Antoinette M. Tease Montana Patent
The First Sale Doctrine and Implied License Rule Under U.S. Patent Law

It is basic tenet of patent law that if you buy a patented product directly from the patent owner or its authorized licensee, you cannot be held liable for patent infringement with respect to that product. This principle is often referred to as the "first sale doctrine" or "patent exhaustion." In order for this doctrine to apply, however, the sale must unrestricted. Remember that a patent is really a grant of a monopoly for a limited period of time; under U.S. patent law, an authorized and unrestricted sale of a patented product exhausts the patent monopoly as to that product. If the sale is restricted in any manner (for example, if geographic or other limitations are placed on the purchaser's use of the product), then the first sale doctrine does not apply.

The reason courts draw this distinction between restricted and unrestricted sales is because a restricted sale is more like a license than an outright sale in that the patent owner does not give up all of its ownership rights in the patent. On the other hand, if the patent owner does give up all of its ownership rights in the patent, then the law provides that the patent owner has "exhausted" its patent rights.

Accordingly, a patent owner may not sue the purchaser of a patented product for patent infringement as long as the product was purchased from the patent owner or its authorized licensee without restriction. See, e.g., Intel Corp. v. ULSI Corp., 995 F.2d 1566, 1568 (Fed. Cir. 1993), cert. denied, 510 U.S. 1092 (1994) ("The law is well settled that an authorized sale of a patented product places that product beyond the reach of the patent...."). It follows that the purchaser may use or resell the product without any obligation to obtain a license from the patent owner. Id.

One of the questions that has arisen in our practice is whether the purchaser of a patented product may alter or modify that product for continued use or resale and still enjoy the protections of the first sale doctrine. The answer to this question depends on whether the alteration would be considered a repair or a reconstruction. Repairs are allowed under the first sale doctrine, but reconstructions are not. There is a voluminous body of case law in which courts have attempted to draw the line between a "repair" and a "reconstruction," but all of these courts agree that a person who purchases a patented product from the patent owner or its authorized licensee has the right to
make repairs to the product as long as such repairs are necessary for continued use.

The monopoly granted to a patent owner gives that person the exclusive right to make, use or sell the invention in the United States. Thus, although the purchaser of a patented product has the right to use and even resell the product in its initial state (or repaired as necessary to restore to its initial state), the purchaser does not have the right to make the invention. The rationale behind the "repair versus reconstruction" rule is that a reconstruction is the same as making a product (and is, therefore, disallowed), whereas a repair is not.

The implied license rule is often confused with the first sale doctrine. Under the implied license rule, an implied license exists when the patent owner sells a component that is designed to be part of a larger device. See Carborundum Co. v. Molten Metal Equipment Innovations, Inc., 72 F.3d 872, 878 (Fed. Cir. 1995) (discussing implied licenses); see also McCoy v. Mitsuboshi Cutlery, Inc., 67 F.3d 917, 920 (Fed. Cir. 1995), cert. denied, 116 S. Ct. 1268 (1996) (the entire course of conduct between the patent owner and an accused infringer may create an implied license). In order for the implied license to apply, however, the component at issue must have no non-infringing uses, and the sale must "plainly indicate that the grant of a license should be inferred." Met-Coil Systems Corp. v. Korners Unlimited, Inc., 803 F.2d 684, 686 (Fed. Cir. 1986); see also Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) (upholding the implied license rule).

The reason the implied license rule is sometimes confused with the first sale doctrine is because both doctrines involve the sale of a patented product--in the case of the implied license rule, the patent would be on the larger device, not on the component part--and the question of whether and to what extent the purchaser has the right to use, modify or resell the patented product. Under both doctrines, the purchaser is free to use and resell the purchased product but not necessarily to remake it. In addition, the implied license rule is more restricted than the first sale doctrine because it must be shown that the purchased component was manufactured for the sole purpose of incorporating it into the patented product.

If you have any questions about the first sale doctrine or implied license rule as it applies to your situation, you are encouraged to contact an experienced patent attorney.

Patent Law for the New West
The information in this newsletter is provided for informational purposes only and should not be considered legal advice. Please consult a qualified attorney for advice on a specific legal matter.

© 2011 Antoinette M. Tease, P.L.L.C. All Rights Reserved.
 
Visit www.TeaseLaw.com.
 
Click here to un-subscribe from this newsletter.