MVS Filewrapper® Blog: Patent Exhaustion does not Apply to Related—but Distinct—Inventions

Post by Dan Lorentzen


The doctrine of "patent exhaustion" (also referred to as "first sale doctrine") is a judicially created limit on the exclusive rights of a patent holder.  Under the exhaustion doctrine, once a patent owner licenses or authorized a first production or sale of their invention, they cannot claim any damages arising from downstream sale or use arising from that authorized first production or sale.  The recent decision by the Federal Circuit in Helferich Patent Licensing v. New York Times has limited the exhaustion doctrine by holding that a first sale does not preclude a patent owner from enforcing their rights in a related, but distinct, invention.


Helferich owns U.S. Patent Nos. 7,280,838; 7,499,716; 7,835,757; 8,107,601; 8,116,741; 8,134,450; and 7,155,241, which relate to systems and methods for handling information and providing it to wireless devices, such as mobile-phone handsets, as well as handsets and methods of using them.  Helferich sued a number of defendants, including the New York Times, for infringement of the claims dealing with the systems and methods.  The defendants asserted patent exhaustion as a defense, claiming that by granting handset manufacturers licenses based on the handset claims of the patents at issue, and conferring broad authority to sell the handsets, Helferich had exhausted its ability to enforce its patents not only against acquirers of the handsets but also against the defendant content providers who use presumptively distinct inventions to manage content and deliver it to handset users.  The District Court granted summary judgment of non-infringement to the defendants based on this application of the exhaustion doctrine.


On appeal, the Federal Circuit reversed, concluding that patent exhaustion is not so broad as to cover distinct inventions, even if those inventions are specifically designed to be used with the licensed product and are essential to the licensed products utility.  The court deemed the application urged by the defendants to be an unwarranted expansion of the exhaustion doctrine.  The decision underscores the importance of understanding the scope of license agreements, as well as the scope of a potential licensee's patent portfolio. 


The full opinion is available here.

MVS Filewrapper® Blog: Supreme Court Rejects Patent Exhaustion Defense for Patented Bean Replanting

The Supreme Court has handed down its much anticipated decision in Bowman v. Monsanto Co., holding that the defense of patent exhaustion does not apply to the practice of planting and harvesting patented seeds through planting and harvesting without the patent holder's permission.

The case centers on the Roundup Ready gene, which confers resistance to glyphosate herbicides such as Roundup. Monsanto owns U.S. Patent Nos. 5,352,605 and RE39,247E, which cover the Roundup Ready gene, as well as seeds incorporating the gene. The Roundup Ready gene stably integrated into the genomic material of soybeans sold by Monsanto, which means that once the seeds are planted, the plants that grow from those seeds and any seeds produced by that plant also have the Roundup Ready gene.

Monsanto markets both the Roundup Ready seeds and the Roundup herbicide to farmers. However, the seeds are sold subject to a licensing agreement that permits a grower to plant the purchased seed in only one growing season-the grower in prohibited from saving any of the harvested seed for replanting in a subsequent growing season. Growers are permitted under the agreement to consume the seeds or to sell the seeds as a commodity for eventual consumption. Due to the popularity of Roundup Ready seeds, a significant proportion of commodity seeds are Roundup Ready.

Vernon Bowman purchased Roundup Ready seeds from a licensed seller each year for his first planting of the growing season. Bowman also made a second planting each season, for which he used seed that was not purchased from a licensed seller. Instead, Bowman purchased commodity seed, planted the seed, treated the plants with glyphosphate herbicide, and harvested the seed from the surviving plants, which he then used for second plantings in subsequent growing seasons. Because these seeds survived the glyphosphate herbicide treatment, they necessarily possessed the Roundup Ready gene. Ultimately, Bowman harvested eight crops through this system of growing and replanting, effectively generating a homogenous Roundup Ready source of seed that was not purchased from Monsanto.

Monsanto sued Bowman in the U.S. District Court for the Southern District of Indiana, alleging that Bowman's harvesting and replanting of Roundup Ready seeds infringed its patents. In his defense, Bowman asserted that the doctrine of patent exhaustion prevented Monsanto from controlling his use of the seeds because they were the subject of a prior authorized sale. The trial court rejected Bowman's patent exhaustion defense, finding for Monsanto. On appeal, the Federal Circuit affirmed, concluding that the patent exhaustion defense was not available to Bowman because he had created newly infringing articles through the harvesting and replanting-Bowman had replicated Monsanto's patented technology by planting the seeds and thereby creating newly infringing plants and seeds.

The Supreme Court, like the district court and the Federal Circuit, concluded that Bowman could not rely on the doctrine of patent exhaustion. The Court held that while the patent exhaustion doctrine restricts a patentee's right to control what others can do with a particular article sold, it does not affect the patentee's ability to prevent a buyer from making new copies of a patented item. Thus, the Court determined that the patent exhaustion doctrine enabled Bowman to resell the patented commodity soybeans he purchased, or consume the beans, or feed them to his animals without interference from Monsanto, but it did not enable Bowman to make additional patented soybeans without Monsanto's permission.

The Court relied on its precedent in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc., where the Court explained that only a patent holder, and not the holder of a certificate issued under the Plant Variety Protection Act, could prohibit a farmer who legally purchases and plants a protected seed from saving harvested seed for replanting. The Court also dismissed Bowman's argument that patent exhaustion should apply in this case because soybeans naturally self-replicate, and therefore the seeds themselves-and not Bowman-were responsible for producing copies. Such a "blame-the-bean" defense was unpersuasive in light of the Bowman's active role in purchasing, planting, selecting, harvesting, and replanting the infringing seeds for eight successive crops.

The Court took care to limit its holding to the situation before it, stating that it is a closer question as to whether the patent exhaustion doctrine would apply where an article's self-replication occurs outside the purchaser's control, or is necessary by incidental step in using the item for another purpose.

MVS Filewrapper® Blog: New and Useful - April 5, 2013

·         In Power Integrations, Inc. v. Fairchild Semiconductor International, Inc. the Federal Circuit clarified several points relating to claim construction, determinations of non-obviousness, and calculation of damages.   The court confirmed that claiming a “circuit” in conjunction with a sufficiently definite structure for performing the identified function is adequate to bar means-plus-function claiming.  The court also confirmed that secondary considerations of non-obviousness could constitute evidence sufficient to support a finding of non-obviousness.  Finally, the court held that plaintiffs are not entitled to compensatory damages for injury caused by infringing activity that occurred outside the territory of the United States, regardless of any foreseeability of world-wide damages.  A more in-depth analysis of this case will be posted shortly.

·         In Rubin v. The General Hospital Corp., Dr. Berish Y. Rubin and Dr. Sylvia L. Anderson (collectively, Rubin) sued The General Hospital Corporation (GH Corp.) in the U.S. District Court for the District of Massachusetts requesting correction of inventorship of two patents assigned to GH Corp., or alternatively invalidation of the two patents.  Rubin alleged that the inventors named in the patents used confidential information—from a manuscript and abstract submitted by Rubin to the American Journal of Human Genetics—to complete the inventions described and claimed in the patents.   The district court granted summary judgment to GH Corp.

The Federal Circuit affirmed the grant of summary judgment, reasoning that the dispute was fundamentally a question of priority of the invention.  The court ultimately agreed with the district court, concluding that Rubin and Anderson could not be added as joint inventors or be substituted for the named inventors of the patents because they did not meet the requirements of 35 U.S.C. § 116 for joint invention or §256 for correction of inventorship, and that the issue of priority is appropriately determined by PTO interference proceedings.    

·         The U.S. District Court for the Southern District of N.Y. has handed down its decision in Capitol Records, llc. V. ReDigi Inc.  ReDigi considers itself the "world's first and only online marketplace for digital used music."   ReDigi's website "invites users to sell their legally acquired digital music files, and buy used digital music from others at a fraction of the price currently available on iTunes."   ReDigi's website sold various records belonging to Capitol Records.  Capitol Records brought an action against ReDigi, alleging direct copyright infringement, inducement of copyright infringement, contributory and vicarious copyright infringement.  In its defense, ReDigi asserted that the “first sale” doctrine precluded a finding of copyright infringement.  The district court disagreed, however, holding that the very nature of transferring digital files over the internet constituted copyright infringement because in order to transfer a file, a copy of the file must be made on the transferring computer.  Because the “first sale” doctrine does not protect against reproduction of copyrighted material, ReDigi could not successfully assert the defense for the present action.   

MVS Filewrapper® Blog: Supreme Court Decides Foreign First Sale Doctrine

            The Supreme Court recently decided a much anticipated case, finally answering a long awaited question:  Does the first sale doctrine apply to copyrighted works manufactured in other countries?  According to the Supreme Court in Kirtsaeng v. John Wiley & Sons, Inc., the answer to this question is yes.

            John Wiley & Sons sued Supap Kirtsaeng for selling textbooks on eBay that he imported from foreign countries.  The books were printed by a wholly-owned subsidiary of Wiley, Wiley Asia, and were marked with a legend designating them for sale only in Europe, Asia, Africa, and the Middle East.  Wiley alleged that selling the foreign textbooks in the United States infringed its U.S. copyrights on its American editions.  Kirtsaeng attempted to assert that the first sale doctrine precluded liability, but was denied the ability to raise the defense by the district court judge.  The jury found that Kirtsaeng was liable for willful copyright infringement for eight works and awarded $75,000 in damages for each work.

            Kirtsaeng appealed the jury's verdict to the Second Circuit Court of Appeals.  The Second Circuit concluded that the district court was correct to preclude Kirtsaeng from raising the first sale doctrine because the books at issue were manufactured outside the United States.  The appellate court based its decision on the language of the 1976 Copyright Act and the Supreme Court's decision in Quality King Distributors, Inc. v. L'anza Research Int'l, Inc., 523 U.S. 135 (1998).  In Quality King, the Supreme Court held that § 602(a)(1), by referencing the exclusive distribution right of § 106(3), incorporates the later subsections' limitations including, in particular, the "first sale" doctrine of § 109.  However, the Supreme Court in Quality King expressly decided not to answer the question of whether or not a copyright work manufactured abroad was eligible for the first sale doctrine exemption of § 109. 

            In reviewing the Second Circuit’s decision, the Supreme Court took Quality King one step further, holding that the first sale doctrine applies to copyrighted works both manufactured in the U.S. and abroad, notwithstanding the 1976 Act's provision against importation of copyrighted works in §§ 602 and 603.  As some have noted, this unique situation occurred because, as written, the 1976 Act—as it relates to the importation of foreign works and the first sale doctrine—has two equally plausible statutory constructions, as evidenced by the fact that the circuit courts are divided on the issue.

            The Supreme Court's decision in Kirtsaeng focused mainly on the correct statutory interpretation of § 109(a) of the 1976 Act. Specifically, the Court answered "whether the words 'lawfully made under this title' restrict the scope of §109(a)'s 'first sale' doctrine geographically." Wiley's interpretation of  § 109(a) follows the Second and Ninth Circuit which apply "a form of geographical limitation" on the imposition of the first sale doctrine, stating that the doctrine only covers works manufactured and created in America.  Kirtsaeng, on the other hand, suggests the words "lawfully made under this title" impose a "non-geographical limitation" on the first sale doctrine.  The Supreme Court agreed, stating:

In our view, §109(a)'s language, its context, and the common-law history of the "first sale" doctrine, taken together, favor a non-geographical interpretation. We also doubt that Congress would have intended to create the practical copyright-related harms with which a geographic interpretation would threaten ordinary scholarly, artistic, commercial and consumer activities. We consequently conclude that Kirtsaeng's nongeographical reading is the better reading of the [1976] Act.

In making its decision, the Court relied on what it considered to be a proper reading of “'lawfully made under this title” in § 109(a) of the 1976 Act.  The Court found "linguistic difficulty" with previous circuit's interpretations of § 109(a).  The Ninth Circuit's interpretation was particularly difficult to reconcile in the Court's opinion, as the interpretation contained a "half-geographical/half-nongeographical interpretation" of the phrase "lawfully made under this title."  The Ninth Circuit, for example in Denbicare U.S.A. Inc. v. Toys "R" Us, Inc., has interpreted the first sale doctrine to cover both (1) copies manufactured aboard but first sold in the United States and (2) copies manufactured abroad but first sold in the United States with the American copyright owner's permission.  According to the Court, "it would seem that those five words either do cover copies lawfully made abroad or they do not" and declined an attempt to read a half-geographic limitation in § 109(a) of the Act.

The Court also looked to the common law to solidify what it held to be the proper statutory interpretation of § 109(a).  "The 'first sale' doctrine is a common-law doctrine with an impeccable historic pedigree . . . [and] makes no geographical distinctions [in the application of the 'first sale' doctrine."  The Court drew on the conclusion reached in Bobbs-Merrill v. Straus, the first case to discuss and interpret the 'first sale' doctrine.  In Bobbs-Merril the Court stated "that the copyright laws were not 'intended to create a right which would permit the holder of the copyright to fasten, by notice in a book . . . a restriction upon the subsequent alienation of the subject-matter of copyright after the owner had parted with the title to one who had acquired full dominion over it."

           The Court's decision in Kirtsaeng provides a clarification of the 'first sale' doctrine as it applies to copyrighted works manufactured in other countries.  It remains to be seen how this long-awaited decision will affect both book publishers and the public at large.

Supreme Court hears arguments today regarding first sale doctrine and international purchases

This morning the Supreme Court will hear oral argument in Costco Wholesale Corp. v. Omega S.A., a case regarding the potential international scope of the first sale doctrine.  Costco lawfully purchased authentic Omega watches abroad and imported them to the United States for sale in its stores.  Omega sued for copyright infringement, arguing the watches bore a copyrighted design and the purchase abroad did not exhaust its rights under the first sale doctrine.

The Ninth Circuit agreed with Omega, holding the foreign purchase did not exhaust Omega's copyright rights in the United States (our post regarding the Ninth Circuit's decision is here).  Costco sought review by the Supreme Court, which granted certiorari in April after inviting the United States to file a brief with its views on the matter.  The Solicitor General (at the time, Elena Kagan) filed a brief recommending the Court deny certiorari.  As a result of her involvement, Justice Kagan is recused from the case.

For our discussion of the Ninth Circuit decision being reviewed, click here.

For SCOTUS Blog's collection of documents relevant to the case, click here

Ninth Circuit: AutoCAD purchasers are licensees, so first sale doctrine does not apply to resale

In a decision last week, the Ninth Circuit held the purchaser of a copy of AutoCAD software was not an owner of the copy, but instead a licensee.  As a result, the purchaser did not have the protection of the first sale doctrine (codified in 17 U.S.C. § 109(a)) when attempting to resell the software to a third party.  

The declaratory judgment plaintiff was attempting to sell used copies of AutoCAD on eBay.  Autodesk, makers of AutoCAD, sent takedown notices to eBay asserting copyright infringement, which resulted in eBay removing the auctions.  The plaintiff sued to have the sales declared noninfringing based on the first sale doctrine.  The district court agreed, holding the first sale doctrine protected the sales of the used copies of AutoCAD

The Ninth Circuit reversed.  Reconciling its earlier precedent, the court identified conditions where a purchaser is a licensee, rather than an owner of a copy.  Specifically, a purchaser is a licensee when:

[T]he copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.

In this case it was undisputed the agreement stated the user was granted a license.  Further, the shrinkwrap license from Autodesk prohibited:  transfer of the software without its consent, transfer or use outside the Western Hemisphere, reverse engineering or modifying the software.  In addition, the license required destruction of prior versions of the software upon upgrading if an upgrade license was purchased.  Based on all of these restrictions, the court held the three criteria were satisfied, and the purchaser of the software was a licensee, not an owner, and therefore could not rely on the first sale doctrine as a defense to copyright infringement.

More detail of Vernor v. Autodesk, Inc. after the jump.


Sales of products by party under unconditional covenant not to sue exhaust patent rights

In a decision Wednesday, the Federal Circuit affirmed a district court's finding that a patentee's claims for patent infringement were barred by patent exhaustion in view of a settlement agreement between the patentee and a previous defendant in an infringement suit.  The patentee previously sued a third party, and the suit was resolved by a settlement agreement granting the third party a covenant not to sue under several patents.  The defendant in this case purchased and used products from the previously-sued third party.  The patentee sued, arguing the current defendant infringed even though it obtained the products from the party who had the covenant not to sue.  

In affirming the district court, the Federal Circuit held an unconditional covenant not to sue is, for purposes of a patent exhaustion analysis, the equivalent of a license under a patent.  Here, because the defendant purchased the allegedly infringing products from the party with the unconditional covenant not to sue, the patentee's rights were exhausted, and it could not assert the patents against the current defendant.

More detail regarding Transcore, L.P. v. Elec. Transaction Consultants Corp. after the jump.


Ninth Circuit: First sale doctrine doesn't apply to goods purchased abroad and imported to US

In a decision last week, the Ninth Circuit reversed a district court's grant of summary judgment to a copyright defendant on the basis of the "first sale" doctrine, codified at 17 U.S.C. § 109(a).  The defendant obtained the products bearing the copyright from a third party who legally purchased them outside the United States.  The court held that the first sale doctrine did not insulate this action from liability under 17 U.D.C. § 602(a), which states unauthorized importation is a violation of the copyright holder's distribution right. 

In doing so, the court held there was no clear inconsistency with its precedents allowing a defendant in a copyright infringement action to claim the "first sale doctrine" as a defense only where the disputed copies of a copyrighted work were either made or previously sold in the United States with the authority of the copyright owner, and the Supreme Court's decision in Quality King Distributors, Inc. v. L'anza Research International, Inc..  There, the issue was whether copies produced in the United States, shipped abroad, and then ultimately re-imported and sold without consent constituted infringement; the Court held it did not.  Here, it was undisputed the copies were manufactured and obtained abroad, thus taking them outside the decision in Quality King.  As a result, the defendant could not use the first sale doctrine as a defense to avoid liability for infringement.
More concerning Omega S.A. v. Costco Wholesale Corp. after the jump.


Roundup of media coverage of Quanta v. LG decision

The media and legal blogs have begun to weigh in on yesterday's decision in Quanta Computer, Inc. v. LG Electronics, Inc. , holding method claims can be exhausted by the sale of a product substantially embodying the claim.  Click below for a sampling of the coverage from various sources.


Quanta v. LG: Method claims can be exhausted; harder to assert infringement later in distribution

The Supreme Court today decided Quanta Computer, Inc. v. LG Electronics, Inc., dealing with the doctrine of patent exhaustion (also called the first sale doctrine).  In a nutshell, the Court made it more difficult for patent holders to maintain a claim for infringement down the distribution chain of a product.  There were three main aspects to the decision:

  1. Method claims, like product claims, are subject to exhaustion
  2. Sale of a product whose only reasonable and intended use is to practice the patent and that "substantially embodies" the essential features of the patented method can trigger exhaustion
  3. In order for a downstream sale to constitute an infringement, it must be outside the scope of the original license

More detail of these aspects of the holding and additional thoughts below the fold.


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