Patent Exhaustion FAQ

A.    What does it mean then that a patent right is exhausted?

·         “[O]nce lawfully made and sold, there is no restriction on [its] use to be implied for the [patentee’s] benefit.” Adams v. Burke, 84 U.S. 453, 457 (1873).
·         Once a patent right is exhausted, the purchaser may use, sell, license use of article, modify, repair, destroy etc. but the purchaser may NOT:
                                            i.            Make extensive repairs.
§  At a point where the article has effectively been reconstructed, or patented good is ‘spent,’ the patent right is no longer exhausted. See American Cotton Tie Co. v. Simmons, 106 U.S. 89 (1882), see also Aro Manufacturing Co. v. Convertible Top Replacement Co., 365 U.S. 336 (1961).
                                          ii.            Recreate the article.
§  See Wilbur-Ellis Co. v. Kuther, 377 U. S. 422, 424 (1964) (holding that a purchaser’s “reconstruction” of a patented machine “would impinge on the patentee’s right ‘to exclude others from making’ . . . the article” (internal citation omitted).
B.     Why should people who deal with intellectual property care about Patent Exhaustion?
·         When developing an intellectual property monetization strategy, one should be cognizant of the breadth of the patent right, how to most efficiently capitalize on the patent asset, and be careful not to misuse the patent right.
·         When drafting license agreements, it is paramount to include language to avoid unintended downstream exhaustion of patent rights.
·         When drafting patent claims, it is important to be aware of different levels of manufacturing and how to target different parties.
·         It is crucial to understand the nuances of the current case law to keep license agreements and patent claims adaptable to future changes in the law – nuances which are touched upon in this condensed summary.
C.     Who has the burden of proof with patent exhaustion?
·         As with most affirmative defenses, the burden of proof is on the party asserting the defense by a preponderance of the evidence. See Jazz Photo Corp. v. ITC 264 F.3d 1094 (Fed. Cir. 2001)
D.    Do promotional give-aways or gifts count as “authorized sales”?
·         In LifeScan Scotland, Ltd. V. Shasta Tech. LLC, the Federal Circuit clarified that “the Court has more fundamentally described exhaustion as occurring when the patented product ‘passes to the hands’ of a transferee and when he ‘legally acquires a title’ to it. Millinger, 68 U.S. (1 Wall.) at 351 (‘legally acquires a title’); Chaffee v. Boston Belting Co., 63 U.S. (22 How.) 217, 223 (1859) (‘passes to the hands,’ ‘legally acquires a title’); McQuewan, 55 U.S. (14 How.) at 549–50 (‘passes to the hands’).” Case No. No. 13-1271, *24 (Fed. Cir., Nov. 4, 2013).
E.     What are post-sale restrictions and when are they valid?
·         When a patented item is subject to a conditional sale, such as a “single-use only” restriction, the restriction may be binding on all future purchasers of the patented item. A post-sale restriction on the use or resale of a patented item, when clearly communicated and not in violation of public policy or other laws, is binding on the purchaser. Lexmark Int’l, Inc. v. Impression Prods. Inc., No. 20141617, 2016 WL 559042, *46 (Fed. Cir. Feb. 12, 2016) (en banc) (adhering to holding in Mallinckrodt.)
·         However, this rule may be overruled if the Supreme Court decides to grant certiorari in Lexmark Int’l, Inc. v. Impression Prods. Inc.
·         These post-sale restraints are controversial because they functionally resemble equitable servitudes on chattels.  See Robinson, Glen O. (2004) “Personal Property Servitudes,” University of Chicago Law Review: Vol. 71: Iss. 4, Art. 3, Pg. 1467.  Available at: (See further discussion presented in “1. Authorized sale vs. Legally enforceable license or post-sale restriction.”)
F.      If I sell a patented product overseas, will that affect my rights to enforce the patents covering the product in the U.S.?
·         “U.S. patent rights are not exhausted by products of foreign provenance.” Jazz Photo v. ITC, 264 F.3d 1094, 1105 (Fed. Cir. 2001).
·         However, this rule may be overruled if the Supreme Court decides to grant certiorari in Lexmark Int’l, Inc. v. Impression Prods. Inc.
·         The rule of Jazz Photo remains controversial in light of a Supreme Court case Kirtsaeng v. John Wiley & Sons 133 S. Ct. 1351 (2013), where the Court held that foreign sales result in copyright exhaustion. (See additional discussion in “4. Authorized sale in U.S. vs. Authorized sale abroad.”)
·         Possible outcomes for foreign sales doctrine if the Supreme Court decides to re-examine the doctrine:
                                            i.            Always exhaustion, even when rights are attempted to be reserved (essentially following rule in Kirtsaeng and overruling Jazz Photo)
                                          ii.            Exhaustion unless U.S. rights are explicitly reserved in foreign sale
                                        iii.            No exhaustion unless foreign sale is unconditional
                                        iv.            No exhaustion even if foreign sale is without restriction (essentially upholding rule in Jazz Photo)
Started: 11/15/2016 7:32 PM
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Patent Exhaustion FAQ Discussion

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Posted: 11/15/2016 9:04 PM
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