Jun. 17, 2008
At least since the Federal Circuit's decision in
Mallinckrodt Inc. v. Medipart Inc., 976 F.2d 700 (Fed. Cir. 1992), the law of patent exhaustion has been limited in various ways. The Federal Circuit endorsed that: (i) a patentee could contract around the patent exhaustion doctrine, (ii) method claims were not subject to the patent exhaustion doctrine and (iii) sales made outside the U.S. would not be exhausted (even when the same sales could be subject to charges of infringement).
Quanta has addressed (and rejected) the first two of these departures from long-standing Supreme Court precedent, and promises to provide customers of a patent licensee with greater certainty as to the rights they receive incident to their purchases of patented items.
Part I of this article, which follows below, describes the traditional law of patent exhaustion. Part II describes how the precedent of the Federal Circuit has departed from the traditional law of patent exhaustion. Part III describes the how the Court in Quanta sets the law of patent exhaustion back on track. Part IV identifies some unanswered questions left open by the Court's decision
Part I: Traditional Law of Patent Exhaustion
For over 150 years, the Court has recognized as the law of patent exhaustion that "when a machine passes to the hands of the purchaser, it is no longer with in the limits of the [patent] monopoly. It passes outside of it, and is no longer under the protection of the act of Congress." Adams v. Burke, 84 U.S. (17 Wall.) 453, 460 (1873) (quoting Bloomer v. McQuewan, 55 U.S. (14 How.) 539, 549 (1852)).
The doctrine is intended to prevent a patentee from receiving more than one royalty on a single patented invention. Thus, the Court has explained one inquiry to determine the applicability of the doctrine is "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." United States v. Masonite Corp., 316 U.S. 265, 277-78 (1942).
Prior to Quanta, the Court's most recent precedent on the subject was United States v. Univis Lens Co., 316 U.S. 241 (1942), upon which the Court relied heavily in Quanta. In Univis, the patentee, Univis Corp., held a patent having claims directed to an eyeglass lens and the method for making the lens by producing, grinding, and polishing lens blanks. 316 U.S. at 243. Univis Corp. licensed its related company, Univis Lens, to manufacture lens blanks. Univis Lens sold those licensed blanks to wholesalers and retailers. 316 U.S. at 244-45. After purchasing the Univis Lens blanks, the wholesalers and retailers would finish the grinding and polishing of the lens blanks through practice of Univis Corp.'s patented method. Id. The licenses to the wholesalers and retailers contained strict limitations on the parties to whom the lens blanks purchased from Univis Lens could be resold and on the resale price. Id.
Before the Supreme Court was the issue (among others) of whether a patent owner could exclude a purchaser from practicing the claimed inventions necessary to finish and use the product. 316 U.S. at 248. In addressing the patent owner's post-sale rights, the Court held since the unfinished lens blanks were sold under license from Univis Corp., and since they had no realistic use except to practice the method of Univis Corp.'s patent, the patent rights with respect to the lens blanks and the finished lenses were exhausted when the lens blanks were sold. Univis Lens, 316 U.S. at 250-51.
Thus, in Univis, the Court further clarified the exhaustion doctrine as follows: "the authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold." Univis Lens, 316 U.S. at 249.
For a more detailed explanation of the pre-
Quanta law on exhaustion, see Michael J. Kasdan,
Quanta Computer v. LG Electronics: Will The Supreme Court Revive The Exhaustion Doctrine?, Amster, Rothstein & Ebenstein, LLP, January, 2008. Available at:
www.arelaw.com/articles/index.html. Go to Next Section.
Part I | Part II | Part III | Part IV
