By Dennis Crouch
The Federal Circuit has released an interesting new (though non-precedential) decision on patent exhaustion – in particular the court affirmed a lower court finding of exhaustion based upon a retroactive sublicense filed after the lawsuit was filed and the patents had expired. The case offers some further guidance as to how patent licenses are treated in complex mergers.
In High Point SARL v. T-Mobile, the patentee (High Point) sued T-Mobile for infringing its patents. The set of patents themselves have an interesting history. They were originally owned by AT&T but then spun-off to Lucent when that company was created. Avaya bought the patents from Lucent in 2000 and then the Luxembourg-based patent assertion entity High Point bought them from Avaya in 2008.
T-Mobile uses the technology allegedly covered by the patents, but it is not the manufacturer. In particular, various portions of the accused systems were purchased from Alcatel Marketing US, Nokia Siemens Networks US, and Ericsson US. The district court held (and now the appellate panel) that these parts used in the system were all licensed under the patents and “substantially embodied” the asserted claims.
Retroactive Licenses: For Ericsson US, the court looked to a 1996 cross license between Lucent (then owner of the patents) and LM Ericsson. That license particularly indicated that LM Ericsson could grant sub-licenses to its subsidiaries and related companies and that those sublicenses could “be made effective retroactively.”
Nunc pro tunc: After the litigation began, Ericsson LM granted its subsidiary Ericsson US a “nunc pro tunc” sublicense that was made retroactive back to 2002. The courts found that retroactive sublicense effective even though the license was conveyed after the patents had expired. Further, the courts found that the retroactive sublicense also retroactively exhausted the patent vis-à-vis products sold by Ericsson US after the 2002 back-date. The appellate court found that this right to retroactively sub-license was simply paperwork and that, in effect, the subsidiary was always licensed.
Here, Ericsson U.S. was at all times authorized to sell the accused equipment to TMobile because when the sales took place neither Lucent nor any of its successor entities could have sustained an infringement claim based on those sales. To the contrary, if they had attempted to bring suit, LM Ericsson had the unrestricted right … to immediately grant Ericsson U.S. a [retroactive] sublicense, thereby immunizing Ericsson U.S. from any potential infringement liability.
Thus the result was that the parts supplied by Ericsson US were deemed licensed and authorized and thus patent rights associated with those parts were exhausted.
For Alcatel Marketing US, it turns out that in 1996 AT&T had licensed the patents to Alcatel (France). By its terms, the 1996 license extended to both current and future subsidiaries, but was limited only to products “of the kind” being furnished or used by Alcatel back in 1996. In 2006, Alcatel and Lucent merged, to form Alcatel-Lucent. Alcatel Marketing US was already a subsidiary of Alcatel and merged with a Lucent subsidiary to become Alcatel-Lucent USA. Of importance, although Alcatel did use and sell parts similar to those at issue here back in 1996, it did not manufacture those parts back then but instead purchased them from Spatial Communications (Alcatel later acquired Spatial). In reviewing this history, the courts found that the patents were properly licensed to Alcatel Marketing and that the “of the kind” language was broad enough to include more modern switches.
Finally, for Nokia-Siemens US, Siemens originally obtained a patent cross license from AT&T in 1988. That license was extended in 1995 to include an allowance for sublicensing to divested businesses. In April 2007, Siemens divested its carrier division into a joint venture (Nokia-Siemens BV) and then granted a retroactive sublicense to the new venture. In 2011, Nokia-Siemens BV granted a retroactive sublicense to its US subsidiary Nokia-Siemens US. It was this US sub that sold the parts to T-Mobile and, according to the court, those sales were (at least retroactively) licensed under the patents and thus the patent rights exhausted.
Substantial Embodiment and a Combination of Licensed Parts: As suggested above, the authorized supplied parts here do not themselves individually infringe the asserted patents. However, the particular combination of the parts (along with some other parts) does result in a system that allegedly infringes. In the appeal, High Point argued that the asserted claims include innovative features beyond the licensed parts and that, as a consequence, the patents were not exhausted as to the unique combination claimed.
In Quanta, the Supreme Court roughly addressed this issue – stating that “[M]aking a product that substantially embodies a patent is, for exhaustion purposes, no different from making the patented article itself.” Likewise, in Univis Lens, the court wrote that sales of an article that “embodies essential features of [a] patented invention” exhausts the patent rights.
In the appeal, the appellate panel agreed with the district court’s conclusions that the parts supplied did, in fact, substantially embody the patent – noting that High Point had failed to produce evidence showing that other (unlicensed) aspects of the system “performed any inventive feature of the asserted claims.”
 High Point SARL v. T-Mobile USA, Inc., App. No. 15-1235 (Fed. Cir. February 8, 2016) (Judges Reyna, Mayer, and Chen). District court decision available at High Point SARL v. T-Mobile USA, Inc., 53 F. Supp. 3d 797 (D.N.J. 2014).
 U.S. Patent Nos. 5,195,090 (the “’090 patent”), 5,195,091 (the “’091 patent”), 5,305,308 (the “’308 patent”), and 5,184,347 (the “’347 patent”).
 Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008). “What is ‘inventive’ about patent claims in the patent exhaustion context is what distinguishes them from the prior art.” LifeScan Scotland, Ltd. v. Shasta Techs., LLC, 734 F.3d 1361, 1369 (Fed. Cir. 2013)
 United States v. Univis Lens Co., 316 U.S. 241, 251 (1942).