The long standing doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item. The rationale underlying this doctrine, as stated by the Federal Circuit, is that an unconditional sale of a patented device exhausts the patentee's right to control the purchaser's use of that item because the patentee has bargained for and received full value for the device. In Keurig, Inc. v. Sturm Foods, Inc., the Federal Circuit affirmed that the sale of a patented apparatus also exhausts rights under method claims covering the use of the apparatus.
Keurig manufactures and sells single-serve coffee brewers and beverage cartridges for use in those brewers. Keurig owns two patents, U.S. Pat. Nos. 7,165,488 and 6,606,938, directed to such brewers and methods of using them to make beverages. The method claims generally require, among other things: (1) piercing the cartridge; (2) admitting heated liquid into the cartridge; and (3) extracting the beverage from the cartridge.
Sturm manufactures and sells cartridges for use in Keurig’s brewers. Keurig filed suit against Sturm alleging that use of Sturm’s cartridges directly infringed method claims of Keurig’s patents, and that Sturm induced and contributed to that infringement. Notably, Keurig holds at least one design patent directed to its own brand of cartridges, but that patent was not asserted in the lawsuit.
The District Court's Judgment
Sturm moved for summary judgment of noninfringement based on its affirmative defense of patent exhaustion, which the district court granted. In doing so, the district court found that the "substantial embodiment test" articulated by the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc.—which provides that method claims are exhausted by sale of an unpatented component article if that article includes all the inventive aspects of the patented method and has no reasonable non-infringing use—did not apply to the facts of this case. Instead, the district court concluded that Keurig's patent rights were exhausted by Keurig's sale of a patented item (the brewer) that completely practiced the claimed methods.
Keurig argued on appeal that the district court erred in not applying the Quanta test, and that under that test, its rights were not exhausted because its brewers could potentially be used with cartridges that would not infringe its method claims. Specifically, Keurig argued that the brewers could be used with cartridges that were pre-pierced, which would fall outside the scope of the asserted method claims. Keurig also asserted that patent exhaustion must be determined on a claim-by-claim basis.
The Federal Circuit, in an opinion written by Judge Lourie and joined by Judges Mayer and O’Malley, affirmed the district court's grant of summary judgment. The court rejected Keurig's assertion that the Quanta test applied, as Quanta and its predecessor, United States v. Univis Lens Co., emphasized the unpatented nature of the product sold. The court instead based its decision on earlier Supreme Court precedent, recognized by the Quanta court, which held that “where a person ha[s] purchased a patented machine of the patentee or his assignee, this purchase carrie[s] with it the right to use the machine so long as it [is] capable of use.” Quanta, 553 U.S. at 625 (quoting Adams v. Burke, 84 U.S. 453, 455 (1873)).
Under this test, the Federal Circuit held Keurig’s patent rights were exhausted by the sale of the brewers, and customers had the right to use their brewers however they chose, including with Sturm’s cartridge. The court further reasoned that to allow Keurig's "end-run around exhaustion" by claiming both the apparatus and methods of using it, and then holding purchasers of its device liable for infringement of the method "would violate the longstanding principle that, when a patented item is once lawfully made and sold, there is no restriction on its use to be implied for the benefit of the patentee."
The court also rejected Keurig’s argument that patent exhaustion must be decided on a claim-by-claim basis. This was because the court's jurisprudence focused on exhaustion of the patents at issue in their entirety, rather than the individual claims at issue. To rule otherwise would undermine the purposes of the exhaustion doctrine, one of which is “to provide an efficient framework for determining when a patent right has been exhausted.” Because Keurig made its decision to protect both apparatus and method claims in a single patent, both types of claims must be judged together.
Interestingly, Judge O’Malley concurred with the judgment only. Rather than distinguish exhaustion based on the inclusion of both apparatus and method claims in a patent, Judge O’Malley reasoned that Keurig’s sale of the brewer exhausted all patent rights relating to the brewer and its use, regardless of "which patent or patents contain the relevant apparatus and method claims."