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The Federal Circuit Sticks to Its Guns: Patent Owners Can Prevent You From Owning Anything

DEEPLINKS BLOG
February 16, 2016

A “notice” slapped on the outside of a package saying “single use only” continues to ensure a manufacturer selling you the product can sue for patent infringement should someone dare reuse its goods. This is what the Court of Appeals for the Federal Circuit held on Friday, reaffirming its previous case law, despite intervening Supreme Court law and compelling arguments against its earlier case law.

The issue is one of “patent exhaustion.” This is the patent law version of “first sale,” the doctrine in copyright law that says that once a consumer buys a copy of a work, she owns it, and can do what she wants with that copy. Patent law is similar. Once a patent owner sells a product, it cannot later claim its use is infringing.

Yet the full court of the Federal Circuit held that so long as the sale was “restricted” by something as simple as a notice placed on the disposable packaging of a product, patent rights could be reserved by the patent owner and not result in exhaustion. So, if you happen to use a product twice, but the patent owner had sold it as “single use,” you could find yourself at the receiving end of a patent lawsuit. And because patent infringement generally does not require “intent,” a consumer could be liable even if they never saw the notice or agreed to it (for example, if they bought the product used without the original packaging). 

In other areas, this sort of “restricted” sale is categorically not enforceable. The Supreme Court ruled long ago that a notice inside a book purported to restrict its resale to only under certain conditions was unlawful. So, for example, a copyright owner’s attempt to limit resale through a “SINGLE READ ONLY” notice would fail miserably. This is why we can have libraries, video rental stores, and can sell used or refurbished devices that contain copyrighted software.

The Federal Circuit distinguished all of these cases, and instead relied on a Supreme Court case that found that a licensee of a patent could not do things outside the scope of that license, and if they did, there was no exhaustion. The Federal Circuit said that there was “no sound reason” for a distinction that gives less control to a patent owner that makes products to one that merely licenses its patent.

But there is a very big reason to make such a distinction: consumers’ expectations based on long-standing law disfavoring these “restraints on alienability of property.” For almost 400 years, it has been widely accepted that those who manufacture goods shouldn’t be able to reach out and exercise a “dead-hand” of control over the goods once the manufacture has long passed ownership on to the consumer.

And this distinction between licensees of a right and purchasers of embodiments of that right is routinely made. That is, the law routinely distinguishes between rights attached to a copy of a work and rights attached to the work. For example, the purchaser of a copyrighted book can resell that copy of the work, but cannot make new copies of that book (unless of course, some other right such as fair use applies).

Patents are now routinely granted on even the smallest part of a product (and even for the smallest design in the product). Yet it is often difficult, if not impossible, for consumers to find out what patents a manufacturer claims are embodied in their products, and therefore when those patents expire. (The patent statutes try to incentivize disclosure of that information, but it nonetheless remains optional). But what’s more, under the Federal Circuit’s rule a patent “restriction” could be on packaging that’s later separated from the item, creating even more ongoing uncertainty for resellers and repurchasers.

The Federal Circuit’s rule privileges patent owners over consumers, and helps ensure even less competition in the resale market. We hope the Supreme Court takes a hard look at this case, and restores consumers’ rights in products they purchase.

 

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