Exhaustion of rights

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This article is about the first-sale doctrine as applied to patents. For the analogous first-sale doctrine applicable to copyright, see First-sale doctrine.

Under the exhaustion doctrine, doctrine of exhaustion, or first sale doctrine, the first unrestricted sale of a patented item exhausts the patentee's control over that particular item. It generally is asserted as an affirmative defense to charges of patent infringement, but less commonly is asserted affirmatively in a declaratory judgment action.

In other words, it is a concept in intellectual property law whereby an intellectual property owner will lose or "exhaust" certain rights after the first use of the subject matter which is the subject of intellectual property rights. For example, the ability of a trademark owner to control further sales of a product bearing its mark are generally "exhausted" following the sale of that product.

The doctrine also may be referred to as the doctrine of "patent exhaustion." It is closely related to (and sometimes conflated with) the doctrine of implied license, and is often asserted in conjunction with claims of equitable estoppel or legal estoppel.

This has been explained by the European Commission in a February 2002 press release as follows:

performers, producers of films and phonograms and broadcasters have the exclusive right to allow the objects protected by their rights to be made available to the public, or to forbid their being made available. This "distribution right" is not exhausted except where the first sale in the Community of that object is made by the rightholder or with his consent.^[1]

The concept typically arises in the context of parallel imports, and may therefore be relevant nationally, regionally or internationally, such that if a right becomes "exhausted" in one area or jurisdiction, an intellectual property owner may not be able to enforce its rights in another area or jurisdiction.

Different countries regulate the applicability of the doctrine of exhaustion in relation to different products in different ways.

1 United States: cases involving the first-sale doctrine
2 References
3 See also
4 External links

United States: cases involving the first-sale doctrine

In Jazz Photo Corp v International Trade Commission, 59 USPQ 2d 1907 (Fed Cir August 21 2001), Fuji Photo Film asserted that the user of a single-use camera was not allowed to remove the film, process it, replace the battery, or package it in a new cardboard container, based on labelling on the camera warning the purchaser that the camera should not be opened. The ITC held that these steps amounted to reconstructing the camera and infringement of the patents. The decision was reversed by the Federal Circuit on the grounds that the labelling was not an enforceable restriction on the use of the camera, that "no licence limitations may be implied from the circumstances of sale" (59 USPQ 2d at 1917), and that the challenged activities merely repaired the camera and extended its useful life.

In Bauer & Cie. v. O'Donnell, 229 U.S. 1 (1913), the United States Supreme Court ruled that patents could not be used to control resale prices.

In Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), the federal court found that the doctrine of exhaustion was only a unilaterally disclaimable "implied license", despite more than a century of precedent to the contrary.

In Arizona Cartridge Remanufacturers Association Inc. v. Lexmark International Inc., 421 F.3d 981 (9th Cir. 2005), the Ninth Circuit Court of Appeals upheld a District Court decision that found that the contract terms on the packaging of a printer cartridge are sufficiently clear to act as a "box-wrap" license, such that when the user opens the box he or she is accepting the terms and forming a contract. Because the printer cartridge is patented, Lexmark can impose post-sale conditions on purchasers such as prohibitions preventing refilling of the cartridge.

Oral arguments in Quanta v. LG Electronics were heard by the Supreme Court on January 16, 2008. LG Electronics licensed patents to Intel for use in microprocessors, with the condition that Intel notify buyers of those microprocessors that such buyers did not receive a patent license for the use of the Intel microprocessors together with non-Intel components. LG Electronics sued Quanta for violation of the patents, while Quanta argues that the first sale doctrine applies. The Electronic Frontier Foundation filed an amicus brief in the case, arguing that Mallinckrodt and later cases based on it have inappropriately expanded the scope of patents by judicial fiat, and that sellers should use contract law if they want to impose conditions on a sale: "EFF Supports Consumer Right To Repair, Resell Patented Goods" (2007-11-13). On June 9, 2008, the Supreme Court unanimously ruled in favor of Quanta. ^[2]