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Tension in the Patent Exhaustion Doctrine?

Mark DeBoy, November 28, 2017

On March 21, 2017, the Supreme Court addressed patent exhaustion in Impression Products, Inc. v. Lexmark Int’l, Inc. (137 S. Ct. 1523 (2017)).  In the decision the Supreme Court determined that:

“The Patent Act grants patentees the right to exclude others from making, using, offering for sale, or selling their inventions. For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude. The limit functions automatically: When a patentee chooses to sell an item, that product is no longer within the limits of the monopoly and instead becomes the private, individual property of the purchaser, with the rights and benefits that come along with ownership.”

Lexmark at 1532 (internal citations and quotations omitted).

In Lexmark, the Supreme Court was very clear that a patentee “may not, by virtue of his patent, control the use or disposition of the product after ownership passes to the purchaser.”  Id. at 1531.  The decision in Lexmark finds root, not in the patent laws, but in the common law principle against restraints on alienation.  Specifically, “exhaustion rule marks the point where patent rights yield to the common law principle against restraints on alienation, … once a patentee sells an item, it has enjoyed all the rights secured by that limited monopoly…”  Id. at 1531-32 (internal quotations omitted).  This decision appears to present a tension in reasoning, if not also result, with at least one other recent Supreme Court patent exhaustion decision.

On May 13, 2013, the Supreme Court previously addressed patent exhaustion, but this time within the context of patented seeds, essentially a self-replicating technology – planting one patented seed results in one or more new patented seeds.  Bowman v. Monsanto Co., 133 S.Ct. 1761 (2013).  In Monsanto, Vernon Bowman legally purchased seeds from a grain elevator.  Bowman then planted these seeds and treated them with Monsanto’s Round-Up, correctly suspecting that the seeds were substantially the results of crops from Monsanto’s patented seeds.  After multiple seasons in which he replanted some of his crop, Bowman had created a source of fully Round-Up resistant seeds for which Bowman provided no compensation to Monsanto.  The Supreme Court determined that patent exhaustion did not permit Bowman’s actions, and deemed them an impermissible “making” of the patented seeds under the patent laws.  Monsanto at 1769.

Absent from Monsanto is any discussion of restraints on alienation, and in Lexmark there is no citation to Monsanto.  This could be the result of the Supreme Court limiting its decision in Monsanto to seeds, declining to even extend the decision to all self-replicating technologies.  Monsanto at 1769.  But, that seems to be an unsatisfactory explanation.  Lexmark is clear – “The purchaser and all subsequent owners [of a patented product] are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit.”  Lexmark at 1528 (emphasis added).  Monsanto, seems is just as clear that planting seeds is a known use of seeds: “[W]hen a farmer purchases Roundup Ready seed qua seed — that is, seed intended to grow a crop — he will be able to plant it. … No sane farmer, after all, would buy the product without some ability to grow soybeans from it.” Monsanto at 1768 (emphasis added).  Accordingly, missing from either decision is a discussion of the interplay between patent exhaustion and restraints on alienation when a pre-existing use for a previously known item, in this case the planting of seeds, becomes a making of a patented item due to the inclusion of new technology into the item, in this case a new genetic feature.

It may have been helpful if Monsanto claimed to be expanding patent exhaustion to address new policy concerns brought about by the advent of self-replicating technology, but that does not appear to be the case, or at least not the impression the Court wanted to leave.  See, e.g., Monsanto at 1769.  Or it may have been helpful if Monsanto provided some discussion of its result and the principle against restraints on alienation, but it did not.  This is not to suggest that the Supreme Court has left the patent community without a clear understanding of the extent of patent exhaustion.  It seems clear that patent exhaustion applies to all uses of a patent article except those that result in a new copy of the patent article.  Nevertheless, if the “exhaustion rule marks the point where patent rights yield to the common law principle against restraints,” having a better sense of where patent rights to self-replicating technologies yield to the principle against restraints on alienation may be helpful as self-replicating technologies advance.

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