by Dennis Crouch
A patent holder has exclusive rights in the patented invention and a cause of action against “whoever without authority makes, uses, offers to sell, or sells” the invention. 35 U.S.C. 271(a). One limit on those rights is the non-statutory doctrine of patent exhaustion. Under exhaustion, after a patentee authorizes the making/sale of a particular individual article, the patentee no longer has any further exclusive patent rights in association with that authorized article. Thus, the when the authorized product is later used or re-sold, the patentee could not claim further damages for infringement. In other words, the power of the patent is ‘exhausted’ by the first authorized sale. As noted, the exhaustion doctrine is non-statutory, but the Supreme Court has repeatedly supported its existence as a parallel the statutory version found in copyright law. 17 U.S.C. 109.
In Helferich Patent Licensing v. NYTimes and JCPenney (Fed. Cir. 2015), the Federal Circuit (Judge Taranto) has narrowly construed the exhaustion doctrine – finding that the district court erred in holding that the patentee’s claims were barred due to exhaustion.
Helferich’s 30+ patents all relate to wireless handsets and related communication methods. All the patents stem from a common original application and are thus closely related, although the PTO did not find obviousness-type double patenting.
Helferich has licensed its portfolio to essentially all handset makers selling in the U.S. However, those licenses expressly carves-out activity by “content providers” — stating particularly that the licenses do not grant any rights for content providers to practice the claimed methods.
When Helferich then brought suit against content providers (NYTimes & JCPenny), those accused infringers argued exhaustion — namely that the manufacture and sale of the phones had been licensed under the now-asserted patents and that, as a consequence, the exhaustion doctrine blocks any there is no use of the phones that could now be seen as infringing.
[T]he premise of defendants’ exhaustion defense is that all handsets in the United States are licensed and that the asserted claims contemplate a use of handsets by handset owners/possessors.
However, in the appeal, the Federal Circuit found that the exhaustion doctrine does not bar Helferich’s claims here.
The Federal Circuit identifies exhaustion as a personal defense held by the acquirer of an authorized article (here, a handset). However, according to the court, exhaustion does not apply to protect other parties. This distinction here is important because the accused infringers are content providers and – apparently – the content claims do not require any proof that the handset acquirers are practicing any aspects of the claims. Secondly, the court also identifies the content claims being asserted here as separate and distinct inventions from the licensed handset claims.
In short, the decisions finding exhaustion (or relying on exhaustion to reject an antitrust defense) have done so only when the patentee’s assertion of infringement was, or depended on, an assertion that an authorized acquirer was using the same invention by infringing the asserted claims.
The closest case-on-point found by the Federal Circuit is Morgan Envelope Co. v. Albany Perforated Wrapping Paper Co., 152 U.S. 425 (1894) where the court wrote (in dicta?) that that exhaustion would not apply to excuse infringement of related – but distinct – patents.
The Morgan Court thus indicated that, even though an authorized buyer of product X was free of the patent owner’s patent on that product, the buyer could not, by virtue of his purchase, prevent the patent owner from enforcing his patent as to product Y, even though Y was specifically designed to be used with X and, at a minimum, made X more useful than it otherwise would be and, indeed, was essential to X’s utility.
Of course, a major difference with the old cases is that the added-element being supplied here is in the form of information rather than a tangible product.
In considering the impact of the 1952 and 2011 patent reforms on the judge-made law of exhaustion, the court writes “[w]e presume, from Congress’s refusal to disturb the existing decisional law of this doctrine (which predated the 1952 Act by nearly a century), an implicit authorization to continue applying the doctrine within its familiar boundaries. . . . But we do not think that Congress has granted the courts a license to erase those boundaries and expand the doctrine into difficult new territory unmapped by lines drawn, or even sketched, by Congress.” Thus, the court refused to consider policy considerations that would suggest doctrinal expansion.
The decision winding here by Judge Taranto is well supported, but I would also expect a strong challenge to be mounted for Supreme Court review.