Shades of Gray

1
Shades of Gray

• Exhaustion and IP Enforcement in a Global
  Marketplace

2
First-Sale Doctrine

• The right to vend is exhausted by a single,
  authorized, unconditional sale, the article
  sold being thereby carried outside the monopoly
  of the patent law and rendered free of every
  restriction which the vendor may attempt to put
  upon it. Motion Picture Patents Co. v.
  Universal Film Mfg. Co., 243 U.S. 502, 516
  (1917).
• Where one has sold an uncompleted article
  which, because it embodies essential features of
  his patented invention, is within the protection
  of his patent, and has destined the article to be
  finished by the purchaser in conformity to the
  patent, he has sold his invention so far as it is
  or may be embodied in that particular article.
  United States v. Univis Lens Co., 316 U.S. 241,
  250-51 (1942).

3
LGEs Patents

• Originated with Wang Laboratories
• Managing memory (DRAM), maintaining cache
  coherency, and prioritizing requests for access
  to the system bus
• Wang went bankrupt in 1992.
• LGE purchased the patents.
• Accused systems used SDRAM and other features
  that were not developed until 3-4 years after the
  patents priority dates

4
LGEs License to Intel

• LGE granted Intel a broad license to make, use,
  or sell products that practice the LGE patents.
• LGE placed no conditions on Intels rights.
• Authorized sale?

5
LGE and Third Parties

• LGE disclaimed any license to third parties
  (Intels buyers) to combine the Intel products
  with non-Intel products.
• LGE required Intel to send its buyers notice of
  LGEs disclaimer
• Quanta ignored the notice from Intel.
• Did Quanta infringe on the LGE patents?
• Did Quanta breach an implied contract with LGE?

6
Unanswered Questions

• Substantial Embodiment
• Foreign Sales
• Authorization
• Covenants not to Sue Implied License
• Compulsory Licenses

7
Substantial Embodiment

• Easy in Quanta No other uses for accused
  products.
• Harder Question
• Pfizer Discovery Atorvastatin causes a 10-fold
  boost in the effectiveness of PPAR-? agonists in
  lowering blood-glucose
• Claim A method of treating type 2 diabetes
  comprising administering to a subject 10 to 80
  mg/day of atorvastatin or a pharmaceutically
  acceptable salt thereof in combination with a
  suboptimal daily dose of a PPAR-? agonist.
• Atorvastatin calcium is available in generic form
  on Thursday
• The generic drug is being sold pursuant to a
  license agreement from Pfizer to Ranbaxy
  Ranbaxys sales are authorized sales.
• Pfizer partners with GSK to launch AVANDIATOR
• If I buy Ranbaxys atorvastatin and Takedas
  ACTOS, exhaustion?

8
Foreign Sales

• Subdivided Sales Regions
• Adams v. Burke, 84 U.S. 452 (1873)
• Patentee licensed carpenter to sell coffin lids
  only within 10-mile radius of Boston.
• Carpenter sold a coffin lid to undertaker within
  the 10-mile radius, but carpenter took the lid
  outside of the radius and used it.
• Result No Infringement The patentee had
  received his consideration and the coffin lid
  was no longer within the monopoly of the patent
  grant.
• Keeler v. Standard Folding-Bed Co., 157 U.S. 659
  (1895)
• One who buys patented articles from one
  authorized to sell them becomes possessed of an
  absolute property right in such articles,
  unrestricted in time or place.

9
Foreign Sales, contd.

• Lower Courts and Foreign Sales
• Curtiss Aeroplane Motor Corp., 266 F. 71 (2d
  Cir. 1920)
• Patentee had identical patents in Canada and
  United States.
• Patentee authorized X to sell planes in Canada.
• Patentee authorized Y to sell planes in United
  States.
• Z buys a plane from X in Canada and flies it to
  the United States.
• Did Zs importing of the plane infringe the
  U.S. patent? NO.
• District court cases held similarly as late as
  1988.
• Jazz Photo Corp. v. ITC, 264 F.3d 1094 (Fed. Cir.
  2001)
• Court reached opposite resultwithout citing a
  single case that squarely addressed exhaustion.
• Cited Boesch v. Graff dealt with authorization
  not territoriality

10
Reversal by Quanta?

• LGE attempted to argue that the Intel chipsets
  could not substantially embody the patents
  because the chipsets could be used in ways that
  dont infringe the patents (e.g., never imported
  into the U.S., used as replacement parts).
• LGE The scope of exhaustion cannot exceed the
  scope of infringement exhausting sales must be
  infringing sales
• SCOTUS But Univis teaches that the question is
  whether the product is capable of use only in
  practicing the patent, not whether those uses are
  infringing. Whether outside the country or
  functioning as replacement parts, the Intel
  Products would still be practicing the invention,
  even if not infringing it. Quanta, n.6.

11
Additional Thoughts

• Exhaustion is broader than infringement
• But what about induced infringement?
• Omega v. Costco?
• Is a license a sale for purposes of exhaustion?

12
Authorization

• TransCore v. ETC
• Earlier settlement agreement TransCore agrees
  and covenants not to bring any demand, claim,
  lawsuit or action against Mark IV for future
  infringement.
• Court covenant not to sue license
  authorization
• Mark IVs sales were authorized, and downstream
  purchasers could not be liable for patent
  infringement
• Implied license patentee is equitably estopped
  from asserting other patentswhether earlier- or
  later-issuedagainst the product that was the
  subject of the exhausting sale

13
Authorization wrinkles

• Monsanto v. Bowman, Case No. 2010-1068 (Fed. Cir.
  2011)
• Agreement authorized farmers to sell
  second-generation seeds back to the grain
  elevator as commodity seed.
• Bowman planted second-generation commodity seed
  purchased from the elevator.
• Court No exhaustionand even if there is, the
  third-generation seed is a new article outside of
  the ambit of the exhausting sale
• Regulated Products
• Does purchase of an regulated product include an
  implied geographical limitation on its use?
• Compulsory licenses
• Is a compulsory license authorization?