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Patent exhaustion occurs when a patented item is legally made and sold in the United States and the person who holds the patent gives up all rights to it.7 min read
What Is Patent Exhaustion?
Patent exhaustion happens when a patented item, typically under a utility patent, is legally made and sold in the United States and the person who holds the patent gives up all rights to it.
If you patent your invention and sell it to someone, you give up your rights over the use of that item. This is especially true if the only value in your invention is in its use. This applies to any patented product, but think about your car. The make and model of your car have a patent. As an individual, after you buy the car, you can give it away, sell it, or make any changes you want to it without worrying about being sued by the automaker. However, you can make patented items for sale subject to some terms of sale or license agreements.
When Patent Exhaustion Doesn't Apply
There are times when patent exhaustion doesn't apply. If your product is sold outside of the United States and imported back without you giving permission, you still hold the patent on it.
Patent exhaustion doesn't apply when you have a license agreement that says what the use, terms, and conditions are and what the licensee can do with your product. This is most common when you sell your product to another business.
If you create a license agreement for your product's use, distribution, and sale, be very specific in the language you use.
- The license should make clear exactly what the licensee can do with your product.
- Specify what the licensee can't do.
- You should name specific patents claims that are protected or prohibited in your agreement.
One of the most notable patent cases involving license agreements is Helferich Patent Licensing, LLC v. The New York Times et al. In this case, Helferich held patents on mobile devices that could be made and sold in the United States. It also had other patents on how content could be provided to the mobile device. The company granted a license to all device makers that let them make their devices. The ability to make apps or other programs to provide content were not allowed.
When content providers tried to publish content to the devices, Helferich sued. It won the case because it had made the license agreement very clear: the patent extended only to making the devices. The company also filed separate patents: one for the product and another for the content and distribution. The United States Patent and Trademarks Office (USPTO) accepted the different patents as separate items, and so did the courts.
Avoiding Patent Exhaustion
Unintended patent exhaustion happens when a product has both a product claim and a method claim in the same patent. When you file for your patent, you have to list claims for your invention -- what it is, what it does, and how it's used. Most companies list all the claims under one patent. Keurig learned the hard way why this isn't always a good idea.
Keurig, Inc. v. Sturm Foods, Inc did not go in Keurig's favor and cost it money in the process. Within its patent claims, Keurig described the method in which its coffee-brewing system would be used. Keurig machines use disposable cartridges to brew and dispense coffee. When Sturm Foods produced its own disposable cartridges, Keurig sued for patent infringement. Its argument was that Sturm Foods was making and selling a product specifically covered by Keurig's patented method claims.
Keurig lost the case because its product and method claims were all in the same patent. The Court of Appeals ruled that since the Keurig exhausted its patent by selling the product to users of the Keurig, any other claims within that patent were also exhausted.
When you're ready to patent your invention, think about the market value of it and any potential revenue streams. If you plan to sell other products around your invention, you need multiple patents, such as:
- Patents on the invention or product with claims about how it works.
- Patents on replaceable parts for your product.
- Patents on how the product can be used known as method claims.
- Patents on other products you may want to sell for use with your invention.
The time and cost to send your patent applications will be higher but it may save you money later.
Other Examples of Contested Patent Exhaustion
Patent exhaustion is something that often goes all the way to the Supreme Court. Some cases are clear and others are not.
Adams v. Burke: One of the earliest cases, this helped establish what we know today as patent exhaustion. In 1873, patented coffin lids were made, used, and sold by licensees. An undertaker bought coffin lids from a licensee in one designated area and used them outside of that area. The person who owned the patent objected. The court said the value of the patented coffin lids was in its use, and the patent holder received full benefit of their patent from the sale of the lid, no matter where it was used. In this case, the patent rights were exhausted.
LifeScan v. Shasta: This is a case of needing multiple patents to protect your future revenues. LifeScan made and sold blood glucose meters for people with diabetes. They sold 40 percent for less than the cost to make them and gave the rest to health-care providers to give away for free to their patients. LifeScan's plan was to sell test strips for their meters, which is how they would make money. When Shasta, a competitor, began selling strips, LifeScan sued. Because it hadn't patented the method for use separately, LifeScan lost the case.
Quanta v. LG Electronics: One of the most notorious patent exhaustion cases, it involves making sure your license holders do what they're supposed to do. LG Electronics bought a portfolio of computer patents for computer parts that related to data transfers. Intel bought a license to make, use, or sell Intel products using the patents from LG Electronics.
Intel had to include licensing language that the products were licensed by LG Electronics in agreements with their customers. It was also supposed to say that the license didn't extend to anything made by combining Intel products with non-Intel products. The language was left out of their agreements. Quanta did exactly what LG Electronics didn't want companies to do. It made computer products by putting Intel items with non-Intel items.
LG Electronics sued Quanta, and lost the case in the Supreme Court. The court, historically, disfavors any attempts by a company to restrict what a purchaser can do after the sale of a product. In this case, though, it focused on the license agreement that didn't include the language that said Quanta couldn't combine non-Intel and Intel parts. LG Electronics lost the patent exhaustion case but if it wanted to, it could have sued Intel for breach of contract.
Lexmark International, Inc. v. Impression Products, Inc.: A more recent case heading to the Supreme Court, this may tighten patent exhaustion even further. Lexmark makes toner cartridges used in laser printers and owns several patents on them. They sell the cartridges in the United States and some overseas. The company has a rule that says once the toner runs out, you can't reuse the cartridges or give the empty cartridges to anyone other than Lexmark.
Impression Products violated the rule by buying empty cartridges, fixing them, and reselling them. When Lexmark found out, they sued for patent infringement. In court, Impression Products asked the courts to decide on two issues:
- Can a patent holder bypass exhaustion doctrine by adding restrictions on how a buyer can use their product
- Impression Products also says that the sale of a product outside of the United States automatically exhausts the patent.
The Federal Circuit Court said that yes a patent holder can place those restrictions on their product and no, international sale doesn't automatically exhaust the patent. Impression Products appealed to the Supreme Court.
While it is unclear when the Supreme Court will hear the case, they asked the United States Solicitor General to review the case and issue an opinion. Solicitor General Ian Gershengorn has issued a report. He disagrees that a patent holder can put restrictions on their product the way Lexmark did. But he agrees that sales outside of the U.S. don't automatically create patent exhaustion. What this means for patent holders is unclear until the Supreme Court weighs in.
Common Mistakes in Patent Exhaustion
For most patented products, patent exhaustion occurs the moment it's purchased legally. For companies and inventors who want to avoid patent exhaustion unnecessarily, it's important to avoid common mistakes:
- Including product claims and method claims in the same patent
- Not considering future revenue options for patented product
- Neglecting to create specific license agreements that spell out specific patent violations
Frequently Asked Questions
- Do I have to file multiple patents for one invention or product?
Not always. If you plan to make extra revenue for the parts, repair, or method of use, you will want to consider other patents.
- Do other countries have patent laws and follow patent exhaustion?
- Can I get a patent in other countries?
- Can anything limit patent exhaustion?
Fields of use restrictions defined in license agreements that are specific and related to specific patents can limit patent exhaustion if someone violates the license agreement.
- Can I sue multiple companies for the same patent infringement?
If the patent infringement occurs in the chain of distribution, the answer is no. This is known as double recovery and is not able to accurately determine when patent exhaustion would have occurred.
If you need help with patent exhaustion, you can post your question or concern on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.