© 2004

Implied Patent Licenses and

Patent Exhaustion

D. Patrick O’Reilley

IP Licensing & Litigation Seminar

Taiwan, November 2004

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IMPLIED LICENSES I

No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent, or any conduct on his party exhibited to another from which that other may properly infer that the owner consents to his use of the patent . . . upon which the other acts, constitutes a license and a defense to an action for a tort.

DeForest Radio v. United States, 273 U.S. 236, 241(1927), accord Wang v. Mitsubishi, 103 F3d 1571 (Fed. Cir. 1997)

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IMPLIED LICENSES II

• Implied licenses arise by acquiescence, by conduct, by equitable estoppel or by legal estoppel– Wang, supra. (“These labels describe

not different kinds of licenses, but rather different categories of conduct which lead to the same conclusion: an implied license. The label denotes the rationale for reaching the legal result”)

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IMPLIED LICENSES III

• Acquiescence– Patent owner tolerates infringement for

extended period– Estoppel presumed from 6 years of laches

Aukerman v. Chaides, 960 F.2d 1020

• Conduct– Implied in fact - facts inferring mutual

consent i.e., payment and acceptance of royalty Must reflect mutual expectations of the parties Must be connection between facts and implied

license Stickle v. Heublein, 716 F.2d 1550

Cannot be inconsistent with express terms, i.e., disclaimer

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IMPLIED LICENSES IV

• Conduct– Unrestricted sale of patent product by

patentee or under his authority (unrestricted, authorized sale by licensee)

Patent exhaustion Conveys to purchaser implied license

to use, repair and resell the product Aro v. Convertible Top, 377 U.S. 476,

484

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IMPLIED LICENSES V

• Equitable Estoppel– Arise From Misleading Conduct of Patent Owner

Inducing Detrimental Action/Reliance Each Case is Fact Dependent

Scholle v. Blackhawk, 133 F.3d 1469— traditional failure to sue after threat

Ricoh v. Nashua, 185 F.3d 884 (non-precedential)

— silence re pending appl'n not estoppel Aukerman v. Chaides, 960 F.2d 1020; Wang

v. Mitsubishi, supra– Must be aware of patent and conduct

Winbond v. Atmel, 262 F.3d 1363 (Fed. Cir. 2001)

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IMPLIED LICENSES VI

• Legal Estoppel– Attempt to derogate from right granted– After Acquired Right

AMP v. U.S., 389 F.2d 448 But see, Spindelfabrik v. Schubert, 829 F2d

1075; ZapatA v. W.R. Grace, 51 USPQ2d 1619 (buyer’s assumption of license agreement does not create license under buyer’s prior patents)

– Unlicensed Dominant Patent Can Avoid With Notice and Disclaimer Cannot Avoid With Nondisclosure

3M v. DuPont, 448 F.2d 54

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IMPLIED LICENSES VII

• Disclaimer– "Nothing contained in this Agreement shall

be construed as conferring by implication, estoppel or otherwise, upon any party licensed hereunder, any license or other right under any patent except the licenses and rights expressly granted hereunder."

Lemelson Medical v. Intel Corp., 52 USPQ2d 1122

Used to preclude construction of grant clause to encompass patents not expressly licensed

May not work for legal estoppel

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EXAMPLES OF IMPLIED LICENSES

• Patents on Adopted Standards– ANSI Regulations Require Licensing– Implied License if Owner Participated in Setting

Standard Potter v. Storage, 207 USPQ 763 Stambler v. Diebold, 11 USPQ2d 1709 But see, Rambus v. Infineon, 2003 US App

LEXIS 1421– FTC may take action

In re Dell Computer, 121 FTC 616 (1996) Rambus, Sun and Unocal actions pending

– But if Disclose Patent and License Terms Townshend v. Conexant, 55 USPQ2d 1011

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EXAMPLES OF IMPLIED LICENSES

• License For Life of Product, Not Patent– Carborundum v. Molten Metal, 72 F.3d

872 Implied license to patented system

dependant on purchase from patent owner of non-staple pump

• Remedy for Patent Owner Breach of Supply Contract– McCoy v. Mitsuboshi, 67 F.3d 917

Sale of Patented Product Made Under Contract with Patent Owner

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IMPLIED LICENSES IN PATENT CONTEXT

• To Make Implies To Have Made• To Make Implies To Use or Sell• To Make and Sell Implies To Use• To Make and Use Does Not Imply To

Sell• To Sell Does Not Imply To Make

– If Product Otherwise Available

• Will To Sell Imply Offer to Sell?• Will To Sell Imply Import?

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PATENT EXHAUSTION

• Authorized and unrestricted sale of patented product conveys implied license to use and resell that product– Adams v. Burke, 17 Wall 453; Braun v. Abbott, 124

F.3d 1419• Unrestricted sale of component having no use

except in patented product, exhausts patent to product– U.S. v. Univis Lens, 316 U.S. 241

• Unrestricted sale of product having no use except in patented system, exhausts patent to system– Elkay v. Ebco, 42 USPQ 2d 1555

any "reasonable or practical use" precludes license– Glass Equipment v. Besten, 174 F.3d 1337

Sale of unpatented product does not exhaust patent if product has "reasonable" non-infringing use

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PATENT EXHAUSTION II

• Includes Right to Repair But Not Reconstruct– Aro Mfg. v. Convertible Top, 365 US

336– Zenith v. Universal, 846 F.Supp. 641– Jazz Photo v. ITC, 264 F.3d 1094– Includes replacing or modifying parts

not broken or worn Surfco Hawaii v. Fin Control Sys., 264

F3d 1062

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PATENT EXHAUSTION III

• Exhaustion may be avoided by conditioning– Express contractual restriction imposed

on purchaser Mallinckrodt v. Medipart, 976 F.2d 700 Braun v. Abbott Labs, 124 F.3d 1419 Cf. Met-Coil v. Korners, 803 F.2d 684 Pioneer Hi-Bred v. Ottawa Plant, 283 F.Supp 2d

1018 Arizona Cartridge v. Lexmark, 290 F.Supp 2d 1034

– Condition must be in form of a contract Jazz Photo v. ITC, 264 F.3d 1094 LG Electronics v. Asustek, 248 F.Supp 2d 912

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International Exhaustion

• Unrestricted sale of product in one country authorized by owner of IPR in second country prevents enforcement of IPR in second country against import, use or sale– Only applies if second country has

adopted international exhaustion as part of its law

– Difference between international exhaustion and territoriality of IPR

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International Patent Exhaustion

• Varies country by country• Territorial patent rights applied in

Belgium, Brazil, France, Germany, Korea

• International exhaustion may apply in countries with Common Law heritage (Canada, Australia, Singapore), Japan, Venezuela

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International Patent Exhaustion in the United States

• Recent change in the law– Jazz Photo v. ITC, 264 F.3d 1062 (Fed.

Cir. 2003) Clear statement that exhaustion of

U.S. patent requires sale under U.S. patent

Cites Boesch v. Graff, which does not stand for proposition

Until clarified or modified by statute, international patent exhaustion does not exist in U.S.

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U.S. Legislative Action

• Parallel imports of pharmaceutical products politically popular– Import price controls to reduce cost to consumer

• Pharmaceutical Market Access Act of 2004 (S 2328)– It shall not be an act of infringement to use, offer to

sell, or sell within the United States or to import into the United States any patented invention under section 804 of the Federal Food, Drug, and Cosmetic Act that was first sold abroad by or under authority of the owner or licensee of such patent.

• Not law. Will not pass this year.• Probably unlawful under TRIPS Treaty• May be violation of U.S. Constitution

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Future of Exhaustion

• In 1990’s trend was toward international exhaustion– Japan changed its law – patents artificial

obstacle to international trade

• Since then EU has confirmed and U.S., with little discussion, invoked territoriality of IPR

• No clear industry position• Academics take various positions• Future is not clear.

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For More Information

D. Patrick O’Reilley

Finnegan, Henderson,

Farabow, Garrett & Dunner LLP

Washington 202.408.4100

Email: Pat.O'Reilley@finnegan.com