CAFC reaffirms patent exhaustion doctrine cases en banc in Lexmark Int’l v. Impression Products

By Gene Quinn
February 21, 2016

cafc-federal-circuit102013-3Recently the United States Court of Appeals for the Federal Circuit handed down its much anticipated ruling in Lexmark International, Inc. v. Impression Products, Inc., a case that required the Court to once again consider the so-called patent exhaustion doctrine. Writing for the majority was Judge Taranto, who was joined by Chief Judge Prost and Judges Newman, Lourie, Moore, O’Malley, Reyna, Wallach, Chen and Stoll. A dissenting opinion was filed by Judge Dyk, who was joined by Judge Hughes.

Before getting into the substance of the decision, which was to reaffirm prior Federal Circuit precedent that the majority did not feel was overruled by more recent Supreme Court decisions, let’s begin with a quick primer on the patent exhaustion doctrine.

 

Patent Exhaustion Basics

Generally speaking, the patent exhaustion doctrine addresses the circumstances in which the patent owner makes a sale of a patented article. The question raised by the patent exhaustion doctrine is whether the patent owner has the right to control a patented article after a sale has been made.

The Patent Act grants to patent owners an exclusionary right that allows them to prevent others from making, using, selling, offering for sale or importing any patented invention within the United States during the term of the patent. See 35 U.S.C. § 271(a)(defining such actions as infringing); see also 35 U.S.C. 154(a) (granting patentee “right to exclude others” from itemized actions).

“The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008).

The unrestricted sale of a patented article, by or with the authority of the patentee, is said to “exhaust” the patentee’s right to control further sale and use of that article by enforcing the patent under which it was first sold. In United States v. Masonite Corp., 316 U.S. 265, 278 (1942), the Court explained that exhaustion of the patent right depends on “whether or not there has been such a disposition of the article that it may fairly be said that the patentee has received his reward for the use of the article.” See, e.g., Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568, 27 USPQ2d 1136, 1138 (Fed. Cir. 1993) (“The law is well settled that an authorized sale of a patented product places that product beyond the reach of the patent.”).

“Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article.” Bowman v. Monsanto Co., 133 S. Ct. 1761, 1764 (2013). Thus, when a patentee has disposed of the article via sale of a patented article the buyer is thereafter authorized to engage in activities involving the article, such as resale, that would otherwise be considered infringing in the absence of exhaustion of rights. Furthermore, when a patented device has been lawfully sold in the United States, subsequent purchasers inherit the same immunity under the doctrine of patent exhaustion.

 

Factual Background

Lexmark owns a number of patents that cover its cartridges and their use. The cartridges at issue were first sold by Lexmark, some abroad and some domestically within the United States. Some of the foreign-sold cartridges and all of the domestically sold cartridges at issue were sold subject to an express single-use/no-resale restriction. Impression Products, Inc. later acquired the cartridges at issue in order to resell them in the United States after a third party physically modified them to enable re-use in violation of the single-use/no-resale restriction. Impression has resold the patented Lexmark cartridges at issue in the United States, and has imported those it acquired abroad. In each case, it has acted without authorization from Lexmark and, for the physically modified cartridges, in violation of the express denial of authorization to engage in resale and reuse.

Impression’s actions constitute patent infringement under 35 unless the fact that Lexmark initially sold the cartridges constitutes the grant of authority that makes Impression’s later resale and importation non-infringing under the patent exhaustion doctrine.

 

Federal Circuit Decision

The Federal Circuit decided to hear the Lexmark case en banc to consider whether two prior decisions of the court concerning the patent exhaustion doctrine remain good law after the Supreme Court’s more recent decisions in Quanta and Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013).

In so considering this case en banc the Federal Circuit reconsidered both Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992) and Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001). Ultimately, the Federal Circuit reaffirmed the principles of its earlier decisions finding first that the Supreme Quanta did not overrule Mallinckrodt. In Quanta the Supreme Court did not address a patentee sale, let alone a sale made subject to a restriction. Quanta involved a sale made (to computer maker Quanta) not by the patentee (LGE) but by a manufacturing licensee (chip maker Intel), which the patentee had authorized to make and sell the articles at issue (chips for installation in computers that would then be covered by LGE’s patents). And the patentee’s authorization to the licensee to make sales was not subject to any conditions, much less conditions to be embodied in those sales.

The Federal Circuit also concluded that Kirtsaeng, which dealt with the copyright first sale doctrine, did not call into question the ruling in Jazz Photo. In Jazz Photo the Federal Circuit held 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. Kirtsaeng was found to be inapplicable for several reasons. Kirtsaeng did not address patent law issues, nor did it address whether a foreign sale should be viewed as conferring authority to engage in otherwise infringing domestic activities. Furthermore, Kirtsaeng specifically dealt with the statutory first sale doctrine embodied in 17 U.S.C. 109(a), which entitled owners of copyrighted articles to engage in certain activities without the authority of the copyright holder. As such, Kirtsaeng has no applicability to the Court’s patent exhaustion jurisprudence because that there is no comparable statutory provision found in the Patent Act.

In a painfully long decision that at one point analyzed a 1628 statement of Lord Coke as relating to British common-law principles and what light that might shed on modern day patent exhaustion, the Federal Circuit held that when a patentee sells a patented article under otherwise-proper restrictions on resale and reuse communicated to the buyer at the time of sale, the patentee does not confer authority on the buyer to engage in the prohibited resale or reuse. The patentee does not exhaust its rights to charge the buyer who engages in those acts—or downstream buyers having knowledge of the restrictions—with patent infringement. The Federal Circuit also held that a foreign sale of a U.S. patented article, when made by or with the approval of the U.S. patentee, does not exhaust the patentee’s U.S. patent rights in the article sold, even when no reservation of rights accompanies the sale. Loss of U.S. patent rights based on a foreign sale remains a matter of express or implied license.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 36 Comments comments.

  1. Anon February 21, 2016 1:12 pm

    In the height of the anti-patent era of pre-1952, the case of United States v. Masonite Corp. is riddled with views that can easily be challenged as being ultra vires in and of themselves.

    For those who do not study history, and are thus bound to repeat it, taking the view that the Supreme Court is above the law and not constrained by principles of the checks and balances that the Founding Fathers put in place (in part to combat an uncontrolled judicial branch) can see parallels from today to such days of our past.

    Congress acted in 1952 for reasons such as this decision were just not in accord with its (sanctioned) authority.

  2. Edward Heller February 22, 2016 12:17 am

    Do not take this to the bank. The Supremes are likely to reverse.

  3. Edward Heller February 22, 2016 6:00 am

    The defendant here was not a contract privy, but a property privy. While they had notice of the restriction, under the law of property, they are not bound by any such restrictions.

    In Bobbs-Merrill, the Supremes held that one could not bind the reseller of a book by putting a notice in the book. The court was careful to say they were not ruling on whether the direct purchaser could not be liable for breach.

    The way I see it, this case creates a significant conflict between patent law and copyright law, and between patent law and the law of property in chattels. The Supreme Court is all but certain to take this case.

  4. Anon February 22, 2016 7:43 am

    Mr. Heller,

    I think I see what you are trying to get at, but you (slightly, but importantly) misread the Bobbs-Merrill case.

    I think that the Court there merely said that the method attempted to bind a reseller would not work – not that a reseller could not – in principle** – be bound.

    For example, an actual contract with an agreed upon term just may bound a reseller. The case was careful to say that they were not ruling on whether the direct purchaser could not be liable for breach, because there was no formal contract to be breached in that case.

    Several passages of note:

    The sole right to vend granted by § 4952, Rev.Stat., does not secure*** to the owner of the copyright the right to qualify future sales by his vendee or to limit or restrict such future sales at a specified price, and a notice in the book that a sale at a different price will be treated as an infringement is ineffectual as against one not bound by contract or license agreement.” (emphasis added)

    and

    The wholesale dealers from whom defendants purchased copies of the book obtained the same either directly from the complainant or from other wholesale dealers at a discount from the net retail price, and at the time of their purchase knew that the book was a copyrighted book, and were familiar with the terms of the notice printed in each copy thereof, as described above, and such knowledge was in all wholesale dealers through whom the books passed from the complainants to defendants. But the wholesale dealers were under no agreement or obligation to enforce the observance of the terms of the notice by retail dealers, or to restrict their sales to retail dealers who would agree to observe the terms stated in the notice.” (emphasis added)

    and

    The learned counsel for the appellant in this case, in the argument at bar, disclaims relief because of any contract, and relies solely upon the copyright statutes, and rights therein conferred.” (emphasis added)

    **Of course, there are other limits that may apply (for example, anti-trust limits, albeit those appear to have diminished over time).

    ***Here, the right being discussed is not enough on its own to secure that which was desired. This is not the same as saying that the use of another mechanism may not secure such a desire, but merely that a one-sided “notice” cannot do this.

    The notice in and of itself was ineffectual under the law of contract. This is not the distinction with the law of property that you are reading into the case. The Court is not saying that a proper contract term would be impermissible to do what the rights holder merely wanted to happen in binding the chattel. They just did not effect that binding properly.

    One other passage of note (and one more to your conclusion of a “conflict” here and your musings elsewhere):

    We may say in passing, disclaiming any intention to indicate our views as to what would be the rights of parties in circumstances similar to the present case under the patent laws, that there are differences between the patent and copyright statutes in the extent of the protection granted by them

    The Court does recognize an asymmetry between patents and copyrights. The conflict that you imagine is not there for the reasons that you see.

  5. Edward Heller February 22, 2016 8:27 am

    anon, “may” does not mean “does.” The error of the Federal Circuit.

    But thanks. Good summary of Bobbs-Merrill.

  6. Anon February 22, 2016 8:50 am

    Mr. Heller,

    Equally important as your observation of “may” does not mean “does” (and perhaps more important),…

    “may” does not mean “does not.”

    I think that you have arrived at a forced conclusion that is not a necessary takeaway from the Bobbs-Merrill case.

    The present case of Lexmark may easily be constrained to its facts and those facts do center around what appears to be a properly enacted contractual limitation.

    Of course, there can still be debate over the nature of that contractual limitation, as the blurring between a “true sale” and a “license” is in evidence here for this “hard goods” item. But make no mistake, the centerpiece of this court decision is based on the presence of a binding contract between the parties.

  7. Edward Heller February 22, 2016 1:19 pm

    anon, “the centerpiece of this court decision is based on the presence of a binding contract between the parties.”

    The “parties?” The defendant, the party to the case, had no contract with Lexmark. They could not be sued for breach.
    If there was a sale from the patent owner to the buyer, title passed. The printer cartridge is free of the patent. It is that simple.

  8. Anon February 22, 2016 1:59 pm

    Yes, Mr. Heller, I did misspeak slightly with the reference to the parties.

    I had meant that the parties to the contract that was executed meant that the chattel was NOT free of encumbrances, as that chattel was knowingly and willingly entered into a constrained state.

    The party to the lawsuit thus obtained the items that they processed in violation of that known and willing restraint from the original buyer.

    This is a critical point of difference, as the patent holder simply did not authorize their item to freely enter into the stream of commerce.

    The obtainment of that chattel then can be likened to an illicit obtainment. Title did not in fact rightfully pass to the third party from Lexmark.

    Yes, there was not binding contract with that third party. But there was a binding contract to prevent that third party form acting on the chattel as they did.

    My apologies for the lack of making this distinction.

  9. Anon February 22, 2016 2:12 pm

    I would like to point out that elsewhere there are discussion comparing and contrasting this case with the Monsanto v. Bowman case.

    A critical distinction (at least one) can be – and should be – made between the contract here between Lexmark and the original purchasers of the ink cartridge here and the original purchasers of seed from Monsanto in the protections explicitly written into the contract by the rights holder.

    Here, there is no doubt that Lexmark intended to control the item and prevent the very use that the third party is engaged in.

    In the Monsanto case, there is NO such control of third parties for any progeny of the original seed. Monsanto does reach to control the progeny of the original seed, but that reach extended only to (and explicitly so) to the original purchasers of that original seed. A full loss of control occurs when Monsanto allows progeny seed to be sold into the open market without constraint.

    There is a clear difference on the parts of the respective entities and how they decided to treat and protect their rights as they drafted the different contract provisions to protect their rights.

    As has been noted, a proper contract CAN place restrictions on chattel. An improper one will fail to place restrictions. But again, make no mistakes, restrictions can be placed. That point from my post at 6 remains true.

  10. Anon February 22, 2016 2:19 pm

    Your statement of “If there was a sale from the patent owner to the buyer, title passed.” needs to be corrected.

    Even if we call a lease a sale (and avoid that purposefully “fuzzied” line), the type of “sale” here just is not the same type of unrestricted sale that the case law discusses.

    Once you enter into the “restricted sales” arena, then you must look at those restrictions before pronouncing that any item so encumbered is free at point of sale. If you want to think of the situation in terms of sticks in the bundle of property rights, not all of the sticks in the title passed in the restricted “sale.”

  11. Edward Heller February 22, 2016 3:36 pm

    anon, under the common law, restrictions do not follow a chattel from one privy to another. The third party is not bound by contract to which it is not a party. The third party is not bound by the law property. The patent laws only cover the first sale, an a sale occurred here, not a license.
    .

    The Federal Circuit decision is without legal basis.
    The Federal Circuit decision is completely wrong and will be reversed

  12. Edward Heller February 22, 2016 3:39 pm

    anon, I agree with you on Bowman. I disagree that the Federal Circuit has the power to overrule the common law. Congress can do that, but it has not.

  13. Anon February 22, 2016 4:04 pm

    Mr. Heller, the Supreme Court itself has already noted the asymmetric nature here and the fact that it is the Congress coming out and saying something for copyright – and NOT saying the same thing for patent that is key that the Federal Circuit is relying on (and that is a legal basis whether you want it to be or not).

    I think that you forget that we are not just talking about chattel (property), not just talking about contract, and not just talking about patents, but are talking about all of these at the same time.

    What we have here is a purposeful decision and acceptance on the chattel. That alone should inform you that when you look at the common law, you need to remember the difference between an unrestricted sale and a restricted sale.

    Read again my post at 10: not all of the sticks passed with title. When you are going to talk about property that is intrinsically patent related (as here), you cannot take your common law with no context. Let alone ignore the context of “sales” that are restricted.

    Read again my posts in their entirety: the common law you wish to reference (as reflected in the court cases being presented) refer to unrestricted sales. You are not applying the cases as written by your attempts to change “unrestricted sales to be “ALL sales.”

    Licensing may not be the proper term for such “restricted sales,” and I would agree with you of the difference in the arguments came down to being precise as to whether or not a license or sale took place.

    It does not.

    And the reason why it does not – the legal reason – is the very notion that you are not acknowledging: the possibility of a restricted sale.

    Read again the cases and put extra emphasis (read out load) when you come across the words “restricted” or “unrestricted.”

    Let me know how reading the cases with this distinction in mind helps you see the context (and why this Lexmark case is actually not all that “groundbreaking”).

    You may just change your mind about what the Supreme Court will be inclined to do.

  14. Edward Heller February 22, 2016 4:51 pm

    anon, as Dyk pointed out in his dissent, the only case that had enforced post-sale restrictions were upheld under the repair/reconstruction distinction or expressly overturned.

    On sale vs. license, a licensee has nothing to sell. Any sale, regardless of any restriction, is selling someone else property.

    On the common law, how in the world is the Federal Circuit going to overrule it without something expressed by Congress. Chattels cannot be encumbered. Period. There is nothing in either the patent law or copyright law to suggest anything to the contrary.

    Again, I think Bowman was wrongly decided. I think Bowman owned the seeds he bought, had a right to plant them, owned the plants that resulted, and has a right to sell their seeds. He should not have lost.

  15. Anon February 22, 2016 6:15 pm

    Dyk – especially in dissent is just not persuasive.

    All else that I posted – that is much more persuasive.

    Your blanket statement here of chattels not being able to be encumbered is simply wrong. This goes to the ability to treat differently the different sticks in the bundle of property rights. You only want to see “FULL” sale when the courts (and the Court) have fully recognized less then full sales (the restricted and the unrestricted sales).

    If you refuse to see this, then our discussion is over as you are refusing to properly read the very cases in front of you.

    As to the Bowman case, I agree with the result – but it is important to find the correct path to that result. The difference being the one that I pointed out in that the different drafters of the protective contracts in the different cases wrote their protections differently, and in the case of Monsanto, failed to properly protect the progeny seed from being placed into the stream of commerce by way of an unrestricted sale.

    Again the law has recognized that which you are refusing to recognize: that there is a difference in a restricted sale and an unrestricted sale.

    I will suggest (again) that you read the cases out loud and put the emphasis on wherever the words “restricted” and “unrestricted” come up, and then note what this choice of words by the courts (and the Court) must mean.

  16. Anon February 22, 2016 6:16 pm

    Let me correct one error: “As to the Bowman case, I agree with the result

    should read:

    As to the Bowman case, I agree with the result as we would both have it: that Bowman is not an infringer.

  17. Gene Quinn February 22, 2016 6:29 pm

    Edward Heller-

    You wrote: “I think Bowman owned the seeds he bought, had a right to plant them, owned the plants that resulted, and has a right to sell their seeds. He should not have lost.”

    It is really, really difficult for me to believe you are at all knowledgeable about patents sometimes. Bowman bought seeds having agreed to a specific limitation. If he didn’t want to be bound by that limitation then he shouldn’t have bought the cheaper seeds. Bowman was really nothing more than a charlatan. He paid for cheap seeds that came with restriction, poisoned his entire crop so only the expensive seeds remained and then he replicated those seeds in direct violation of Monsanto’s patent rights. It was an open and shut case. It was easy. Bowman was properly decided. Patents are exclusive rights and as such the patent owner has the right to carve up those rights as he or she sees fit.

    If you don’t want the burden then don’t take the benefit. A pretty simple concept that even children understand.

    -Gene

  18. Edward Heller February 22, 2016 6:58 pm

    Gene, Bowman bought commodity seed and planted it as a winter crop, a common practice. The commodity seed was not necessarily that of the patented variety although Bowman suspected it might be given that so much land in the area was using Monsanto seeds. He then use Roundup to kill off the non-patented seeds so that his resultant crop was relatively pure. He then used the seeds in subsequent plantings.

    At all times, Bowman did everything he had a right to do in my opinion. He bought seeds that were sold with the permission of Monsanto. These sales were authorized. They were to dealers in commodity seeds. Bowman bought from these dealers, without any restriction. Even the Supreme Court ruled that Bowman bought the seeds without any restriction and that the patents were exhausted in the seeds. What the Supreme Court ruled as an infringement the patent was not some violation of any contract with Monsanto, but his use of Roundup ready to purify his crop and to sell his excess seed in competition with Monsanto.

  19. Anon February 22, 2016 7:00 pm

    Actually Gene, you are incorrect that Bowman’s purchase of the cheaper seeds came with any limitation.

    He bought seeds from a silo in an unrestrained purchase.

    Where do you see limitation at all, let alone specific ones, let alone specific ones tied directly to the patent holder?

    They are just not there.

    What Monsanto should have done – and did not do – was to control how those seeds ended up in the stream of commerce through unrestrained sales in the first place.

    They choose not to do that.

    Monsanto choose to allow their rights to be lost (had the Court decided correctly) by not controlling the progeny seed in a contractual manner with those to whom they sold the original seed.

    If you recall, Monsanto’s only limitation was that the original purchasers could not replant the progeny seed themselves. There was NO limit on the sale of those seeds to graineries. Monsanto could have – but did not – press for the type of control that one may see in certain copyright clauses.

    Again, they did not.

    It is Monsanto that was able to escape the burden of fully loading up its protection in the first instance. There is no doubt that placing the (proper) protections would have meant that the original sales would have to have been made at a lower price point.

    Monsanto drafted their document to cover the protections they wanted to cover at the price point that they decided to make. No one forced them to not cover entry of a progeny seed into the stream of commerce through not one but two unrestricted sales.

    Further the notion of “poisoning his entire crop” is a but over the top. Might I remind you that the patent on that “poison” had run its course, and that the use of that “poison” for the very purpose put to use by Bowman was fully in the public domain?

    I disagree with Mr. Heller on a number of different things. This is not one of them.

  20. Gene Quinn February 22, 2016 7:09 pm

    Anon-

    I believe you answered your own question when you wrote: “Monsanto’s only limitation was that the original purchasers could not replant the progeny seed themselves.”

    Bowman planted the seeds. He then sprayed the crops with pesticide so that only the Roundup resistant plants remained. He then replanted the progeny seeds. He violated the limitation that he was well aware of. It was an open and shut case that didn’t even present any difficult issues.

    -Gene

  21. Anon February 22, 2016 8:08 pm

    Gene,

    Bowman did not plant the seeds of which you speak.

    He was NOT an original purchaser of seeds that came with Monsanto’s limitations.

    The answer you think I gave, I did not – you jumped too quickly at a fact not there.

  22. Gene Quinn February 23, 2016 10:20 am

    Anon-

    The facts of the Bowman case are exactly as I have stated. I suggest you reread the Supreme Court decision. See:

    http://www.supremecourt.gov/opinions/12pdf/11-796_c07d.pdf

    First, Bowman most certainly WAS an original purchaser of Monsanto seeds. He purchased seeds from Monsanto every year under the express agreement. So he well knew about the limitations applied to the seed. So Bowman was not an innocent purchaser for value. He knew the limitation attached to the Monsanto seeds. The facts are extremely clear.

    Bowman purchased Monsanto seed every year under an express agreement. He then purchased commodity seed at a lower price for what he deemed late season speculative planting because he did not want to pay the Monsanto price. He knew where that seed came from, which was from other farmers who sold to the grain elevators, which meant like him the Monsanto seeds were subject to the express agreement.

    Whether you want to accept it as true or not, the facts are that Bowman intentionally poisoned his entire crop so that only the crop from the Monsanto seed remained. He then propagated the seed in direct violation of Monsanto’s patent rights.

    From the Supreme Court decision:

    “That agreement permits a grower to plant the purchased seeds in one (and only one) season. He can then consume the resulting crop or sell it as a commodity, usually to a grain elevator or agricultural processor. See 657 F. 3d, at 1344–1345. But under the agreement, the farmer may not save any of the harvested soybeans for replanting, nor may he supply them to anyone else for that purpose.”

    “Petitioner Vernon Bowman is a farmer in Indiana who, it is fair to say, appreciates Roundup Ready soybean seed. He purchased Roundup Ready each year, from a company affiliated with Monsanto, for his first crop of the season. In accord with the agreement just described, he used all of that seed for planting, and sold his entire crop to a grain elevator (which typically would resell it to an agricultural processor for human or animal consumption). Bowman, however, devised a less orthodox approach for his second crop of each season. Because he thought such late-season planting “risky,” he did not want to pay the premium price that Monsanto charges for Roundup Ready seed. Id., at 78a; see Brief for Petitioner 6. He therefore went to a grain elevator; purchased “commodity soybeans” intended for human or animal consumption; and planted them in his fields.”

  23. Anon February 23, 2016 11:44 am

    Gene,

    If in fact Bowman had bought seeds – it would be appropriate for those seeds to be enjoined per the agreement.

    The plain fact of the matter though is that is NOT what the Court laid out, and it is THAT of which I refer to.

    To the extent that other seeds become rolled into the Court’s verdict, that verdict is clearly wrong.

  24. Anon February 23, 2016 11:55 am

    The portrayal of commodity seeds as ONLY intended for human or animal consumption is a FALSITY.

    It is an example of soundbyte journalism at its worst, as it ignores several critical factors in order to reach a mere sugar coated result of a particularly desired ends.

    First and foremost, the sale is not constrained contractually as the sound byte makes it seem. It is logically bogus to fall back to ANY type of ” gee the typical uses are thus and thus” when the sale itself is factually an open and complete sale with no restraints.

    Second, commodity seed for second season planting is a known use.

    Third, the intersection of the patent with the use of the seed mandates a use of planting. It simply cannot be propositioned that planting was not a foreseeable use.

    Repeating back the half truths that the Court swallowed simply does not make those half truths into full truths, and does NOT address the issues that exhaustion of a complete and unfettered sale should bring.

    Yes, Gene, for any particular seed that Bowman may have bought WITH the proper legal restraints on that particular chattel that Bowman agreed to, there is NO question of lack of exhaustion.

    That is clear.

    It is also more than abundantly clear that such was not the limits of that case.

    If it were, we would not be having this discussion. I am drawing your attention – in particular – to that OTHER seed that existed outside of Monsanto’s own drawn contractual protections.

    Speak to that seed, please, and let’s avoid the lack of critical thinking that accompanies the sound byte journalism style of other possible uses in an unconstrained (legally and factually) sale of chattel.

  25. Anon February 23, 2016 12:15 pm

    I missed a sentence: the third point above should be more clear that I am speaking to Monsanto and its duty to protect the progeny seed (to the limit that it decided to) and that the doctrines of patent law exhaustion apply to ALL progeny, as Monsanto was aware that the use of “making” is the particular use tied to its patent and the first sales (and control of progeny from that first sale).

    It is clear that Monsanto attempted some restraints on the seed it sold, both restraints on the initial seed and restraints geared to progeny seed.

    But Monsanto’s efforts were critically flawed because as the drafter of those protections, the error of not fully constraining the progeny is held against the drafter.

    Monsanto could have added a clause requiring NO full sales into the stream of commerce.

    They failed to do so.

    It simply matters not at all what any “typical” use of a sale of progeny seed into the stream of commerce might include. The fact of the matter is that the list of uses was not controlled as a protection that Monsanto wrote for itself.

    The Supreme Court missed this because they “bought” the sound byte.

    There is another necessary conclusion of the Supreme Court case that has been quite ignored, and if your view that the Court was correct – explicitly for that seed that was NOT bought directly from Monsanto – then I would love to hear you acknowledge this necessary result.

    Being that one of the sticks in the bundle of property right that survivied into the progeny was the stick of “making” – is it not necessary that the other sticks survived as well?

    Since ANY non-Monsanto sale of seed was in fact unconstrained and without express limitations, how – legally – would one say that one stick in the bundle survives but others do not?

    It is quite literally (and very much in line with property law) an “all or nothing” thing for any seed sold outside of a Monsanto sale.

    The necessary implication here is that ALL grainery sales must be considered to be likely infringement of Monsanto’s unexhausted rights (if those rights survive into the progeny.

    I say considered, because the fact of whether a seed carries the patent feature must be established to establish actual infringement.

    Given though the shear volume (and unrestrained nature of the ability to sell progeny seed, openly, freely and without limitation, just how likely is it that ANY appreciable quantity sold by ANY silo (for any purpose, since the property stick of enjoining sales is NOT limited to purpose of sale) could be found to be an act of infringement?

    The facts of the Bowman case which did not press this unavoidable implication simply do not control what lies in wait, as Monsanto could bring up such an action based on the no-exhaustion finding of the Court.

  26. Gene Quinn February 23, 2016 1:25 pm

    Anon-

    I don’t think we are ever going to agree on the Bowman case.

    Bowman clearly was not a bona fide purchaser for value who did not know of the restraint on the seeds. He well knew of the restraint on the seeds because he was a purchaser of seeds that carried the restraint. What he tried to do was play ignorant, which failed. In order to not buy the seeds directly from Monsanto, which clearly would have carried the restraint, he bought the seeds from the grain elevator knowing full well that at least some of those seeds were Monsanto seeds. Those Monsanto seeds when purchased carried the restraint… he knew that. He planted the seeds, he poisoned his crop so that only the plants born from Monsanto seeds lived and then he propagated the seeds. Everything he did was intentional. He knew what he was doing, he knew that the seeds carried a limitation, and he tried to skirt the limitation by dealing with a middleman.

    The case would have required a very different analysis if Bowman didn’t know of the restraint. That is why in America at least Monsanto doesn’t go after farmers who have seed blow onto their property. There is no intent.

    I think if you reread the patent exhaustion cases you will see that intent and knowledge plays a big role. I personally agree with that. The law should work to benefit the bona fide purchaser. The law should not benefit the deceitful, thereby allowing one to engage in willful and intentional patent infringement based on intentional ignorance.

    -Gene

  27. Anon February 23, 2016 2:18 pm

    Gene,

    Please try to do as I asked: take the portions of seeds that Mr. Bowman may have bought directly from Monsanto out of the equation, because the Court’s decision is just not limited to those seeds (if present).

    Your position falls apart completely if you do so.

    There simply was NO restraint involved in the purchase of seeds from a silo.

    None.

    You are assuming the conclusion to be found by your mere assertion that there was a restraint in the seeds from the silo. You are assuming the conclusion to be found in NOT holding the weakness of Monsanto’s own drafted protection against them – and accusing “deceit” for that error in drafting.

    The mere smokescreen of “typical uses” just cannot create a restraint that is not present in the sale.

    There is NO “play ignorant” to be had.

    Also, you do know that “intent” is not a factor in direct infringement (your blown seeds argument is stillborn), and thus it would be better off not even introducing it.

    Quite in fact, the continued attempts to NOT recognize these points can be fairly put to better approximate the “play ignorant” line.

    Also, you have not provided a comment on the necessary implication of your position vis a vis ALL silo sales.

    Please do not bow out with a “we are not going to agree” before you address that point that must follow were I TO agree with you.

  28. Edward Heller February 23, 2016 2:23 pm

    Gene, the whole point of the exhaustion doctrine is that post-sale restrictions do not affect the first sale doctrine. The first sale doctrine exhausts the patent rights in thing sold so that further uses and sales are not infringements. However, exhaustion does not apply to making, and that is the point of Bowman v. Monsanto.

    Now, to be sure, the Federal Circuit has a different view, consistent with yours, that post-sale restrictions apply. But I am sure the Federal Circuit will once again be corrected by its boss.

    The best argument for Lexmark is that refurbishing the cartridges is a making. That would bring the case under Bowman.

  29. Anon February 23, 2016 3:52 pm

    Mr. Heller,

    You have misspoken.

    Exhaustion CAN apply to the use of “making” when the nexus of the invention necessitates that particular “use” and “making” is a known use

    There is nothing anywhere that says exhaustion cannot apply to all the sticks in the bundle of property rights – including use of making.

    Perhaps what you meant to say was that typically making is not associated with a “use.” This indeed would be true for as far as that statement goes. Most items do not include within their typical use a replication of the thing itself. This is indeed a critical item to recognize.

    But that typical exclusions does have a natural limit when the natural use does include replication.

    Further, the intent of both the patent and the sale require that particular use of making.

    The plain fact remains that in the Monsanto case, there is no nexus between the invention and uses (such as with food) that do not include the known and expected use of “make.”

    And this is precisely why the use of “make” cannot be merely assumed to be outside of the typical scenario. We are NOT in a typical scenario. The context here must be kept in mind.

    Of course, there are several rather obvious differences here between the Monsanto case and the Lexmark case.

    One involves a natural use – tied to the purpose of the patent involve – of the use of “make,” while the other does not.

    One involves a clear violation of a contractual term, while the other (arguably at least with some known seeds) does not.

    The “argument” here of “refurbishing is a making” is tenuous (but perhaps reachable).

    Clearly, cartridges are not like seeds that have a natural purpose of replicating (use of “making”).

    But just as clearly, cartridges are meant to be refilled. If the ONLY issue were one of re-filling, then the “refurb as make” argument would be stillborn.

    It becomes a little more interesting because the refurb is not only a refill, but also includes the alteration of software within a controlling chip.

    One might reach the position of that controlling chip being meant to be “broken” after the single use, and thus there is indeed a refurb in the classical sense to fix a broken item. As you might recall, refurb is akin to reconstruction which is defined as a thing that has been rebuilt after being damaged or destroyed.

    The question then might be investigated whether a purposeful self-infliction of damage is something that should be protected, especially in a situation in which the underlying thing is meant to be refilled, and the “breaking” is only meant to stop that refilling.

    It might be worthwhile to note that Lexmark could have utilized a different design that did not allow any refills whatsoever.

    The fact that they did not do this tends to point in the direction that the purposeful “break” is a business decision that is meant to control a replaceable (and something designed to be replaceable) item, as opposed to a “true” damage event. This makes the argument rather tenuous and has the appearance of a sham damage.

  30. Gene Quinn February 23, 2016 4:07 pm

    Anon-

    You say: “take the portions of seeds that Mr. Bowman may have bought directly from Monsanto out of the equation…”

    You simply cannot ignore that under a proper patent exhaustion inquiry.

    I realize the issue isn’t whether those seeds he purchased directly from Monsanto were exhausted, but essentially what you are saying is “please ignore a relevant fact about whether Bowman was on notice that Monsanto seeds came with a restriction… once you ignore the fact that Bowman was on notice that Monsanto sold its seeds with a restriction then you can’t possibly come to any other conclusion than that Bowman was not on notice when he knowingly purchased Monsanto seeds.”

    Bowman’s knowledge is per se relevant to the question of patent exhaustion. If you know of the restriction that influences the entire analysis.

    You want to turn Bowman into a bona fide purchaser for value without any knowledge of the fact that he was buying Monsanto seeds. Completely different analysis if that were the case, but the facts don’t support that story. Bowman knew he was acquiring Monsanto seeds from the silo, he knew Monsanto seeds carried a restriction. He tried to get around the restriction by buying from a middleman and then in order to identify which ones were Monsanto seeds he sprayed his entire crop with Roundup so only the Monsanto seed plants survived. The knowledge and intent in Bowmans actions clearly and unambiguously mean he was not a bona fide purchaser for value. If you don’t factor that into the patent exhaustion inquiry you are not doing a proper and thorough patent exhaustion analysis.

  31. Edward Heller February 23, 2016 4:14 pm

    anon, assume I buy seed from Monsanto with its use restrictions. Instead of planting, I make bread out of the seed and sell it. Am I an infringer?

    Instead of planting, I sell the seed to the commodity seed broker. Am I an infringer?

    Instead of planting. I put the seed in a pile where the wind blows it here and there. Soon, the patented seed is everywhere. Am I an infringer?

    Instead of planting, I dump the seed into a nearby river where the seed is taken to every continent in the world. Soon the entire world has the patented seed. Am I an infringer?

    We patent a fish. One escapes, and soon all fish have the patented gene. Are fishermen who catch and sell fish infringers?

    There is this great science fiction book, the Windup Girl, where a patented gene that prevents plant sexual fertilization escapes. Soon the gene is everywhere. Food crops, forests, flowers gradually die. As they die, global warming takes off.

    In such a future, what is the most valuable thing? Seeds. Seed that do not have the patented gene.

  32. Edward Heller February 23, 2016 5:12 pm

    Gene, re: 30, I daresay that notice has nothing to do with the law of exhaustion. Even without an express license, under the theory of Bowman v. Monsanto, Bowman would infringe for planting second generation seed.

    Now you might tell me that I am wrong here, citing the Federal Circuit. But trust me the Feds are so far from the pale that they are certain to be reversed.

  33. Anon February 23, 2016 5:45 pm

    Gene at 30,

    Please do not paint me as doing what you yourself are doing.

    I do recognize that for seeds that Bowman may have directly purchased, the rules of that purchase would apply – FOR those seeds.

    Why are you having a difficult time addressing seeds NOT so purchased?

    To attempt as you do at your last response to say that the issue is intermingled and that you cannot (or will not) address the separate portion of seeds seems to be quite disingenuous.

    I am clearly not ignoring anything when I am willing to say that those seeds properly controlled result in a finding of infringement. What exactly am I ignoring?

    On the other hand, there is plenty that you are ignoring.

    What I am saying – or rather asking – is that you do not ignore the points that I have presented that fall outside of that “nice easy decision” because the Court’s decision does in fact impact more than just any seed that Bowman may have bought directly.

    You keep on wanting to “carry over” a contractual term of seeds bought under contract to seeds that simply lack that contractual term.

    I call BS on that line of reasoning.

    I will also remind you that the mere fact of spraying an entire crop with Round Up – CANNOT be infringement expressly because that action had moved from being protected by patent to an action entirely in the public domain after the lapse of the original Round Up patent. This too is yet another “false start” from you.

    Perhaps you should stick to addressing the points that I have laid out. (I have to chuckle as I am directly challenging you to do so – without any “agree to disagree,” or (still) touching upon points that I bring up that would still exist even if I were to agree with you for argument’s sake – those items that Mr. Heller’s last comment appears to go to.

    Nothing wrong with a friendly challenge, is there?

    .

    Mr. Heller, Your post has a lot of questions. Here are the answers:

    Are you an infringer if you make bread with the direct seeds (not progeny) that you bought from Monsanto under the use restrictions?

    No. You did purchase the direct item and the use restrictions do not include preventing you from making bread from that direct item, so you are clear However, as an aside, the making there is not the same type of “use as make” that is implicated in the replication use of putting the seed into the ground, and there is no intersection with the intent of the patent, so if you were attempting to be coy with the use of the word “make,” you come up a little short.

    Are you an infringer if you see the direct seeds to a commodity seed broker (not progeny) that you bought from Monsanto under the use restrictions?
    Maybe. I would have to see if this is a type of restriction on the direct seed that the use restrictions cover and since you ascribed to those restrictions, they would apply. However, the more interesting question would deal with the progeny seed. As I understand the use restrictions, Monsanto gave a full green light to your ability to sell progeny seed to a commodity seed broker. This is a critical item that was not properly adjudicated by the Court in the Bowman case. This is the exact point that Monsanto lost all claim to sticks in the bundle of their property right. Because they could have – but did not – maintain their protection over progeny seed for a legitimate and known use of that seed in a subsequent sale, they effectively exhausted their patent property at that point.

    Are you an infringer if the method of your planting is not a traditional planting but you instead employ a scatter to the winds type of planting?

    No. The use conditions allow you a single planting – and as far as I know, the method of that single use is not a condition that would invoke the charge of infringement.

    Similar to the previous question, are you in infringer if you employ a method of planting that includes wild abandon and the effect of planting on other people’s lands?

    No, you may have other problems, but as I understand the use conditions of that original seed, the method of planting is not constrained as to make you an infringer here. I note though that your question may be aiming at something else, as you appear to want ot implicate the loss of control on the progeny seed and the possible uncontrolled natural replication that progeny seed may undergo. To that question, you may be guilty of violating the use restrictions to the extent that the purposeful loss of control can be used to implicate any use restrictions on such control ( I do not know the details of the use restrictions to provide a more exact answer).

    And finally, the great genetic fish thought experiment. Under the ruling of Bowman, all fishermen who catch and sell our fish (within the domestic US) would indeed be infringers. As would those that had merely contracted to offer to sell the fish. Since it appears in your situation that there was no sale (one escapes) this is an even better fact pattern than the Bowman case, since there is not even a point that can be traced back to that we allowed a sale without sufficient controls by a contract drawn up by us.

  34. Gene Quinn February 23, 2016 6:50 pm

    Anon-

    You can call my reasoning BS if you like, but it is an appropriate patent exhaustion analysis. We just fundamentally disagree it seems. We don’t seem to be in any meaningful disagreement as to what Bowman did. We just disagree about the proper importance placed on his knowledge that he was acquiring Monsanto seeds. He knew he was acquiring Monsanto seeds from the grain elevator, that is clear otherwise he never would have sprayed his entire crop with Roundup so only the Monsanto plants survived.

    You say: “You keep on wanting to “carry over” a contractual term of seeds bought under contract to seeds that simply lack that contractual term.”

    That is simply a mischaracterization of what I’ve been saying. I’ve been consistent and clear. Bowman bought seeds under a contract for first planting. He bought seeds from the grain elevator not directly from Monsanto. There was no direct contractual relationship between Bowman and Monsanto with respect to the purchase from the grain elevator. Bowman did know, however, that the Monsanto seed was subject to a restriction. That knowledge defeats his claim that the patent rights were exhausted.

    You cannot use a straw man who doesn’t pass the restriction along to you as an excuse for their not being a restriction if you knew about the restriction in the first place. Bowman was not a subsequent bona fide purchaser for value. He had knowledge. He knew what he was doing. Had he been an innocent purchaser it is a different case. Of course, it would be quite difficult to be an innocent purchaser having sprayed your entire crop to kill everything that wasn’t a Monsanto plant.

  35. Anon February 23, 2016 7:09 pm

    Gene,

    What I called BS was the attempt to apply known and agreed to contract stipulations from one contract between two explicit parties to a sale outside of that contract, with NO legal relationship between the two sales.

    There is simply nothing appropriate about that – in any context.

    And no – I have not mischaracterized anything, The sale from the grain elevator carried NO contract stipulations – and yet your view is that somehow they are there.

    Please – I do not want to put words in your mouth. Explain how that sale – full and unfettered – in the stream of commerce – carries contract stipulations not present?

    You are the one mischaracterizing things here. The “subject to restriction” is simply NOT as broad as you paint it. That restriction was soley for those seeds appropriately within the contract between Monsanto and its first buyer. I have already separated those seeds that were bought by Bowman under such a deal and I am talking expressly about other seeds.

    Those other seeds do not – and cannot (based on how Monsanto itself drafted the contract) carry the stipulation that you somehow want to make appear and make binding for a full and unfettered sale.

    It is most certainly not a strawman to point out the failings of Monsanto to write the contract to provide any such protection that you want to magically appear. You keep on imagining a restriction on the progeny seed that was not there. Monsanto omitted that control when it allowed progeny seed to be placed into the stream of commerce without limitation.

    And please, do not try to return tot he dead hand argument about using a past-patent-protected product that had fallen into the public domain. You want to ascribe intent where intent just does not matter.

    Let me pause and address something else that I have asked – and that you have not taken up (and I will try to not put words in your mouth here as well): you again say here: “He was acquiring Monsanto seed” (from the grain elevator).

    Without giving a direct answer to the “necessary implication” that I laid out, would it be fair to say that you think that ALL sales from grain elevators are examples of patent infringement?

    How do you say no? You claim that it is Monsanto’s seed. Do the grain elevators have permission directly from Monsanto to sell Monsanto’s seed? Does Monsanto obtain a portion of the proceeds of that sale? And here’s a “tricky one:” does Monsanto insist on any limitations on the sale of “Monsanto seed” by the one party of the grain operator to a second party of any purchaser of that seed?

    I await your direct answers on this particular seed with keen interest.

  36. Anon February 25, 2016 9:11 am

    I suppose that those other seeds that I have sown have fallen on stony ground, and that a full discussion on those items that fall outside of the words that Monsanto had chosen for their own protection will need to lay fallow until perhaps some later reawakening.

    Not to worry, the facts as I have laid them out will not change and the concepts remain ready to be explored by those willing to do so.