For example, LGE could have licensed Intel to sell licensed products only to manufacturers that signed a contract promising not to combine Intel products with non-Intel components. In those circumstances, any sales to manufacturers that did not sign such a contract would be unauthorized and would constitute patent infringement by both Intel and its customers who purchased with knowledge of the restriction. On the other hand, if a customer did sign the requisite contract but then proceeded to breach the post-sale use restriction, LGE’s remedy would be limited to its contract rights, because Intel’s compliance with the license requirement would have rendered the sale authorized and hence LGE’s patent rights would be exhausted.
If this is an appropriate understanding of Quanta, the decision speaks not so much to the doctrine of patent exhaustion as to the appropriate interpretation of an inadequately articulated agreement. Others, however, have read this decision as narrowing severely the doctrine of patent exhaustion which, for the last two decades seem to be achieving some prominence in the federal courts in general and in the Federal Circuit in particular.
I think it helps clarify both what patent exhaustion means and what policies are affected by it to use as an example several cases which have dealt with the toner in your laser printer and the print cartridges in your ink jet printer. The manufacturers of the toner and ink jet cartridges took the position that if company X acquired the cartridges from the initial buyer/user of the cartridge and then refilled the cartridge, that would be an infringement of the patents on the cartridges. The response by the companies in the refilling businesses was that once the cartridge was sold, the patent holder no longer had any control over the sold cartridge. Like the book purchased from the bookstore, the owner of the cartridge could do whatever they wished with the cartridge, including refilling it or transferring it to someone else to refill. The bookowner can do what she wishes with the book, just so long as she does not copy it. She can “recycle” it by selling it to someone else or she can use it to burn in her fireplace – or sell it to someone else to read or burn. That is the copyright “first sale” doctrine. If applicable to the cartridges, the patent holder could not, similarly, take the position that the cartridge purchaser is not free to refill the cartridge and that if sold to a refiller, they could refill the cartridge. That would be an application of the doctrine of patent exhaustion. Once the cartridge was sold, whatever was done with that particular cartridge could not be an infringement of the patent. In the cartridge cases, the cartridge patent holder claimed that the act of taking the cartridge apart and refilling it was not within the doctrine of patent exhaustion – it was, rather, practicing the patent. The courts are, in fact, divided over the issue of whether the doctrine of patent exhaustion protects the refiller from an infringement action.
If we take a look at this issue not from a technical but from a jurisprudential perspective, it is clear that the question is what degree of control does a patent holder need to have in relation to subsequent purchasers of a patented object once the object has been made and sold. Obviously the cartridge holder would love to have for itself the business of supplying cartridges to printer owners and would prefer to use the patent law and the claim of patent infringement as its weapon of choice to protect itself from competition. But, then again, the copyright holder of the copyright on a book would like there to be no secondary market in used books because that secondary market is in direct competition with its sale of new books. So viewed, this is a question of the opposition between the intellectual property right on the one hand and the value placed by our economic and legal system on competition. Of course federal intellectual property law is designed to provide protection against competition – but how much protection is the question that lies at the heart of the patent exhaustion (or copyright first sale) rules.
If I am right about this, then the quoted author’s view may not be persuasive. At heart is not the question of the language in an agreement between LE and Intel about selling chips made under the LE/Intel license or the language in the Intel/purchaser contract but rather whether it is or is not desirable (legal) for LE and Intel to control whose chips are purchased by buyers who are buying some of their chips from Intel under the LE/Intel license. And it doesn’t matter much whether Intel is acting as a foundry in making those chips or as a maker and seller of the chips. LE and Intel would love to minimize competition, but should they be permitted to use patent law to control what chips are purchased by entities who purchase LE/Intel chips? Once we answer that question, we can then bless LE and Intel by saying there has been no patent exhaustion or we can bless the purchasers of the chips by saying that the doctrine of patent exhaustion does not permit LE or Intel to claim infringement.
You need to read the Quanta and other decisions in the casebook on this topic and form your own view. What it tells us as lawyers, however, is this: (1) make it clear in the license agreement what activities are and are not permitted under the license agreement, including third parties to whom the licensed object will be sold and (2) understand that either under the doctrine of patent exhaustion or on the theory that the contract violates antitrust principles, what we draft may not be enforceable.
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on Thursday, February 18th, 2010 at 10:25 am and is filed under Prof Comment.
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Quanta – Preliminary Thoughts
About Quanta, one commentator has suggested:
If this is an appropriate understanding of Quanta, the decision speaks not so much to the doctrine of patent exhaustion as to the appropriate interpretation of an inadequately articulated agreement. Others, however, have read this decision as narrowing severely the doctrine of patent exhaustion which, for the last two decades seem to be achieving some prominence in the federal courts in general and in the Federal Circuit in particular.
I think it helps clarify both what patent exhaustion means and what policies are affected by it to use as an example several cases which have dealt with the toner in your laser printer and the print cartridges in your ink jet printer. The manufacturers of the toner and ink jet cartridges took the position that if company X acquired the cartridges from the initial buyer/user of the cartridge and then refilled the cartridge, that would be an infringement of the patents on the cartridges. The response by the companies in the refilling businesses was that once the cartridge was sold, the patent holder no longer had any control over the sold cartridge. Like the book purchased from the bookstore, the owner of the cartridge could do whatever they wished with the cartridge, including refilling it or transferring it to someone else to refill. The bookowner can do what she wishes with the book, just so long as she does not copy it. She can “recycle” it by selling it to someone else or she can use it to burn in her fireplace – or sell it to someone else to read or burn. That is the copyright “first sale” doctrine. If applicable to the cartridges, the patent holder could not, similarly, take the position that the cartridge purchaser is not free to refill the cartridge and that if sold to a refiller, they could refill the cartridge. That would be an application of the doctrine of patent exhaustion. Once the cartridge was sold, whatever was done with that particular cartridge could not be an infringement of the patent. In the cartridge cases, the cartridge patent holder claimed that the act of taking the cartridge apart and refilling it was not within the doctrine of patent exhaustion – it was, rather, practicing the patent. The courts are, in fact, divided over the issue of whether the doctrine of patent exhaustion protects the refiller from an infringement action.
If we take a look at this issue not from a technical but from a jurisprudential perspective, it is clear that the question is what degree of control does a patent holder need to have in relation to subsequent purchasers of a patented object once the object has been made and sold. Obviously the cartridge holder would love to have for itself the business of supplying cartridges to printer owners and would prefer to use the patent law and the claim of patent infringement as its weapon of choice to protect itself from competition. But, then again, the copyright holder of the copyright on a book would like there to be no secondary market in used books because that secondary market is in direct competition with its sale of new books. So viewed, this is a question of the opposition between the intellectual property right on the one hand and the value placed by our economic and legal system on competition. Of course federal intellectual property law is designed to provide protection against competition – but how much protection is the question that lies at the heart of the patent exhaustion (or copyright first sale) rules.
If I am right about this, then the quoted author’s view may not be persuasive. At heart is not the question of the language in an agreement between LE and Intel about selling chips made under the LE/Intel license or the language in the Intel/purchaser contract but rather whether it is or is not desirable (legal) for LE and Intel to control whose chips are purchased by buyers who are buying some of their chips from Intel under the LE/Intel license. And it doesn’t matter much whether Intel is acting as a foundry in making those chips or as a maker and seller of the chips. LE and Intel would love to minimize competition, but should they be permitted to use patent law to control what chips are purchased by entities who purchase LE/Intel chips? Once we answer that question, we can then bless LE and Intel by saying there has been no patent exhaustion or we can bless the purchasers of the chips by saying that the doctrine of patent exhaustion does not permit LE or Intel to claim infringement.
You need to read the Quanta and other decisions in the casebook on this topic and form your own view. What it tells us as lawyers, however, is this: (1) make it clear in the license agreement what activities are and are not permitted under the license agreement, including third parties to whom the licensed object will be sold and (2) understand that either under the doctrine of patent exhaustion or on the theory that the contract violates antitrust principles, what we draft may not be enforceable.
This entry was posted on Thursday, February 18th, 2010 at 10:25 am and is filed under Prof Comment. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.