Patent Exhaustion Explained

Patent Exhaustion explained

Intellectual property law is rife with terms that appear ambiguous. “Patent exhaustion” is one of these.

In fact, most entrepreneurs have never heard of this term until their intellectual property attorney mentions it. Understanding what exhaustion is can help inventors and entrepreneurs protect the long-term profits that are associated with their invention.

What is Patent Exhaustion?

This term refers to the point at which the patent holder no longer has the right to dictate how their invention is used. Typically, this happens at the sale of the product. The patentee has the right to determine who, where and how their product is manufactured. They can even decide the materials that are used. However, once a consumer purchases that product from a store, it’s theirs to do with as they please.

This means that the consumer can modify, add to or subtract from the product. Consider a passenger car. The manufacturer holds numerous patents concerning the components in the vehicle. As the patentee, they may control manufacturing and distribution.

However, once the consumer buys the car, they have the right to modify the vehicle. They can add a sunroof or a remote start system, and the patentee has no power to prevent them. This is because the reach of the patent has been exhausted.

Exhaustion also may occur when a patentee gives away or sells the rights granted by the patent. They now have no legal recourse to control the invention as those rights have passed to the new owner of the patent.

When Patent Exhaustion Applies and When It Doesn’t

This facet of IP law applies when you maintain your patents rights and have control over manufacturing and distribution. It similarly applies when you rely on a robust licensing agreement that allows someone else to handle these processes for you.

Exhaustion does not apply if you sell your products internationally, and then someone else imports them back into the U.S. where you hold a patent. If this importation is done without your permission, as the patent holder you have the right to sue.

Frequently, it’s wise for the inventor of a product to obtain multiple patents for the various components of their invention. This may include not only innovative parts within the larger device but also patents related to how the product is used. Inventors also may want patent protection on replacement parts or accessories.

Well-Known Legal Cases

Many inventors rely upon license agreements to protect their interests. These agreements must be detailed so that the inventor retains his rights with regard to how the product is manufactured, which materials are used and how the product is ultimately used. The more detailed and precise these agreements are, the better the protections are for the inventor if the other party violates the contract.

An example of this occurred in Helferich vs. The New York Times. Helferich owned numerous patents related to the manufacture of mobile devices and how content could be provided to these devices. With a license agreement, they made it possible for various companies to make these devices while precluding the ability to make software or apps for the devices.

Helferich sued when content providers violated this agreement. The courts decided for Helferich because the agreement applied only to the manufacture of the devices and not to providing content to them.

Another example occurred in Lexmark vs. Impression Products. Lexmark owns patents for and makes toner cartridges. The company stipulates that these cartridges cannot be reused and must be returned to them when empty. Impression began buying empty cartridges, refilling and reselling them.

Lexmark sued over patent infringement, but Impression argued that patent holders cannot add restrictions to how a buyer uses a product and that because Lexmark sold their products overseas, the exhaustion doctrine applied.

The case will go before the Supreme Court as the lower courts can’t seem to agree on these issues. The impact on IP law of this case and others like it is to underline the need for stringent licensing agreements and for innovators to consider pursuing multiple patents for their invention. These methods are reliable when it comes to protecting profits and ensuring that the inventor takes full advantage of their hard work.

Author: Jeff Williams

Jeff Williams is an experienced mechanical engineer and lawyer that consults closely with clients in a strait forward and clear manner.  He brings a particular set of strengths and unique perspectives to the firm.    
 Jeff received a B.S. in Mechanical Engineering from Arizona State University in 2005.  He was an engineer for a number of years at a number of large corporations before pursuing his law degree.  He graduated from Texas A&M University School of Law (formerly Texas Wesleyan University School of Law) with a J.D. in 2010.  By combining his education and prior work experience into the field of intellectual property law, Jeff has developed key skills to fully assist clients.