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IP Alert: Exhausted? Not So Fast!

February 13, 2015

On February 10, 2015, in Helferich Patent Licensing, LLC v. The New York Times Company, the Court of Appeals for the Federal Circuit clarified the doctrine of patent exhaustion as applied to multiple related inventions.

Under the doctrine of patent exhaustion, the sale of a patented item by the patentee “exhausts” all patent rights to that item. The doctrine is predicated on the idea that after an initial authorized sale, the patentee should no longer have the right to control the purchaser’s use of the item because the patentee has received full value for the goods. The parameters of the exhaustion doctrine are still developing in the courts, and this doctrine was the subject of two recent Federal Circuit decisions, LifeScan Scotland, Ltd. v. Shasta Technologies, LLC and Keurig, Inc. v. Sturm Foods, Inc., individually discussed in earlier IP Alerts here and here

In Helferich Patent Licensing, the plaintiff, Helferich, held patents directed to delivering content to a mobile device handset. In general, the patents specified sending a message to the handset with an embedded link to external content. Helferich’s patents included apparatus and method claims directed to the handsets themselves (which the court called “handset claims”). The handset claims also covered receiving and/or requesting certain content. The patents also included system and method claims directed to the storing and updating of content and sending it to handsets (which the court called “content claims”). Helferich had earlier licensed its patents to nearly all manufacturers of mobile handsets. Those licenses were limited to the handset claims and expressly specified that the content claims were not covered by the licenses. 

Helferich filed suit against the New York Times Company and other media entities, alleging infringement of the content claims. Specifically, Helferich alleged that these entities infringed by sending links to external content via text message to subscribers’ mobile devices.

The defendants moved for summary judgment. Apparently believing that the doctrine of implied license would be inapplicable (because the terms of Helferich’s licenses seemed to disallow such an assertion), the defendants did not move for summary judgment on this basis. Instead, the defendants alleged that Helferich’s rights in the patents were barred via patent exhaustion. The district court agreed with the defendants, reasoning that because Helferich had authorized the mobile-phone manufacturers to sell handsets, its ability to assert its claims had been exhausted—not only against handset acquirers, but also against the content providers.

On appeal, the Federal Circuit reversed. In holding that the exhaustion defense does not bar Helferich’s claims, the court drew a distinction between the handset claims and the content claims. The court characterized these claims as separate inventions to be practiced by different groups of users, even though each invention tends to make the other more useful when practiced. The Federal Circuit noted that the district court failed to make such distinctions in its analysis.

The defendants argued that the content claims contemplate a use of a handset by a Helferich-authorized acquirer (i.e., the handset user), because the only way the user could access the content was to click a hyperlink to gain access to the content. The Federal Circuit disagreed that this circumstance amounted to exhaustion. The court explained that the doctrine of patent exhaustion “lifts legal restrictions on an authorized acquirer.” As such, “[t]he doctrine has never been applied unless, at a minimum, the patentee’s allegations of infringement, whether direct or indirect, entail infringement of the asserted claims by authorized acquirers.” In Helferich, by contrast, it is the content provider, not the authorized acquirer (i.e., the handset user), that is the alleged infringer of the asserted content claims. 

The court explained that neither the patent statute nor the settled law on the patent exhaustion doctrine provided support for expanding the exhaustion doctrine to persons other than those authorized by a sale or license. It provided a number of examples of why such an expansion of the patent doctrine would lead to adverse consequences for the patent system. 

The defendants also argued that exhaustion should apply because the doctrine seeks to prevent “double recoveries.” Again, the court disagreed, explaining that the exhaustion doctrine has never required such an inquiry. Instead the court looked to Quanta Computer, Inc. v. LG Elecs., Inc., as clarified by LifeScan, and asked whether the licensed article “had no reasonable noninfringing use.” The court found that neither the handset claims nor the method claims wholly contain the invention found in the other group of claims. To the contrary, the court observed that the handset users could practice the handset claims without practicing the content claims, through uses such as peer-to-peer sharing of links and airplane mode. 

Additionally, under the Quanta analysis, the Federal Circuit inquired whether the licensed article “included all the inventive aspects of the patented methods.” The court observed that the handset claims and the content claims had been subject to restriction requirements during prosecution, thus supporting the conclusion that these claims represented separately patentable inventions. Additionally, the court observed that the steps required of the content claims—uploading content, making it inaccessible after a time, and sending provider-crafted content identifications— were not practiced by the handset companies or by users of the handsets. 

Like LifeScan and Keurig, the Helferich decision prompts certain questions and strategic considerations in the licensing and clearance contexts. This decision is also important for those parties evaluating potential infringement litigation. 

For more information, please contact Fitch Even partner Allen E. Hoover.

Written by Fitch Even attorney Jennifer R. Andrew 

 

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