Federal Circuit Puts Patent Exhaustion Doctrine On Hold

9.3.15

The patent exhaustion doctrine was created to limit the exclusive rights of patentees that license or authorize the sale of their inventions. But, in Helferich Patent Licensing, LLC v. The New York Times Co., the U.S. Court of Appeals for the Federal Circuit put the doctrine on hold. A first sale, the court found, doesn’t preclude a patentee from enforcing its rights in a related but nonetheless distinct invention.

Two kinds of claims

Helferich Patent Licensing owns seven patents related to systems and methods for handling information and providing it to wireless devices such as cell phones. Some of the patent claims cover devices and receiving and/or requesting certain content (handset claims). Other claims cover systems and methods for storing and updating various types of content and sending it to devices (content claims). For example, a mobile-device news service might send a subscriber a message with the headline of an article, along with a link to the complete article.

Helferich has licensed all cell phone manufacturers in the United States for the handset claims, expressly stating in most of the licenses that no license was granted to content providers as to the content claims. The company sued various content providers, including the New York Times Company, for infringing its content claims by storing and delivering content to their customers via phone applications.

The trial court entered a judgment of noninfringement before trial. It found that, because Helferich had authorized the manufacturers to sell handsets, its ability to assert its claims had been exhausted against both handset acquirers and those content providers as third parties interacting with handsets. Helferich appealed.

No sound basis

The appellate court disagreed with the trial court. It conceded that, under the doctrine of patent exhaustion, the licenses to the manufacturers eliminated any legal restriction on the sale or use of phones by “authorized acquirers” who obtained their handsets from the manufacturers.

But, the court found, the exhaustion doctrine’s lifting of patent law restrictions on a licensed product has never been applied to terminate patent rights in complementary activities or goods — and it declined to do so here. The court saw “no sound basis” for expanding the exhaustion doctrine to hold that authorized sales to persons using devices covered by the handset claims exhausted Helferich’s rights to enforce the content claims against different parties.

Finding exhaustion in the present case, the court added, would run counter to an earlier U.S. Supreme Court decision that patent exhaustion wouldn’t apply when the alleged infringement involved distinct, though related, validly patented inventions. The appellate court interpreted this to mean that exhaustion is inapplicable even when the acquirer of the first invention would also be using the complementary second invention.

Full coverage

Licensees of patent portfolios with related claims should take heed of the court’s ruling about the limits of the patent exhaustion doctrine. Such parties need to ensure that the licenses cover both their intended uses and those of their customers.