Patent exhaustion:"Patent-by-patent" or "claim-by-claim"?

This Kat has long wondered why it is that so many basic legal issues with respect to third-party uses of an IP right are still unsettled. Let’s take patent exhaustion. True, the creation of the European Community/European Union has added a layer of complexity because of the separate principle of free movement of goods. Still, the basic notion of patent exhaustion would seem to be simply expressed—a patent owner is not allowed to control use of a product, by seeking to assert patents rights in the product, once there has been an authorized sale. Against this backdrop, the act of patent exhaustion occurs countless times daily all over the world. And yet, despite this ubiquity and the deceptively simple notion upon which it rests, courts continue to wrestle with legal questions that one would have thought had long been resolved.

A decision given by the Federal Circuit Court of Appeals in October 2013, Keurig, Inc. v Sturm Foods, Inc., here, is an excellent example (this Kat thanks les Nouvelles, the journal of the Licensing Executives Society, for drawing his attention in its March 2014 issue to this case.) Is exhaustion to be determined at the patent-by-patent level, or at the claim-by-claim level? In particular, when the patent contains both apparatus and method claims, does exhaustion apply to the patent taken as a whole, or should a distinction be made between the apparatus and method claims? In this case, the patentee produces a single-serve device for the brewing of coffee. To make that perfect cup of coffee, the user needs to insert a cartridge into the brewing device. Hot water is then run through the cartridge, resulting in a cup of coffee for the user. Employing a version of the razor blade business model, the patentee sells both the brewing device and the cartridges. The defendant sells only cartridges, which are compatible for use with the brewing device. Two of the patentee’s patents contain apparatus claims regarding the brewing device. As well, these two patents contain method claims, which relate to the way that a person make a cup of coffee using the device.

The patentee alleged that the use of the defendant’s cartridge to make a cup of coffee using the brewing device directed infringed several of the method claims in the two patents. The patentee also alleged that the defendant was liable for inducing infringement as well as contributory infringement. The defendant countered that all of the patent claims, including the method claims, had been exhausted upon authorized sale of the brewing devices. The trial court granted summary judgment in favour of the defendant, and the plaintiff then appealed the decision to the Federal Circuit, which affirmed the decision of the lower court.

Focusing on the argument that exhaustion must be evaluated at the claim-by-claim, rather than the patent-by-patent level, the court rejected the plaintiff’s position, as follows:

“Keurig sold its patented brewers without conditions and its purchasers therefore obtained the unfettered right to use them in any way they chose, at least as against a challenge from Keurig. We conclude, therefore, that Keurig's rights to assert infringement of the method claims of the '488 and '938 patents were exhausted by its initial authorized sale of Keurig's patented brewers. To rule otherwise would allow Keurig what the Supreme Court has aptly described as an "end-run around exhaustion" by claiming methods as well as the apparatus that practices them and attempting to shield the patented apparatus from exhaustion by holding downstream purchasers of its device liable for infringement of its method claims — a tactic that the Supreme Court has explicitly admonished. [citation omitted]. "Such a result would violate the longstanding principle that, when a patented item is `once lawfully made and sold, there is no restriction on [its] use to be implied for the benefit of the patentee.'" Id. (quoting Adams, 84 U.S. at 457).

Not so fast, however. One of the three judges, Judge Kathleen O’Malley, here, while concurring with the result reached, dissented on this part of the court’s decision. She reasoned in relevant part as follows:

“The conclusion that the rights to the asserted methods were exhausted by the brewer sales in this case does not, however, depend upon whether exhaustion should be assessed on a claim-by-claim or patent-by-patent basis. Keurig's patent rights covering normal methods of using its brewers to brew coffee would be exhausted by the sale of the Keurig brewers, regardless of which patent or patents contain the relevant apparatus and method claims. Thus, the majority's conclusion that exhaustion should not be assessed on a claim-by-claim basis is dicta. To the extent it could be characterized as anything other than dicta, I must dissent from that conclusion. There could be instances where assessing exhaustion on a claim-by-claim basis — the same way we conduct almost every analysis related to patent law — would be necessary and appropriate. "[E]ach claim must be considered as defining a separate invention." Jones v. Hardy, 727 F.2d 1524, 1528 (Fed.Cir.1984). "Because patent claims are independent of each other, it stands to reason that the legal doctrine of patent exhaustion should apply on a claim-by-claim basis." Amicus Br. of Boston Patent Law Ass'n at 7. Thus, to the extent the majority purports to lay down a blanket rule affecting cases with facts that diverge widely from those we consider today, I must dissent.”

So what are we to make of the court’s ruling on this point, given the dissent? This Kat’s head is a bit dizzy from trying to decide whether the issue of “patent-by-patent v claim-by-claim” is obiter under the circumstances of the case. In this regard, however, the judge offers no examples to aid in understanding her position, simply relying on several disembodied quotes (one taken from the amicus brief filed by the Boston Patent Law Association). Moreover, it is not at all clear whether the judge really means that the majority’s ruling on this issue is dicta or rather she objects to the articulation of a black and white rule. Is the question of “patent-by-patent v claim-by-claim” simply irrelevant when ruling on exhaustion, or was reliance on the distinction by the majority simply unnecessary under the circumstances? If the latter, an example or two should have been included to demonstrate when “facts that diverge wide from those we consider today” might be relevant to support a “claim-by-claim” analysis for exhaustion.

Circling back to the beginning of this Kat post, the question remains—what is it in the jurisprudence of IP with respect to third-party use that seems to leave such seemingly basic legal questions unresolved, especially when they relate to commonplace behaviour? One thing for certain, the result in the Keurig decision has not helped as much as one might have liked in resolving the “patent-by-patent v claim-by-claim” issue.