Supreme Court rules Lexmark sales exhausted patent rights domestically and internationally

By Gene Quinn
May 30, 2017

Earlier this morning the United States Supreme Court issued an opinion in Impression Products, Inc. v. Lexmark International, Inc., a case requiring the Court to revisit the patent exhaustion doctrine. In an opinion authored by Chief Justice John Roberts, and joined by all members of the Court except Justice Ginsburg (concurring in part and dissenting in part) and Justice Gorsuch (taking no part in the case), the Supreme Court determined that when a patent owner sells a product the sale exhausted patent rights in the item being sold regardless of any restrictions the patentee attempts to impose on the location of the sale. In other words, a sale of a patented product exhausts all rights — both domestic and international.

Background of the Dispute

At the foundation of the dispute between Impression Products and Lexamark is the toner that laser printers use to make an image appear on printed page. Lexmark designs, manufactures, and sells toner cartridges to consumers in the United States and around the globe. It owns a number of patents covering components of those cartridges and the manner in which they are used.  When toner cartridges run out of toner they can be refilled and used again. This creates an opportunity for other companies to acquire empty Lexmark cartridges from purchasers in the United States and abroad, refill them with toner, and then resell them at a lower price.

In an attempt to prevent the cannibalization that naturally occurs from cheaper refilled toner cartridges, Lexmark structures sales so as to encourages customers to return spent cartridges. It gives purchasers two options: One is to buy a toner cartridge at full price, with no strings attached. The other is to buy a cartridge at roughly 20-percent off through Lexmark’s “Return Program.” A customer who buys through the Return Program still owns the cartridge but, in exchange for the lower price, signs a contract agreeing to use it only once and to refrain from transferring the empty cartridge to anyone but Lexmark. To enforce this single-use/no-resale restriction, Lexmark installs a microchip on each Return Program cartridge that prevents reuse.

Over time the resellers adapted, becoming more clever. They kept acquiring empty cartridges as they could, and developed ways around the microchip installed by Lexmark. This prompted Lexmark to use a number of the resellers, including Impression Products.

What the Federal Circuit Got Wrong

This decision of the Supreme Court once again overruled the Federal Circuit ruling below, which concluded the Lexmark had not exhausted patent rights, and that they could sue for infringement when Impression Products refurbished and resold Return Program cartridges, which were cartridges sold with microchip protection to prevent their subsequent reuse. The Federal Circuit also ruled that the sale of a product abroad did not terminate the patent owner’s ability to bring an infringement suit against a buyer that imported the article and sold it in the United States.

The Supreme Court would explain that the Federal Circuit managed to get this case so wrong because it logically “got off on the wrong foot.” The Federal Circuit believed that to properly interpret the exhaustion doctrine it was necessary to interpret the infringement statute, which at first seems a rather logical thing to do since the infringement aspects of the Patent Act would seem applicable in determining whether one could maintain a patent infringement action. However, according to the Supreme Court, the patent owners right to use, sell, and import all exist independently of the Patent Act because the patent only grants the limited right to prevent others from engaging in those activities. Therefore, the Supreme Court explained, if one transfers those rights that are not derived from the Patent Act the buyer and subsequent buyers are free and clear of infringement lawsuits because there is no exclusionary right left to enforce.

Supreme Court Ruling in Impression Products v. Lexmark

The basis of the patent exhaustion doctrine is when a patent owner sells a patented product the patent owner can no longer control that item through the patent laws — its patent rights are said to have become exhausted. The purchaser and all subsequent owners are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit.

The two questions about the scope of the patent exhaustion doctrine that were presented in Impression Products v. Lexmark, were: (1) Whether a patentee that sells an item under an express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit; and (2) Whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.

With respect to the first, relating to the Return Program cartridges, the Supreme Court concluded that Lexmark exhausted its patent rights in those cartridges the moment it sold them. The Court further observed that while the singe-use and no-resale restrictions may be perfectly clear and enforceable under contract law principles, they do not entitle Lexmark to retain patent rights in an item it has elected to sell. Once a patent owner sells an item it has enjoyed the rights secured by the limited monopoly[1] provided by the patent, the Court explained citing to Keeler v. Standard Folding Bed Co., 157 U. S. 659, 661 (1895).

With respect to the second issue relating to international exhaustion, the Supreme Court relied on Kirtsaeng v. John Wiley & Sons, Inc., which held that the first sale doctrine applies to copies of a copyrighted work lawfully made and sold abroad. The Court explained that although the Patent Act does not have a first sale doctrine the application of the same principles are no less direct because the basis of patent exhaustion is an “antipathy toward restraints on alienation, and nothing in the text or history of the Patent Act shows that Congress intended to confine that borderless common law principle to domestic sales.”

Notably, the Supreme Court rejected the Government’s international exhaustion compromise, which would have been to recognize that a foreign sale exhausts patent rights unless those rights are expressly reserved. The Supreme Court found this to be nothing more than public policy, focusing on the expectations between buyer and seller rather than on the transfer of patent rights as required by the patent exhaustion doctrine. Of course, what the Supreme Court failed to take into consideration is the impact this decision will have on grey market goods (particularly with respect to pharmaceuticals), which very well could require Congress to take action to overrule or at least limit the international patent exhaustion aspects of this ruling.

The Ginsburg Dissent

Justice Ginsburg concurred with respect to the Court’s ruling relating to the first issue pertaining to domestic patent exhaustion, but dissented relating to the issue of international exhaustion. Ginsburg would have ruled that a foreign sale does not exhaust a U.S. inventor’s U.S. patent rights.

Because patent law is territorial, and because a sale abroad operates independently of the U.S. patent system, Ginsburg wrote that “it makes little sense to say that such a sale exhausts an inventor’s U.S. patent rights.”

Ginsburg was also not persuaded by the Court’s reliance on Kirtsaeng, saying that although there is a historical link between patent and copyright law, “[t]he Patent Act contains no analogue to 17 U.S.C. §109(a), the Copyright Act first-sale provision analyzed in Kirtsaeng. More importantly, copyright protections, unlike patent protections, are harmonized across countries.”

 

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[1] Of course, a patent is not a monopoly no matter how many times the Supreme Court makes this egregiously erroneous claim. At best, a patent gives one the opportunity to charge monopoly profits if and only if there is a market for the product in question. Furthermore, others are allowed to improve the product and block the original patent owner. Still further, there is no guarantee that a patent will ensure any market interest. Yet, the Supreme Court clings to this ridiculous notion time and time again. For more please see: Debunking the Myth that Patents Create a Monopoly.

 

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 51 Comments comments. Join the discussion.

  1. Curious May 30, 2017 1:27 pm

    basis of patent exhaustion is an “antipathy toward restraints on alienation
    Yet many courts (and commentators) get their noses all bent out of shape when original patent owners sell their patents to NPEs (i.e., those infamous “trolls”) and the NPEs attempt to obtain what the original patent owners could not — fair licensing deals from infringers (err … licensees). Apparently, the antipathy towards restraints on alienation does not extend to those patent owners who want to profit from their patents.

  2. Gene Quinn May 30, 2017 1:35 pm

    Excellent point Curious! I suspect you will be reading more about that in the days and weeks to come! Thanks.

    -Gene

  3. glug May 30, 2017 1:59 pm

    Well, after killing the software and medical diagnostics industry, we all knew it was only a matter of time before they got around to pharma (and all the rest)…

  4. Anon May 30, 2017 2:12 pm

    The “no right left to enforce” necessarily impugns the “logic” of the Monsanto case.

    As a reminder, Monsanto controlled the contract and sale of a first seed, and allowed an unfettered sale (no requirements at all) on the products of using that first seed – in the manner of selling that seed into the open market, vis a vis, sales to graineries. As an additional point (as if that sale were not enough), the graineries then turned around and sold product – with no restrictions whatsoever – into the open market.

    I do believe that any attempt to side step these sales and claim that the use/RE-manufacture paradigm** makes the situation different is simply not in accord with the decision here.

    **That paradigm is already on infirm ground, because the primary “use” as can be expected for seed is to plant seed. The paradigm is further tenuated when one considers the nexus of the first sale by the patent holder is directly tied to the “use = plant.” It’s not as if the patent holder was not aware of that use, not as if the patent holder did not try to control that use (at least with the first buyer).

    The problem was that the patent holder wanted those first buyers to be able to put the (expected, and clearly tied to the nexus of the invention) product INTO the market. But if exhaustion fundamentals are to be clearly understood, putting the product into the market exhausts – and as seen in the immediate case, exhausts completely.

  5. Anon May 30, 2017 4:55 pm

    …to add a thought to the notion above (and hopefully, some clarity),

    When you sell an item that is a self-replicating item, and the reason why you sell it in the first place is so that the patentable advance (only possibly achieved in the act of self-replicating) can be used, and you get to charge a super-premium for the use, one simply does not have the right to later say that THAT use is not a use exhausted in the sale of the self-replicating item.

    No one doubts that there may be other uses, but it is entirely disingenuous to try to limit use to only those other uses, given that the price of that super-premium would guarantee NO sales at all if sales the first time around were limited to those other uses.

    If anything else from this current decision, alienation of property surely does not provide patent holders with the ability to (self) select which uses are exhausted and which uses are reserved.

    For those attempting a naked comparison with a full-on manufacture of items that are not self-replicating, I would say that your argument missing this critical distinction is enough to sink your argument.

    You make a self-replicating thing, then you better not act surprised that a normal use (a normal use that is exhausted) is….

    …self-replication.

  6. Edward Heller May 30, 2017 5:29 pm

    Long time coming.

    The disk drive industry was once plagued by a company that licensed motor manufacturers to sell motors to all including the disk drive industry, and then attempted to extract a second royalty from the disk drive industry for using those very same motors in disk drives. The sole invention involved was a feature contained entirely in the motor.

    The lower courts had to side with this “pirate” because of the harebrained Federal Circuit rulings that one could have his cake and eat it too. In the end, the disk drive industry had to pay a second royalty.

    Imagine what the world would be like if patentees could sue for patent infringement every user or reseller of a patented item the patentee or a licensee sold? The world would react in justifiable and extreme anger that such a system existed, and would not understand it. Trust me. The patent system itself would be in danger.

    The Supreme Court above all has the bigger picture in mind and will not let patent law travel into the land of the strange and weird, which is where the Federal Circuit often takes us.

  7. Curious May 30, 2017 7:20 pm

    In the end, the disk drive industry had to pay a second royalty.
    I see how you twisted the words. The motor manufacturers paid one license …. the disk drive industry paid for another license. Hence, the disk drive “industry” had to pay for two. If the motor manufacturers had decent counsel, perhaps they could have gotten a license for all the relevant patents at the same time and saved the downstream users of their products some money.

    The Supreme Court above all has the bigger picture in mind
    LOL … the Supreme Court just wants these patents [cases] to go away. The world without patents would be an easier world for SCOTUS to deal with. There is no “bigger picture” beyond “patents are bad — let’s defang them.”

  8. Edward Heller May 30, 2017 7:52 pm

    “All the relevant patents.” This is an interesting point since there was just one invention, one novel feature in all the patents involved. But some of the patents were directed to the motor. Others, continuations, to the combination of the motor and disk drive.

    The motor patents were licensed to the motor company. The disk drive industry were asked to pay a second royalty under the disk drive patents.

    Now, just because the USPTO sees nothing wrong in issuing such patents in violation of Lincoln Engineering, and the CCPA/Federal Circuit sees nothing wrong as well, the vice is apparent. The patentee is getting two royalties for the same invention.

    If this situation ever occurs again, I hope counsel take the issue to the Supreme Court who will, I think, give the Federal Circuit one more tough lashing it well deserves.

  9. Curious May 31, 2017 12:05 pm

    The motor patents were licensed to the motor company. The disk drive industry were asked to pay a second royalty under the disk drive patents.
    Isn’t that taught in claim drafting 101? If the motor companies and disk drive companies were caught unaware, they should be taking it up with their counsel — not the courts.

    But some of the patents were directed to the motor. Others, continuations, to the combination of the motor and disk drive.
    There you go. The person who did the licensing work, IMHO, did a bad job. They should have got a license to all the patents.

    If this situation ever occurs again, I hope counsel take the issue to the Supreme Court who will, I think, give the Federal Circuit one more tough lashing it well deserves.
    Oh great … get SCOTUS involved in giving us an (unworkable) framework, e.g., to determine whether two related patents are directed to the “same” invention. You do realize that every time SCOTUS steps in they muck up settled law, and instead of providing clarity, they provide ambiguity as to how the law should be applied?

    Regardless, the USPTO already has judicially created doctrine of obviousness-type double patenting to employ. As such, the tools are already in place to address your alleged problem.

  10. Edward Heller May 31, 2017 4:36 pm

    Listen, Curious, exclusive rights are by invention, not by claim, not by patent.

  11. Anon May 31, 2017 5:41 pm

    Mr. Heller,

    You have used that line previously.

    I do not think that what you are attempting to say is at all accurate.

    The allocation of power set forth by the Constitution provides authority to Congress to set up the system. The system that they have set up includes patents and claims. The fact of the matter is that claims can not only vary, but the patent holder always had the choice of which claims to assert. Your view here would basically make a nullity of the actual work of Congress in how they set up the system under their granted authority, and would rewrite all effective enforcement (and other items, like licensing) into a one-shot deal.

    It is just not like that.

  12. Edward Heller May 31, 2017 6:00 pm

    anon, what you do not seem to understand is that a patent covers only one invention, and despite the number of claims infringed, there is only one damage.

    Further, dividing claims to an invention among several patents is double patenting, otherwise people would have an incentive simply to multiply the number of patents to increase damages.

    Adding the prior art to an invention does not make a new invention.

    I know we have been told that adding systems claims may enhance damages. But that really depends on the skill of counsel in defending and prosecuting.

    More later.

  13. Edward Heller May 31, 2017 6:29 pm

    Also, anon, as we have seen, courts are now limiting damages according to the value of the invention to the whole. Thus, adding in more and more of the prior art probably will not increase damages as it once may have.

  14. Anon May 31, 2017 10:16 pm

    Mr. Heller,

    Your comments address things that I am not talking about and do not address (properly) things that I am talking about.

    Your statement of “and despite the number of claims infringed, there is only one damage.” does not address what I said.

    Clearly, a range of dependent claims may cover from the broad to the narrow, and that range would have varying damages associated with them. You not-so-subtlety lumped in the phrase “number of claims infringed” when the point was a difference in claims that could be assorted.

    A claim not asserted – even if infringed – will have zero to do with damages.

    Your statement of “dividing claims to an invention among several patents is double patenting,” is clearly something that has nothing to do with what I am talking about, and to the extent that “spreading” can occur over continuations and continuations in part, you are simply incorrect.

    As to “Adding the prior art to an invention does not make a new invention.” – that’s a pretty strawman, as you are the only one to bring it up, only to knock it down.

    Lastly, your comment with no reference of “are now limiting damages to the value of the invention to the whole” is not understood. Can you put some context to your statement?

  15. Anon May 31, 2017 11:51 pm

    when the point was a difference in claims that could be assorted.

    “assorted” should be “asserted,” and the point should be that the choice of claims asserted very much may change – and change drastically – damages obtained.

  16. Paul, PE June 1, 2017 8:45 am

    Hello Gene. I’ve sat in your USPTO Bar review course and I like what and how you do things. I read through this at a couple of different levels. As a lifelong tinkerer, engineer, maker I read this as being in support of most any POOGE application. which is nice in that limited scope. But living in the corporate world, by which the former is funded, I’m wondering if licensure now has more legal pull than IP? If little johnny designs a pulse forming network for a cadre of overeducated folks that can’t won’t and don’t, are his protections now best as licensure and not lexicography and IP? can I jump to an extreme and say that a copyright would hold more water than a utility patent? that’s a big jump….clearly I’m not a lawyer. Hoping for a LOGICAL thrashing……

    PS: the next time you are in chicago, I’d like to take you fishing….or at least to dinner. drop me an email and I’ll reply.

  17. Curious June 1, 2017 9:36 am

    a patent covers only one invention, and despite the number of claims infringed, there is only one damage.

    Under 35 USC 271, one infringes a patent — not an invention. Multiple patents, multiple infringements.

    The allocation of power set forth by the Constitution provides authority to Congress to set up the system.
    Bingo — the Patent System is Congress’s baby. They get to make the rules (laws).

    otherwise people would have an incentive simply to multiply the number of patents to increase damages.
    Again, if your counsel was any good, your license would cover all patents (and continuations and CIPs). You are complaining about a problem that could be solved by good lawyering.

  18. Gene Quinn June 1, 2017 10:07 am

    Hi Paul.

    In the wake of this latest Supreme Court case I think a lot of lawyers are going to try and get very creative with licenses. For some products/services that will be a lot easier than others. There will be huge ripple effects for U.S. companies that ship products abroad. Expect revenue to decrease and competition to increase, perhaps dramatically for some.

    Copyrights are just not a substitute for patents. For some innovations that can be kept as a secret, or innovations that have key components that can be kept as a secret, trade secrets are becoming far more valuable in the U.S. than patents in the current climate.

  19. xtian June 1, 2017 11:57 am

    To all,

    I file a a patent on a new drug containing claims to both the composition itself, and to methods to treat a diseases with that drug. After proper prosecution. I now have three patents. One on the drug composition alone, one on using the drug to treat disease A, one on using the drug to treat disease B. The Drug is only approved in the US to treat disease A.

    If I sell my drug to a distributer in a non-patented country for use to treat disease B (where it is approved) and (for the sake of this argument) someone imports that drug into the US where it is only approved for use to treat disease A, which patents are exhausted? Is the patent on the use of the drug to treat disease B exhausted in the US?

  20. Gene Quinn June 1, 2017 12:17 pm

    xtian-

    I can’t claim to have an answer to your question, but I think it would be accurate to believe the Supreme Court never contemplated this or any of the other nightmare scenarios they have created with this international exhaustion ruling.

    Will look for someone in the pharma sector who might be in a position to more authoritatively comment on this topic.

    -Gene

  21. anon June 1, 2017 12:43 pm

    Gene,

    I don’t see the question from xtian as being that difficult.

    First the (historical) humorous answer:

    The only valid patent is one that has not yet appeared before us.

    Oops, wait: that needs to be modified to:

    Any patent rights will be voided out once the issue is before us.

    But now for the more direct and simple answer:

    The three patents as presented are distinct patents. Any of which may be exhausted without impact to the others.

    Since the item sold (which would invoke exhaustion) is not a method of use, neither Patent Method A nor Patent Method B impinge on an exhaustion question.

    The patent on the item sold is a different story, and the simple and straightforward answer is: if patent holder sells, then patent holder exhausts.

    I do not see how people are trying to insert a distinction of “where sold” into the equation of what happens when sold.

    Let’s not forget that ANY sale by the patent holder is one in which the patent holder chooses to make that sale.

    Any sale.

    Anywhere.

    Can someone explain why there should be a “gimmie” if the sale is a non-US sale…?

  22. Anon June 1, 2017 1:00 pm

    The hypothetical posited brings to mind a different hypothetical which may draw a parallel.

    Since everyone know that at least since the Act of 1952, a brand new patent may be obtained for a new use of an old item (see 35 USC 100(b)).

    So let’s amend the hypothetical and have the separate item patent filed at year X, the separate Method A patent filed at year “X + 10,” and the separate Method B patent filed at year “X + 25.”

    If one understands this scenario, one may readily see that whether or not the item “is patented/was patented/has become exhausted” has no bearing on the exhaustion question between the different patents.

    Otherwise, the law would need to read a bit differently for that 35 USC 100(b) section.

    For this thought experiment, it simply does not matter how the underlying item patent has gone “off patent.” This exemplifies the separateness of the patents, so perhaps xtian would like to present a different hypothetical…

  23. Gene Quinn June 1, 2017 1:58 pm

    Anon-

    You said: “Any of which may be exhausted without impact to the others.”

    Well… I agree with you but the Supremes tend to look at one set of claims (i.e., method claims) and say that other categories of claims (i.e., systems claims, which are machines) are covering the same thing and wave a magic wand and say “therefore, ditto.”

    You said: “ANY sale by the patent holder is one in which the patent holder chooses to make that sale.”

    Yes, but up until the other day patents were considered to be a bundle of rights. That used to mean you could carve up the rights. I have a hard time understanding how terms can be perfectly legal in a contract sense and be completely irrelevant with respect to a patent rights and exhaustion sense. Not exactly sure where/how that came into being.

  24. Anon June 1, 2017 2:09 pm

    Gene,

    I think a separate story focusing on your last comment may be in order.

    In most of the discussions concerning exhaustion comparing exhaustion in the US and exhaustion outside of the US, the sale of the item has been taken as a sale of the entire bundle of sticks. It is indeed easier to focus on the “where” aspect of exhaustion if such an apples to apples comparison is made.

    It is a separate and distinct issue (applying to BOTH foreign and domestic sales) to discuss whether or not a sale may be made of only a portion of sticks in the bundle.

    Logically, I can theoretically structure four different sales: two each foreign and domestic, and one set of foreign and domestic that sells all the sticks and another set of foreign and domestic that sets out to sell only some of the sticks.

    Let’s not confuse the foreign/domestic exhaustion issue with the full sticks/ partial sticks exhaustion issue.

  25. Edward Heller June 1, 2017 4:34 pm

    Curious, there may be a presumption that each patent covers a separate invention, and that is somewhat enhanced by 121 when one files a divisional, but that presumption can be overcome.

    Furthermore, simply adding prior art elements to an invention does not change the invention, albeit, the additional elements must be prooved. I assume we agree on that much.

    I have actually seen cases where courts have required patent owners to chose one of two claims to assert from different patents because they covered essentially the same subject matter. (The obvious question here is whether second to issue of the two is invalid if there is no terminal disclaimer.)

  26. Edward Heller June 1, 2017 4:38 pm

    Curious, I represented the disc drive company buying motors from a licensee of the patent owner where the license expressly authorized sales of the covered motors to disc drive companies. The counsel that allegedly did a bad job were the counsel for the motor company.

    We did try a defense based on implied license and exhaustion, but this was well prior to Quanta. We did not prevail.

  27. Curious June 1, 2017 4:56 pm

    Furthermore, simply adding prior art elements to an invention does not change the invention, albeit, the additional elements must be prooved. I assume we agree on that much.
    Most inventions are combinations of old items.

    I have actually seen cases where courts have required patent owners to chose one of two claims to assert from different patents because they covered essentially the same subject matter.
    Judges get a lot of discretion. However, 35 USC 271 still says that one infringes a patent — not an invention.

    Curious, I represented the disc drive company buying motors from a licensee of the patent owner where the license expressly authorized sales of the covered motors to disc drive companies. The counsel that allegedly did a bad job were the counsel for the motor company.
    I figured as much. Ultimately, a product containing the combination of the motor and disc drive was not previously sold by anybody to anybody. Hence, there was no patent exhaustion. Your client was the first one to make the infringing product, and hence, they were infringing (unless they received a license first). Had your client just resold the motors, then they would NOT be infringing because of patent exhaustion. However, once they put them in disc drives, and that resultant combination was the subject of a different patent, then that different patent was not exhausted.

    The doctrine is called “patent exhaustion” — not “invention exhaustion.” Patents get exhausted — not inventions.

  28. Edward Heller June 1, 2017 6:35 pm

    Curious, its been some time, and there are a lot of patents involved, but, IIRC, in the particular case where we were sued we had been buying spindle motors and assembling them into disc drives for a long time. There was nothing novel about that. The patented improvement was mounting a rotational sensor on the preexisting motor control electronics printed circuit board in the motor. The rotational sensor was necessary for the motor to control timing of the coil current. The sensor or its location had nothing specific to do with where the motor was used. In fact, this same motor was commonly used in fans.

    Broadly, the combination of motor and disc drive was old. The location of the sensor was new.

    Further, IIRC, the motor manufacturers had an unconditional license to sell to disc drive companies. The patentee could not sue them for direct, contributory or inducement infringement for these sales.

    It seems to me that this case falls under Quanta or Univis Lens where some conventional elements are added after sale to complete the patented combination. We should have prevailed. But we did not.

  29. Greg DeLassus June 2, 2017 12:04 pm

    “I think it would be accurate to believe the Supreme Court never contemplated this or any of the other nightmare scenarios they have created with this international exhaustion ruling.”

    I think you are almost always on sound footing assuming that the Supreme Court has not carefully considered the implications of one of their patent rulings before they have made it.

    “If I sell my drug to a distributer in a non-patented country for use to treat disease B (where it is approved) and (for the sake of this argument) someone imports that drug into the US where it is only approved for use to treat disease A, which patents are exhausted? Is the patent on the use of the drug to treat disease B exhausted in the US?”

    No doubt in time this case will present and we will get a real answer. Right now, however, I think that the answer is that the patentee’s sale of the drug exhausts all three patents. Quanta held that the sale of a device configured to perform a method exhausts the corresponding method patent. That would appear to me to be what is happening in your hypo.

  30. Anon June 2, 2017 1:21 pm

    Greg,

    Here you assume your own conclusion.

    Please reference my reply and modified hypothetical to see that you assume “one patent” when the hypo explicitly does not have that as a condition.

  31. Greg DeLassus June 2, 2017 1:25 pm

    “[Y]ou assume ‘one patent’…”

    Huh? No, I do not. The product sold is configured to perform both patented methods. I believe (I would be delighted to be wrong about this) that under Quanta, the sale of this product exhausts all three patents. There is no binding precedent (yet) that speaks to the issue of what happens when the product sold is *labeled* for one use, but *suitable* for two. I would be surprised, however, if the SCotUS—which is clearly bullish for exhaustion—would consider that the content of the label actually made a difference to the Quanta analysis.

  32. Anon June 2, 2017 1:45 pm

    Greg,

    Please consider my modified hypothetical (with the timing) and in relation to 35 USC100(b).

  33. Greg DeLassus June 2, 2017 2:00 pm

    I have considered your hypo at #22. I read it to imply that we agree: the sale of compound X exhausts not only the patent on X, but also the two patents that each concern a (patentably distinct) method of using X.

    Am I misunderstanding the point you are trying to make with your hypo?

  34. Anon June 2, 2017 2:21 pm

    Yes, Greg, you are.

    Perhaps you should stay at the other blog if you are only going to play games….

  35. Greg DeLassus June 2, 2017 2:46 pm

    I am not merely “playing” dumb here. I genuinely do not understand the point that you are trying to make in #22 (or in #32, where you reference #22). Maybe that is because I really am dumb, or maybe it is because you have not made your point as clearly as one could.

    To whatever extent you think it worth your time to indulge my incomprehension on this point, perhaps it would help if you would explain how you think that §100(B) would have to be reworded to make exhaustion attach.

  36. Anon June 2, 2017 4:28 pm

    Greg,

    Your post at 29 states: “Quanta held that the sale of a device configured to perform a method exhausts the corresponding method patent. That would appear to me to be what is happening in your hypo.

    That’s not quite accurate.

    What happened there was that the method patent deemed to be corresponding was a method of manufacturing an item, and the item itself reflected (corresponded) to the method (of making).

    There, the sale of the device was NOT a sale of the device to perform the method, but instead was a sale of an item that was the result of the method (or more accurately, the item was ‘close enough’ to the method of making the item – the fact that additional finishing touches were necessary to actual finish making was hand waved by the Court).

    In our little set of hypotheticals we did have a patent on an item.
    Did Quanta hold that a patent on an item?

    In our little set of hypotheticals, the two method patents were not methods of making an item. Instead they were of the different method of use types.

    I also think that your use of the word “corresponding” inserts some inaccuracy at 29.

    As I indicate, in the Quanta case, the sale of the item was ONLY linked to the method (of making) patent – and “corresponding” there reached the item being sold, because the method patent was a method of making the item (that was being sold).

    I provided the section 35 USC 100(b) to distinguish from that fact pattern.

    Method patents are not all equal one to another, and certainly, a method of making an item is not equal to a method of use.

    To refresh your memory: 35 USC 100(b) The term “process” means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.

    A brand new (different) patent can be earned for a new use of something old. The point about something old has a parallel (as I indicated) with the concept of exhausted.

    From the timing aspects that I shared, it should have been an easy takeaway that patents on using things formerly patented, lapsed, and in the public domain still can earn NEW patent rights. This necessitates a distinction between types of method patents that “correspond” to items sold in the sense of “method as making the item” and “method as new use” patents.

    In comparing the case that you cite and the hypotheticals under discussion, this distinction should be obvious.

    Since method of use patents are separate from the items (the items can be patented, or not, can be exhausted, or not), the sense of “corresponding” as used by the Supreme Court to reach an item (from a “corresponding” method of making) is not pertinent to the different type of method patent shared in xtian’s hypothetical (and the modified hypothetical that I referenced to draw this distinction).

    Since the item sold (which would invoke exhaustion) is not a method of use, neither Patent Method A nor Patent Method B impinge on an exhaustion question as relates to the item.

    To your statement of “perhaps it would help if you would explain how you think that §100(B) would have to be reworded to make exhaustion attach” I think that the only way exhaustion attaches to a method of use patent is if the use is something that can be sold. In other words, you ask a question that may not have a direct answer, and certainly, may not have an answer that would track exhaustion of an item sold.

    As a result of critical thinking then, the sale of the item will not reach non-corresponding** method of use patents.

    **and yes, by “non-corresponding,” I am limiting the type of “corresponding” to the method of make and away from the method of use. This limitation comes from how 35 USC 100(b) is written, and how the concept of exhaustion itself is formulated. Any “benefit of the bargain” for the possible brand new method of use patents will not have the same tie to either a patent on the item, or a “corresponding” patent on a method of making the item.

  37. Edward Heller June 2, 2017 4:34 pm

    Greg, here is the Quanta holding. It does not gibe with your summary.

    “The authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control postsale use of the article. Here, LGE licensed Intel to practice any of its patents and to sell products practicing those patents. Intel’s microprocessors and chipsets substantially embodied the LGE Patents because they had no reasonable noninfringing use and included all the inventive aspects of the patented methods. “

  38. Greg DeLassus June 2, 2017 5:29 pm

    Ned, could you please clarify where you think that the quoted portion from Quanta differs from my earlier assertions about Quanta? I am not seeing the delta between what I said and what you quote.

    I see two prongs to the Quanta test: (1) reasonable, non-infringing use; and (2) all inventive aspects. Taking them in turn:

    (1) I suppose that you could argue that the drug in the bottle labeled for disease A has another use—i.e., treating B. Given that both A and B are disclosed in the same application, however, this strikes me as slicing it rather thin. I would be delighted to think that the B treatment use is not exhausted, but that supposition seems *unlikely*, given the present Court’s eagerness to find exhaustion.

    (2) Clearly this prong is satisfied. The only physical inventive aspect of the claim as it is presented in xtian’s hypo is the drug itself. Obviously, the drug itself has all of the characteristics of the drug itself.

    To sum up, it looks to me like xtian’s hypo definitely satisfies prong 2, but is debatable for prong 1. Given a bench of judges eager to get to exhaustion, however, I would have to bet on prong 1 being found satisfied.

  39. Greg DeLassus June 2, 2017 5:43 pm

    It seems to me that another way to come at xtian’s hypo is to think about aspirin in the 1990s. Aspirin was invented as an analgesic in the 1890s. In the 1990s, it was discovered that it could also serve as a blood thinner. Bayer was able to get a method of use patent on the blood-thinner aspect more than a century after the drug itself was disclosed.

    Think of all of those people who had a bottle of Bayer aspirin in their medicine cabinets on the day before Bayer filed its blood-thinner patent. When the blood-thinner patent issued, did those people suddenly become infringers if they took the tablets in their medicine cabinet for purposes of blood-thinning?

    I doubt any of them *felt* themselves to be infringers. They had paid Bayer for their pills, and now they were using those pills to practice Bayer’s inventive method.

    I would be delighted to think that the SCotUS would call that behavior infringement (I think that it is perfectly fair to call it such), but I am skeptical—based on the SCotUS historical approach to exhaustion—that the SCotUS would call that infringement.

  40. Anon June 2, 2017 6:49 pm

    Greg,

    Do you think that Congress thought that method of use patents are as worthless as you make them out to be when they drafted the Act of 1952?

    Perhaps some of your difficulty in following along stems from your feelings on the law, rather than an understanding of the law. I do not mean that to be taken as snark, but as a straight forward statement.

  41. JRStern June 3, 2017 1:48 pm

    Interesting decision on the cartridges, I have sympathies with both sides and can see no clear basis for a legal decision, and apparently neither can the courts, yet a decision is called for and has now been made. The disk drive motor case discussed in the comments is news to me, for some time I dabbled in IP around software, decades ago, but missed this one. Thanks to both sides for your comments on this, my sympathies being more on the Heller side.

  42. Edward Heller June 3, 2017 7:19 pm

    Greg, you said “Quanta held that the sale of a device configured to perform a method exhausts the corresponding method patent.”

    If I recall correctly, what was sold in Quanta where parts that embodied the essential features of the invention while the claims required them to be added to conventional elements supplied by others. In other words, what was sold was not the complete invention as claimed, but the essential elements that made the invention patentable.

    I think your statement does not include all the requirements set by the Supreme Court to find exhaustion. I think the critical analysis looks to what it is in the claimed subject matter that is the advance. If what is sold embodies this subject matter, then there is exhaustion.

  43. Greg DeLassus June 3, 2017 11:23 pm

    Thanks, Ned. That is useful.

  44. Anon June 4, 2017 9:43 am

    use·ful
    ?yo?osf?l/ adjective
    able to be used for a practical purpose or in several ways.

    Greg,

    I look forward to see how you will use Mr. Heller’s comment for a practical purpose.

    Perhaps, if you ever deign to address the fact that all of your efforts have been to defend a particular business model that seeks to inject inconsistency into the notion of “exhaustion,” in order to merely control a natural emergence of secondary markets.

    Heck, at this point I would be amazed if you grasped the difference between method of making patents and method of use patents (baby steps, I suppose…).

  45. Greg DeLassus June 5, 2017 2:37 pm

    “[A]t this point I would be amazed if you grasped the difference between method of making patents and method of use patents…”

    You might want to go back and re-read Quanta. There were no method-of-making claims in any of the patents involved in that suit. The method claims at issue were all method-of-use claims. You can, as they say, look it up.

  46. xtian June 5, 2017 3:54 pm

    All,

    Thanks for commenting on my hypothetical. I appreciate the different views, and I appreciate Anon’s added hypothetical about a patent on a method for making the compound. I purposely excluded this concept because I thought that that hypothetical was complex as is.

    My take – I agree with Greg. I would bet dollars to donuts that the SCOTUS would deem exhausted all patents on all uses of the compound. Any other decision would require them to tie themselves into knots avoiding TC Heartland. As a consequence, I see such a decision rendering useless patents obtained on new uses of old drugs.

    Regarding method of making – I agree with Anon. I don’t think selling the drug would exhaust the patent on a chemical synthesis route of making the drug. In reality, however, such patents have less “values.” Why? Most drug products, meaning the active pharmaceutical ingredient (API) in the pill or capsule, are synthesized ex-US. Bulk API is imported into the us or to countries like Switzerland to be made into pills. The pills are packed up and imported into the US. My method of making the API doesn’t cover the “finished” pill.

    Thanks for the discussion.

  47. Greg DeLassus June 5, 2017 4:01 pm

    “[P]atent[s] on a chemical synthesis route of making the drug… have less “values.” Why? Most drug products, meaning the active pharmaceutical ingredient (API) in the pill or capsule, are synthesized ex-US. Bulk API is imported into the [U.S.]…”

    Wait a second. I agree that method of making patents have less value, but not for this reason. What you just described is classic §271(g) infringement. If you really *know* that the importer used your claimed method to make the bulk API, you can nail them for infringement.

    The reason that method-of-making claims are less valuable is that you cannot list a method-of-making claim on the Orange Book, so you get no advance warning of the infringement and no 30 month stay. Also, it is simply harder to detect method-of-making infringement than it is to detect method of using infringement. Most drug sellers loudly advertise the methods of using their drugs (“take Excedrin for your headache!”), but far fewer advertise how their APIs are made.

  48. Anon June 5, 2017 5:19 pm

    xtian,

    Other than “avoid tying themselves in knots,” how would you suppose an exhaustion would be found on a new – and separate – patent that may have zero to do with a first “item” patent?

    The point of the extended hypothetical was to show that in such a case, there is not the “requisite” corresponding to, and you would have exhaustion reach unconnected parties – and doing so in timeframes shown that extend past a first patent on an item.

    To me, this notion of “avoiding tying themselves in knots” only results in a much more convoluted knot situation.

  49. Anon June 5, 2017 9:56 pm

    You might want to go back and re-read Quanta. There were no method-of-making claims in any of the patents involved in that suit. The method claims at issue were all method-of-use claims. You can, as they say, look it up.

    Greg, you are correct – I was thinking of Univis Lens.

    But wasn’t the Quanta case about their being no “functionality” without the the method of use? Which would be a type of “method of making” in that without the method of use, you would have something failing utility, thus some type of use (there) was necessary to make? Contrast that with the separate (per the hypo) and different methods of use, at least one of which cannot be said to follow even the Quanta case.

  50. xtian June 6, 2017 1:02 pm

    Anon @48

    “Other than “avoid tying themselves in knots,” how would you suppose an exhaustion would be found on a new – and separate – patent that may have zero to do with a first “item” patent?”

    In my hypothetical above, only one of the patented uses of the drug was employed by the Ex-US ( in a non-patent protected country) sale of the drug. Some surmised that notwithstanding how the drug was used, all U.S.methods of use and the composition of matter patents in existence at the time of the Ex-US sale are exhausted by the sale of the API itself. If such is the case, then why would not a logical extension of this conclusion be that all uses, even later-in-time “new use for an old drug” patents also not be exhausted?

    In other words, this exhaustion doctrine could be read to exhaust the COM patent and every known and unknown (including future) uses of the drug, notwithstanding those uses which were never employed.

    Look at it a different way, what logic or additional facts would the court need to differentiate the current thinking in order to find a later-in-time invented method of treatment claim is not exhausted?

  51. Anon June 6, 2017 5:28 pm

    xtian,

    why would not a logical extension of this conclusion be that…

    To answer your question directly: such a view makes a nullity of the ability to even obtain such a method of use patent in the first instance.

    That’s why I included the section of law that defines the ability to obtain such method of use patents (35 USC 100(b)).

    You cannot have a judicially reasoned answer that makes a nullity of a direct Congressionally section of statutory law (and that is why the Court has NEVER directly ruled that business methods are not to be included in statutory subject matter – even though Stevens in his “concurrence” [actually his lost majority opinion] tried to directly rewrite the words of Congress.

    I was not “active” in the speaking out on patent law cases when Quanta came out, but as I note above, Quanta is possibly distinguishable on the “make variety” of method cases, even though it was a “method of use” item – One summary I read was that without the method of use, there was no real “there” there, and that the use was in fact necessary in a “make” sense.

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