Journal of Intellectual Property Law & Practice Advance Access published online on May 7, 2008
Journal of Intellectual Property Law & Practice, doi:10.1093/jiplp/jpn079
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© The Authors (2008). Published by Oxford University Press. All rights reserved
US patent exhaustion: yesterday, today, and maybe tomorrow
Legal context: In the USA, the doctrine of patent exhaustion cuts off a patent owner's rights to enjoin, control, or extract royalties from a patented product after an authorized, unconditional sale of that product. While the basic policy of preventing a patent owner from repeatedly extracting compensation for the same product seems straightforward, the law developed by the courts over the past two centuries in response to efforts by patent owners to preserve and control their rights is more complex.
Key points: Court decisions illustrate efforts to circumvent the exhaustion doctrine and control the downstream use of a patented article by imposing use conditions in a patent licence and by creating arrangements that licence patented products at various levels in the supply chain. Recent decisions of the Federal Circuit have led to a perception that many such conditions and arrangements are enforceable.
Practical significance: The review covers when the exhaustion doctrine applies, when use conditions and other licensing arrangements are enforceable, the interplay of exhaustion and implied licences, and the impact of patent, contract, and antitrust law on exhaustion. The case law provides patent owners guidance in structuring licence agreements in a way that does not unintentionally exhaust their patent rights, particularly in industries having a multi-level product supply chain. The upcoming decision of the Supreme Court will provide further guidance.
Key Words: In the USA, the doctrine of patent exhaustion cuts off a patent owner's rights to enjoin, control, or extract royalties from a patented product after an authorized, unconditional sale of that product. • Court decisions illustrate efforts to circumvent the exhaustion doctrine and control the downstream use of a patented article by imposing use conditions in a patent licence and by creating arrangements that licence patented products at various levels in the supply chain. • To structure licence agreements in a way that does not unintentionally exhaust their patent rights, particularly in industries having a multi-level product supply chain, licensors need to know when the exhaustion doctrine applies, when use conditions and other licensing arrangements are enforceable, the interplay of exhaustion and implied licences, and the impact of patent, contract, and antitrust law on exhaustion.
* All of the authors are associated with Finnegan, Henderson, Farabow, Garrett, and Dunner, LLP—a law firm that focuses on US intellectual property law. Mr Paul is a partner in the firm's D.C. office. This article is presented for purposes of discussion. It does not constitute legal advice or represent the views of Finnegan, Henderson, Farabow, Garrett, and Dunner, LLP or its attorneys.