First published in LES Insights
The Federal Circuit recently refused to expand the doctrine of patent exhaustion in a case where the accused infringers' conduct was separate and distinct from the conduct authorized by earlier granted licenses. The court noted that the doctrine has never been applied to terminate patent rights unless the alleged infringement involved conduct by one authorized to possess or practice the patented product or process. Here, there was no allegation that those authorized under the licenses infringed the asserted patent claims. Likewise there was no allegation that the alleged infringers used the licensed products. Thus, despite that two inventions may be complimentary or enhance each other, exhaustion of one invention does not necessarily exhaust the patent holder's rights in the other, separate invention.
The doctrine of patent exhaustion may be used as a defense against a claim of patent infringement and operates to prevent a patent holder from enforcing its patent rights against someone who is authorized by the patent holder (or its licensee) to possess the invention. Such an "authorized possessor" is therefore free to use or sell the "exhausted product" as they see fit, without interference from the patent holder. Recently, in Helferich Patent Licensing, LLC, v. New York Times Co.,1 the U.S. Court of Appeals for the Federal Circuit found that if a patent holder exhausts its rights in a patented product, the exhaustion does not extend to a separate, but related, patented product simply because the two products are complementary to each other. Thus, the court found that patent exhaustion did not apply where the patent holder first licensed certain claims of its patents to handset makers and later sued entities that allegedly infringe different claims of the licensed patents covering different inventions by providing content to the handset users.
Helferich Patent Licensing, LLC owns numerous patents covering a range of wireless-communication technologies. Some of Helferich's patent claims cover wireless-communication devices (i.e., handsets), while others cover methods for storing, updating, and delivering content to handsets. Helferich licensed its patent portfolio to essentially all of the manufacturers of mobile handsets for sale in the United States. The licenses indicated that Helferich's portfolio included many patent claims that would not be infringed by a handset maker because infringement would require additional steps that would be carried out by a third party (i.e., a party who provided content to the handsets). The licenses, generally, disclaimed any grant of rights to content providers and reserved Helferich's rights to enforce its patent claims against such third parties. Thus, the licenses indicated an effort to distinguish between the handset makers' conduct and content providers' conduct.
After it granted licenses to handset makers, Helferich sued The New York Times Co. and several others (collectively "defendants"), asserting patent claims only directed to systems and methods for storing, updating, and delivering content to the handsets. In March 2013, the defendants all moved for summary judgment of non-infringement on the basis that Helferich had exhausted its rights in the patents through its licenses to the handset makers. In granting the defendants' motion, the district court concluded that Helferich's license agreements authorized every handset maker to sell handsets that practice Helferich's patents, thereby exhausting Helferich's rights in its patents against both handset users and content providers. Helferich appealed.
The Helferich Decision
As the court characterized it, Helferich's patents are directed to two inventions (i.e., claims covering the handsets versus claims covering methods for storing, updating, and delivering content to handsets) that are practiced by two different user groups (i.e., handset users versus content providers). Although separately practiced, each invention complements the other by making it more useful. The defendants' premised its exhaustion defense on the theory that all handsets in the United States are licensed to practice Helferich's patents and Helferich's patents contemplate use of a handset. Under this theory, defendants could maintain its patent-exhaustion defense without needing to differentiate between the asserted patent claims. Examining defendants' theory, the court observed that defendants did not argue and the district court did not find 1) that any of the defendants use a handset; 2) that for all asserted patent claims, a handset user is necessarily implicated; 3) that handset users infringe the asserted patent claims or practice any of the steps in the asserted claims; or 4) that the asserted claims—which cover only methods for storing, updating, and delivering content to handsets—are limited to only those handsets that are covered by Helferich's patents. The court rejected the defendants' exhaustion defense, finding it would expand the doctrine and terminate a patent holder's ability to enforce its rights on patented goods or activities simply because it had granted a license on separate, albeit complementary goods or activities.
First, the court explained that in the 150 years that courts have applied the patent exhaustion doctrine, there is a common feature: the alleged infringement involved conduct by one who the patent holder had authorized to possess the patented product or practice the patented method. By contrast, in this case, the court noted that defendants did not show that handset users practiced any of the asserted patent claims.
Next, the court discussed prior decisions that it found rejected the notion that a patent holder's exhaustion of rights in a patented product simultaneously exhausts its rights to a separately patentable product, regardless of whether the products are intended to be used together. The defendants' exhaustion theory, the court concluded, contradicted these prior decisions by urging that Helferich had exhausted its rights in the patented methods for storing, updating, and delivering content to handsets because it had exhausted its rights in the patented handsets.
The court also rejected the defendants' focus on the "practical enhanced utility" to the one authorized to use the invention as a basis to apply the exhaustion doctrine. In other words, whether handset users would benefit from content providers practicing Helferich's patents is irrelevant to whether exhaustion should apply. Finding otherwise would dramatically expand the exhaustion doctrine, something the court explained that only Congress is authorized to do. Further, the court surmised that such an expansion of the doctrine could actually harm existing licensing practices, which are built on the concept that a patent holder has the freedom to negotiate different licenses for its patents that may cover complementary goods, made by different entities, in accordance with varying market forces.
Finally, the court disagreed with defendants' reliance on the principle that the exhaustion doctrine seeks to prevent double recoveries. The court noted that the principle is only one part of the analysis and is not determinative. Regardless, the court concluded that rejecting defendants' exhaustion theory would not render Helferich's licenses to the handset makers worthless. Rather, handset users can enjoy the non-asserted patent claims directed to the handsets, even if content providers cannot practice the asserted patent claims.
In summary, the Federal Circuit reversed the district court's grant of summary judgment of non-infringement in this case, finding that Helferich's licensed patent claims covering handsets are separate from its claims covering methods for storing, updating, and delivering content to handsets, and that regardless of whether Helferich exhausted its rights on the handsets, the exhaustion defense would not extend to the content providers' separate allegedly infringing conduct described in this case. However, it did not address whether the exhaustion defense would be successful in other scenarios or in other cases brought by Helferich.
Strategy and Conclusion
This case illustrates the possible benefit of considering every invention as a distinct property right, even when multiple patents cover related or complementary subject matter. It also provides guidance on a possible strategy for licensing distinct claims covering distinct inventions in a manner that may avoid the issue of patent exhaustion. In particular, the case is instructive in considering the use of a strategy for drafting and prosecuting separate claims for separate classes of potential licensees rather than drafting a single set of claims and granting field of use rights on those same claims to separate classes of potential licensees.