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The exhaustion doctrine, broadly defined, relates to attempts by intellectual property owners to extend their control of downstream uses of products covered by an underlying piece of intellectual property protection. In truth, the exhaustion doctrine is normally reserved for patent law. The copyright law counterpart is referred to as the first sale doctrine. In both cases, however, the law places a requirement upon intellectual property owners to obtain all financial benefit for the article or product embodying the intellectual property at the time of the sale, and prohibits placing limitations on purchased items.

The Exhaustion Doctrine of Patent Law

With respect to the exhaustion doctrine in patent law, it is often desirable to place certain restrictions on purchases at the time of sale. For example, if you have patented a single use item such as a disposable camera or a syringe it would be financially beneficial to mandate that the purchaser can only use the product a single time, thereby necessitating that the purchaser return to the patentee/seller again and again to purchase these disposable products. In the situation where the useful life of a product is not completely exhausted after the first use, the tendency may be to reuse the product until it can no longer be used for its intended purpose. Patentees have historically wanted to stop this from occurring.

In the disposable camera situation, in order to develop the film the case on the camera must be broken and the camera is no longer useful unless altered. This is not so much of an exhaustion doctrine question (because the useful life of the product is over) as it is a question about whether reusing the “broken” camera is akin to repairing or akin to reconstruction. (For more information on this topic see Repair v. Reconstruction.) In the situation of the single use syringe, it is at least theoretically possible that the syringe could be used several times, although perhaps not in a sanitary way. Nevertheless, the desire of the patentee to place restrictions post-sale is still the same.

The key to the exhaustion doctrine is in understanding that if a sale has occurred there can be no absolute downstream restrictions. Attempts to impose such restrictions interfere with ownership principles and work to create an unjustified extension of the patent grant and, therefore, such restrictions cannot and will not be tolerated.

If restrictions are desired by the patentee, it is necessary to do one of several things. First, the patentee can license rather then sell. In the license situation, title does not transfer and, therefore, the owner of the product/article is still the patentee, who has the right to impose use restrictions. Second, the patentee can offer warranties under the condition that certain things are done or not done. In the event that these conditions are not met, the warranty could be void. In this situation the purchaser can decide whether or not to use product in a certain way, which may or may not void a warranty. The choice lies with the purchaser/owner and, therefore, not a restriction that invokes the exhaustion doctrine.

Supreme Court Revises Federal Circuit's Llimitations on Patent Exhaustion 
An Authorized Sale of Patented Article Prevents Patent Holders from Invoking Patent Law to Control Post-Sale Use

Contributed by: Nixon Peabody LLP
Originally published: June 2008
By: Edward F. McCormack and Maia H. Harris 

The Supreme Court continued its recent bid to unwind Federal Circuit precedent in Quanta Computer, Inc. v. LG Electronics, Inc. (No. 06-937) (June 9, 2008), this time finding that patent exhaustion is triggered only by a sale of a patented product that is authorized by the patent holder, and that the doctrine is equally applicable to method and apparatus claims. Thus, an authorized sale of an article substantially embodying the claims of a patent takes that article outside the scope of the patent monopoly, and the patent holder can no longer assert patent rights against the post-sale use of that article. While this decision squarely alters certain limitations to the scope of the patent exhaustion doctrine imposed by the Federal Circuit, it also expressly avoids a number of issues regarding a patent holder’s ability to control the post-sale use of its patented articles. 


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