Patent Exhaustion Doctrine Narrowed in Helferich Patent Licensing Federal Circuit Ruling

The Court of Appeals for the Federal Circuit recently reversed a holding from the United States District Court for the Northern District of Illinois in Helferich Patent Licensing, LLC v. The New York Times Company (Fed. Cir. 2015).  The Federal Circuit held that the “first sale” or “exhaustion” defense does not extend to all the claims related to a particular patented device but rather extends only to the group of users that were authorized to use that device.

The plaintiff, Helferich, held more than thirty United States patents that cover a range of distinct, though related, wireless-communication technologies. One set of claims (the “handset claims”) related to the apparatus and method of receiving and/or requesting certain content.  Another set of claims (the “content claims”) related to the system and method of storing and updating the content and sending it to the handsets. Helferich licensed the handset claims to nearly all manufacturers of mobile handsets but expressly left out any licensing of the content claims.

In the present case, Helferich filed suit against The New York Times Company and other media entities for allegedly infringement the content claims for sending links to external content via text message to subscribers’ mobile devices. The defendants moved from summary judgment and argued that Helferich’s right in the patents were barred by the doctrine of patent exhaustion.

Generally, under the doctrine of exhaustion, once a patented item is sold, all patent rights to that item are “exhausted.” Case law has been molding the bounds of that doctrine, which is intended to prevent a situation where a patent holder can “send its machines forth into the channels of trade of the country subject to conditions as to use or royalty to be paid, to be imposed thereafter at the discretion of the patent owner.”  Motion Picture Patents Co. v. Universal Film Manufacturing Co., 243 U.S. 502, 518 (1917).

The district court agreed with the defendants, holding that because Helferich licensed the handset claims to the manufactures, allowing them to sell the handsets, it exhausted its patent rights against the content providers.  On appeal, the Federal Circuit reversed and clarified that the exhaustion defense does not bar Helferich from asserting infringement of its claims against persons other than those authorized by a sale or license. Here, Helferich only licensed its handset claims to manufacturers and thus the authorized acquirers included the handset users but not the content providers. The court also found that neither the handset claims nor the method claims wholly contained the invention found in the other such as to result in “double recoveries.” There were other practices, such as peer-to-peer sharing of links and airplane mode that required the handset claims but not the content claims. The court concluded that it will not “expand” the exhaustion doctrine “to hold that authorized sales to persons practicing the handset claims exhaust the patentee’s right to enforce the asserted content claims against different persons.”

Some scholars disagree with the holding and argue that patent exhaustion should adhere to the patented device, not in “certain persons” who are authorized to use the device. Unless the Supreme Court holds otherwise, this holding suggests that in the licensing and clearance context, clients and patent attorneys alike must be aware of the relationship between the claims that are being licensed and those that are not, who the likely infringers down the road are, and who are the “authorized acquirers.”

To read the full case, click here.