Federal Circuit Declines Expanding Doctrine of Patent Exhaustion

Helferich Patent Licensing, LLC filed a patent infringement suit against New York Times Co., CBS Corporation and other content providers alleging infringement of its patents that relate to wireless handsets and related communication methods. Helferich had licensed its portfolio to essentially all handset makers selling in the U.S., but the licenses expressly carved-out activity by “content providers” stating that the licenses did not grant any rights to content providers to practice the claimed methods. The accused infringers/content providers successfully argued patent exhaustion in the district court – that the power of the patent is ‘exhausted’ by the first authorized sale. They argued that because the manufacture and sale of the phones had been licensed under the patents, there was no use of the phones that could be found to be infringing. The United States District Court for the Northern District of Illinois granted summary judgment of noninfringement.  Helferich Patent Licensing, LLC v. New York Times Co., 965 F. Supp. 2d 971 (N.D. Ill. 2013). It held that, by granting handset manufacturers patent licenses conferring broad authority to sell the handsets, Helferich had exhausted its ability to enforce its patents not only against acquirers of the handsets but also against the defendant content providers who delivered content to the handset users.

The Federal Circuit reversed noting that patent exhaustion has never applied unless the infringement claim is asserted against the “authorized acquirers—either because they are parties accused of infringement or because they are the ones allegedly committing the direct infringement required by the indirect infringement charged against other parties.” “[T]he decisions finding exhaustion … have done so only when the patentee’s assertion of infringement was, or depended on, an assertion that an authorized acquirer was … infringing the asserted claims.” At oral argument, the defendants asserted that the applicability of exhaustion should be based upon “a practical inquiry into whether enforcement would constrain authorized acquirers’ use of the articles they acquired.” In other words, if the handsets cannot receive content, that constrains the usefulness of the handset, therefore, the doctrine of exhaustion should bar the claims against the content providers. The Court rejected that argument stating that: “that rationale would sometimes apply to allow invocation of exhaustion to bar the patentee from enforcing a patent claim against the making, selling, and using of new, patentee-unauthorized copies of an article covered by the claim.” The example given by the Court was that “buyer A’s enjoyment of a walkie-talkie bought with the patentee’s authorization would be impaired unless other people (B, C, and D) also had their own copies of the same patented walkie-talkie required for communication with A.” In rejecting an expansion of the exhaustion doctrine, the Court ruled: “We see no sound basis for expanding exhaustion doctrine to hold that authorized sales to persons practicing the handset claims exhaust the patentee’s rights to enforce the asserted content claims against different persons.” 

For more information on Patent Exhaustion, contact your Intellectual Property Counsel at Smith, Gambrell & Russell.

Authored by: Joyce Klemmer

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