A divided Federal Circuit Court of Appeals panel has determined that a method patent holder that gave away 60 percent of the blood-glucose testing equipment it manufactured could not enjoin the sale of competing test strips used with the equipment, finding the patent exhaustion doctrine applicable. LifeScan Scotland, Ltd. v. Shasta Techs., LLC, No. 2013-1271 (Fed. Cir., decided November 4, 2013). So ruling, the court reversed a district court order enjoining the defendant from selling competing test strips.

According to the court, the innovation that LifeScan Scotland patented was a method of testing that could reveal whether blood-glucose test results should be discarded as unreliable and not the test strips used with the company’s meter. The company sued Shasta Technologies, alleging that its manufacture and distribution of test strips indirectly infringed its patent. Shasta argued that the sale and distribution of LifeScan’s meter exhausted its rights under its method patent because the meter substantially embodies the invention. The Federal Circuit ruled that the exhaustion doctrine applies to method patents regardless whether the patent holder gives away or sells its patented product. In the court’s view, "[r]ejecting a claim of exhaustion in this case would be particularly problematic because LifeScan would be permitted to eliminate competition in the sale of the strips even though the strips do not embody the claimed invention and are themselves not patentable. Allowing LifeScan to control the sale of the strips would be akin to allowing a tying arrangement whereby purchasers of the meters could be barred from using the meters with competing strips."

A dissenting judge concluded that the test strips, and not the meters, embody the patent’s essential features. "The majority’s holding in this case will unquestionably cause LifeScan’s patented method to plummet in value and result in its exclusive rights over the method lasting only one transaction," the dissenter said.