honey, i shrunk the patent rights david kagan kagan binder, pllc intellectual property attorneys...
TRANSCRIPT
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Honey, I Shrunk the Patent Rights
David KaganKagan Binder, PLLC
Intellectual Property [email protected]
651-275-9804
© David Kagan 2011-2013
How Implied Licenses and the Exhaustion Doctrine Limit Patent and
Licensing Strategies
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A Harsh Reality
Implied License
Patent Exhaustion
Repair v. Reconstruction
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Topics• Does this impact me?
• Implied Licenses
• Exhaustion Doctrine
• Repair v. Reconstruction
• You’re darn right this impacts me!
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Does this impact me?
Patent preparation and prosecution
Client counseling Opinions Agreements Dispute resolution Implied license and exhaustion
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Policies at play
Fixing/enforcing contracts fairly Proper patent scope Unjust enrichment Antitrust and unfair trade practices
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Policies at play Fixing/enforcing contracts fairly Proper patent scope Unjust enrichment Antitrust and unfair trade practices
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Mistakes, ambiguity, gaps
Mistakes, ambiguity, gaps
Benefit of bargainBenefit of bargain
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Policies at play
Fixing/enforcing contracts fairly Proper patent scope Unjust enrichment Antitrust and unfair trade practices
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Patent termPatent term Overextend claimsOverextend claims
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Policies at play Fixing/enforcing contracts fairly Proper patent scope Unjust enrichment Antitrust and unfair trade practices
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Double recovery by patentee
Double recovery by patentee
Too much profitToo much profit
Customer double dipsCustomer double dips
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Implied licenses are brutal.
• Met-Coil (1986)• Anton Bauer (2003)• New developments
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Met-Coil Systems Corp. v. Korners Unlimited, Inc. (Fed. Cir. 1986)
Patent owners Customers
Classic tension
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Just the facts, please.Met-Coil
Duct
Duct
Special cornersSpecial corners
The Met Coil Products
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Just the facts, please.Met-Coil
Duct
Duct
Patent on the Equipment
Patented Method
A: Shape ducts
B: Snap on corners
C: Bolt together
The Met Coil Patents
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Just the facts, please.Met-Coil
Duct
Duct
The Met Coil Business Model
Equipmentpatent
Patented Method of
making duct systems
• Sell equipment• Sell ducts• Sell corners• Generate fabulous $$$$$$
Selling consumables is key revenue source.
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Just the facts, please.Met-Coil
Duct
Duct
Plans foiled!• Customers buy corners from
Korners Unlimited.
Why would Met Coil customers do this?
Equipmentpatent
Patented Method of
making duct systems
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Epic Patent Battle EruptsMet-Coil
Patented Method
A: Shape ducts
B: Snap on corners
C: Bolt together
• MC: only my corner customers licensed
• MC: Korners’ customers directly infringe
• MC: Korners induces or contributes to infringement
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Epic Patent Battle EruptsMet-Coil
Korners defends: Equipment customers have implied license
Patented Method
A: Shape ducts
B: Snap on corners
C: Bolt together
• MC: only my corner customers licensed
• MC: Korners’ customers directly infringe
• MC: Korners induces or contributes to infringement
Crazy!
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Held: Implied License !!!Met-Coil
Patentee’s unrestricted sale of patented item carries an implied license to practice a patented method when:
The item has no non-infringing uses; and
The facts plainly indicate that a license should be implied.
1
2
Patented Method
A: Shape ducts
B: Snap on corners
C: Bolt together
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The “plain” facts:Met-Coil
• Unrestricted sale of equipment• Equipment has one use• Corners have one use• No contract restrictions• After the fact notice irrelevant• Corners unpatented• Implied: equipment was very expensive
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Policies at play in Met CoilMet-Coil
Fixing/enforcing contracts fairly Proper patent scope Unjust enrichment Antitrust and unfair trade practices
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Amazing impact!Met-Coil
IMPLIED LICENSE
Patent remnants
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The Met-Coil rule is circular.Met-Coil
Implied license exists legally if
Implied license exists factually
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What we learn:Met-Coil
• Triggered by sales
• Patents and business complementary
• Patent key components, consumables, equipment, methods, not just complete systems
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Anton-Bauer Inc. v. PAG, Ltd (Fed. Cir. 2003)
17 years have passed Expands Met Coil Narrows Met Coil Impacts business strategies Impacts patent strategies
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Just the facts, pleaseAnton-Bauer
(M) Male plate/battery
(F) Female plate/charger
M+F Combination patented, but M, F individually not patented.
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More facts, pleaseAnton-Bauer
(F)
(M)
• (M+F) combination patented• Customers buy F from Anton Bauer• Customers buy M from PAG• Anton Bauer sues PAG for violating
(M+F) patent
Held: Sale of F gave implied license to buy M from anybody and then practice (M+F) patent.
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Let’s quickly review Met Coil rule:Anton-Bauer
(F)
(M) • Patented equipment has no noninfringing uses
• Facts plainly indicate license should be implied
Patentee’s unrestricted sale of patented equipment carries implied license to use equipment in patented method when:
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What’s the new AB/PAG rule?Anton-Bauer
(F)
(M)
Patentee’s unrestricted sale of patented or unpatented item carries implied license to use item in patented method or patented combination when:
• Patented item has no noninfringing uses• Facts plainly indicate license should be
implied• Sold item is material to patent
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What if . . .Met-Coil
Original Met Coil machine
• Paper weight• Sailboat ballast• Industrial sculpture• Scrap/recyclable• Paint and varnish
experiments• Door stop• Projectile in neighbor
disputes
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What if . . .Met-Coil
Machine/blender
Original Met Coil machine
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What if . . .Met-Coil
Physically and conceptually separable . . .
Machine/blender
Original Met Coil machine
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What if . . .Met-Coil
What if Met Coil had patent protection for the special corners themselves?
Implied license.No implied license
Patentee’s unrestricted sale of patented item carries an implied license to practice a patented method when:
The item has no non-infringing uses
The facts plainly indicate that a license should be implied.
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What if . . .Met-Coil
What if Met Coil had patent protection for the special corners themselves?
Fixing/enforcing contracts fairly Proper patent scope Unjust enrichment Antitrust and unfair trade practices
Implied license.No implied license
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What if . . .Met-Coil
Patentee’s unrestricted sale of patented item carries an implied license to practice a patented method when:
The item has no non-infringing uses
The facts plainly indicate that a license should be implied.
What if Met Coil gave the equipment away and earned revenues from duct and corner sales only?
Implied license.No implied license
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What if . . .Met-Coil
Fixing/enforcing contracts fairly Proper patent scope Unjust enrichment Antitrust and unfair trade practices
What if Met Coil gave the equipment away and earned revenues from duct and corner sales only?
Implied license.No implied license
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Would Met-Coil be different if:Met-Coil
• Met coil licenses the equipment• License to use equipment under method
patent• Royalty based on equipment output• Royalty included in sales price of
components procured from Met Coil• 10% royalty on duct systems when
components obtained from third parties
OPTION A: Equipment license
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Would Met-Coil be different if:Met-Coil
• Toll manufacturer licensed for $$$ to use equipment to shape ducts and assemble duct systems for Met Coil only
• Met Coil supplies components to be used by toll manufacturer for Met Coil
• Met Coil sells finished, assembled duct systems to the toll manufacturer (title transfer)
OPTION B: Toll manufacture; then title transfer
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Would Met-Coil be different if:Met-Coil
• Met Coil happy being equipment supplier• Accepts that consummables to be
obtained from 3d parties
OPTION C: Equipment supplier
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Implied license developmentsMet-Coil
• Implied licenses can be derived from express licenses (not just sales).
• Proof of no noninfringing uses not required!
• Policy: benefit of bargain.
Zenith Electronics Corp. v. PDI Communications Systems Inc., 522 F3d 1348, 86 USPQ2d 1513 (Fed. Cir. 2008);
Jacobs v. Nintendo of America, Inc., 370 F3d 1097, 71 USPQ2d 1055 (Fed. Cir. 2004).
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Implied license developmentsMet-Coil
• Implied license extended to continuations having same disclosure as expressly licensed patent.
General Protecht Group Inc. v. Leviton Mftg., 651 F3d 1355, 99 USPQ2d 1275 (Fed. Cir. 2011).
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Implied license developmentsMet-Coil
• Intent is relevant to implied license, but not to exhaustion.
Transcore LP v. Electronic Transaction Consultants, 563 F3d 1271, 90 USPQ2d 1372 (Fed. Cir. 2009).
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Implied license developmentsMet-Coil
• Licensee sales can still be “authorized” even if Licensee breached its royalty obligations where right to sell not conditioned on royalty payments.
Tessera Inc. v. ITC, 646 F3d 1357, 98 USPQ2d 1868 (Fed. Cir. 2011).
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Implied license developmentsMet-Coil
• Speakers sales triggered implied license to TV’s but not to remote controls.
Zenith Electronics Corp. v. PDI Communications Systems Inc., 522 F3d 1348, 86 USPQ2d 1513 (Fed. Cir. 2008).
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Patent exhaustion is brutal.
• Background• Quanta (2008)• New
developments
Man, all that implied license talk made me
exhausted!
Man, all that implied license talk made me
exhausted!
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Exhaustion background
• Make, use, sell, offer to sell, import• Exhausted after a patented item is
sold• Making is the exception• Post sale restrictions ineffective and
possibly improper
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Exhaustion background
• Classically, triggered by sale of completed item
• Applies to thing sold, not other items• Univis (US 1942) applied doctrine to
precursors• Did not apply to method claims• Quanta (US 2008) applied doctrine to
other items and method claims5
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Exhaustion background
Univis rule:• Authorized sale• Precursor has one use• Precursor sufficiently
embodies essential features of the patent
I’m exhaustion.
I’m exhaustion.
I’m implied license.
I’m implied license.
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Quanta Computer Inc. v. LGE, Inc. (US 2008)
• Bad news: complicated facts
• Good news: simplified facts work.
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Key Issues under investigation
Can method claims be exhausted?
If yes, what’s the rule?
1
2
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Just the facts, schematically please.
Intel as licensee (LGE is patent owner)
Quanta
Third parties
Sells chips and
microprocessorsStandard st
uff
Quanta customers
Com
puters
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Just the facts, schematically please.
Intel as licensee (LG is patent owner)
Quanta
Third parties
Quanta customers
Com
putersCommon stuff (X and Y)
Special stuff (M and C)
Sells chips and
microprocessorsStandard st
uff
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Just the facts, schematically please.
Intel as licensee (LG is patent owner)
Quanta
Third parties
Quanta customers
Com
putersCommon stuff (X and Y)
Special stuff (M and C)
Computers built from M, C, X and Y
Sells chips and
microprocessorsStandard st
uff
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Just the facts, schematically please.
Intel as licensee (LG is patent owner)
Quanta
Third parties
Quanta customers
Com
putersM, C, X, and Y all used to practice LG patented
methods when computers are used
Common stuff (X and Y)
Special stuff (M and C)
Computers built from M, C, X and Y
Sells chips and
microprocessorsStandard st
uff
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Battle erupts, similar to Met Coil and Anton Bauer except exhaustion at issue.
• LGE: Only M and C purchased from Licensee.
• LGE: X and Y purchased from third parties.
• LGE: Method claims infringed unless all M, C, X and Y obtained from LGE (Intel).
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Battle erupts, similar to Met Coil and Anton Bauer except exhaustion at issue.
• LGE: Only M and C purchased from Licensee.
• LGE: X and Y purchased from third parties.
• LGE: Method claims infringed unless all M, C, X and Y obtained from LGE (Intel).
Quanta defense: sale of M and C exhausted the method claims. So I can buy
X and Y from anybody I want.
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Quanta defense is crazy talk?
• District court: method claims cannot be exhausted (after opinion revised).
• Federal Circuit: method claims cannot be exhausted.
• Even if exhausted, applies only to M&C items sold under patent, not to X and Y items.
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Supreme surprise
Method claims can be exhausted or we face parade of evils:
• Exhaustion negated by method claims in every patent. (claim scope policy)
• Patentee could control chain of distribution too much (unjust enrichment policy)
• Precedent supports• Broad definition of exhaustion makes sense
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Key Issues under investigation
Can method claims be exhausted?
If yes, what’s the rule?
1
2
Yes!
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How to exhaust method claims:
• Authorized sale of product (or equipment);
• Only reasonable use is in the patented method
• The product sold substantially embodies the patented method
There can only be ONE
NEW
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Only reasonable use is in patented method
“without utility” unless used in the patented method
No alternative use proposed, nor can the court discern one
Univis: Fused lens blanks had no use but to be turned into finished lenses
Quanta: chips and processors have no utility unless connected to buses and memory.
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Factors to show “product embodies patent”
Additional components or finishing steps not unique; off the shelf components
No patents protect the extra features needed to complete the combination
All novelty resides in the M&C products sold, not the extra X&Y features added to complete the combination
Patents themselves say the extra features are standard, conventional, and little detail provided further indicating commonness
Extra features incidental to invention
No independent creativity or innovation needed to complete the combination
Products used as is without modification; followed sellers specs.
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Exhaustion developments
• Sale in violation of license is not an authorized sale.
Monsanto Co. v. Scruggs, 459 F3d 1328, 79 USPQ2d 1813 (Fed. Cir. 2006).
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Exhaustion developments
Second generation seeds grown by buyer from first generation seeds have never been “sold” for purposes of triggering exhaustion.
Sales of first generation of self-replicating product could exhaust patent rights as to second and subsequent generations if the only use of the product was to replicate itself.
Monsanto Co. v. Bowman, 657 F3d 1341, 100 USPQ2d 1224 (Fed. Cir. 2011); Monsanto Co. v. Scruggs, 459 F3d 1328, 79 USPQ2d 1813 (Fed. Cir. 2006); Monsanto Co. v. McFarling, 302 F.3d 1291, 64 USPQ2d 1161 (Fed. Cir. 2002).
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Exhaustion developments
Based on language used, a covenant not to sue authorized sales for purposes of the exhaustion doctrine.
Sales authorized by earlier covenant not to sue
exhausted rights in a future patent.
Transcore LP v. Electronic Transaction Consultants, 563 F3d 1271, 90 USPQ2d 1372 (Fed. Cir. 2009).
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Exhaustion developments
To invoke exhaustion doctrine, the authorized sale must have occurred under the U.S. Patent at issue. Hence, sale in foreign territory does not trigger exhaustion.
Quanta (2008) did not eliminate the territory requirement that a sale must occur under a U.S. Patent to trigger exhaustion.
Ninestar Technology Co. v. ITC, 667 F3d 1373, 101 USPQ2d (Fed. Cir. 2012); Jazz Photo Corp. v. ITC, 264 F3d 1094, 59 USPQ2d 1907 (Fed. Cir. 2001).
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Repair v. Reconstruction
You have to know about this if your business involves:
•Used equipment competition
•Replacement parts
•Servicing products
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Repair v. Reconstruction
• System patents protect new equipment, but not equipment or replacement parts or service or consumables
• Component patents key to protect against used equipment and to protect consumables/replacement parts/service business
• Caution: Hewlett Packard case
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Be careful when trying to repel implied license and exhaustion.
Avoid business and patent strategies whose foundation is based on anticompetitive conduct or
unfair trade practices.
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Doctrines not always evil.
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Does this impact me?
Patent preparation and prosecution
Client counseling Opinions Agreements Dispute resolution Implied license and exhaustion
We need to fix our
perspective . . .
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Does this impact me? Does my client sell a product? Is the product used in combination
with other products? Does my client sell equipment? Does my client compete with used
equipment refurbishers? Does my client sell replacement
parts or sell repair services?FOCUS ON THE CLIENT’S CONDUCT
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We can deal with this reality
Implied License
Patent Exhaustion
Repair v. Reconstruction
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Thank you.
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Boron
Silver
Atomic Mass
Nitrogen
Protons and Neutrons
Potassium
19 47
75
39.098
10.811
107.87 14.007
IIodine
53
126.90
NdNeodymium
60
144.24 ErErbium
68
167.26
Intellectual Property AttorneysAll the right elements.