On August 14, 2013, the U.S. District Court for the Northern District of Illinois ruled in favor of five defendants including The New York Times Company and G4 Media, LLC that six patents asserted by Helferich Patent Licensing, LLC (HPL) and alleged to have been infringed when the defendants sent text messages with embedded links are exhausted by prior licensing to cellular handset manufacturers. The ruling, which HPL can appeal with 30 of days of entry of judgment, marks both a significant victory for mobile marketers and a significant expansion of the patent exhaustion doctrine that all patentees and patent applicants should consider.

HPL is a patent assertion entity that commercializes a portfolio of mobile wireless technology. According to HPL’s website, over 200 companies including “numerous members of the Fortune 500” have licensed its patents. Of particular importance to the court’s opinion, the “entire cellular handset manufacturing industry has acquired licenses under the HPL portfolio.” Memorandum Opinion and Order at 3.

HPL asserted six patents (7,280,838; 7,499,716; 7,835,757; 8,107,601; 8,116,741; and 8,134,450) against defendants. Although over 35 independent claims seem from the parties’ briefs to be asserted, independent claim 41 of the ‘241 gives a good representation of the type and breadth of the claims:

41. In a communications network comprising a transmitting and receiving device for transmitting data to and receiving data from a system remote from the transmitting and receiving device, a method performed by the system, comprising the steps of:

storing a message intended for the transmitting and receiving device;

transmitting to the transmitting and receiving device a selective call signal comprising an acknowledgment request and a message identifier identifying the message, wherein the message is not included in the selective call signal;

receiving a request transmitted from the transmitting and receiving device via a two-way communication session with the system, wherein the request identifies the message and an action to be performed on the message; and
performing the action after receiving the request.

In the Memorandum Opinion and Order, the court relied on HPL’s statement to the USPTO that the “entire cellular handset industry” acquired licenses to the HPL portfolio to shield both downstream consumers and third-party users of cellular handsets employing the HPL patents from infringement. Memorandum Opinion and Order at 9-10 (emphasis in original). The court further found that the licensed handset devices “sufficiently embod[y]” the asserted patents because, “The handset devices have the capability to receive content from content providers, and the patents all require devices capable of receiving content or messages.” Id. at 10.

This decision is significant for the defendants because, if upheld on a potential appeal, the decision short circuits much of significant expense of patent infringement litigation. Moreover, the decision may provide relief for other companies recently approached by HPL.

Despite these benefits for mobile publishers and marketers, the decision does represent a significant expansion of the patent exhaustion doctrine that may pose challenges to patentees in a number of disparate industries. For example, the decision expands patent exhaustion to shield the activities of companies that are not the traditional “downstream purchasers” of licensed cellular handsets, but instead perform other steps to generate communications that are directed toward a licensed cellular handset. (This differs significantly from the Supreme Court’s most recent decision on patent exhaustion in Quanta Computer, Inc. v. LG Electronics, Inc., where the party asserting patent exhaustion had purchased licensed chips from Intel.) Moreover, the decision does not seem to give significant consideration to HPL’s argument that the “patented inventions” embodied by the asserted claims are not embodied in the handset.

An appeal of this decision to the U.S. Court of Appeals for the Federal Circuit, which hears patent-related appeals, seems likely in view of the existential threat that the decision poses to HPL’s licensing and enforcement operations. In addition to the legal issues discussed above, it is also possible that the Federal Circuit could simply hold that summary judgment is inappropriate in this case due to factual disputes (e.g., whether the patented inventions embodied by the asserted claims are not embodied in the handset) and remand to the district court for further consideration.

In the interim, patent applicants that identify multiple classes of potential licensees may wish to divide their patent applications into distinct patents so that the licensing of a patent to one party does not necessarily exhaust rights in another patent. Likewise, parties in licensee negotiations would be wise to carefully consider which patents are included in the license and what effect such inclusion has on other potential infringers.