patents “reiterated the rule that ‘the right
    to vend is exhausted by a single, unconditional sale, the
    article sold being thereby carried outside the monopoly of
    the patent law and rendered free of every restriction
    which the vendor may attempt to put upon it.’” 553 U.S.
    at 626 (quoting Motion Picture Patents, 243 U.S. at 516).

    FN 4. Mitchell stated that “where the sale is absolute,
    and without any conditions, the rule is well settled that”
    the patentee’s rights are exhausted. 83 U.S. at 548; see
    also Motion Picture Patents, 243 U.S. at 516; In re Paper
    Bag Cases, 105 U.S. 766, 770–71 (1881) (“The right of the
    owner of a patented machine, without any conditions
    attached to his ownership, to continue the use of his
    machine during an extended term of the patent, is well
    settled.”).

    fn. 5 See also 1 Grant Gilmore, Security Interests in
    Personal Property § 3.7, at 81 (1965) (“For most lawyers
    the term [‘conditional sale’] came to have a reasonably
    precise meaning: a purchase money security transaction,
    subject in most states to statute, in which title to the
    goods was retained by the seller or his assignee until the
    full purchase price had been paid, usually in periodic
    installments.”).

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