A New Wrinkle in the Defense of Patent Exhaustion

by Reed Smith
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Introduction

Helferich Patent Licensing LLC ("HPL") is the exclusive licensee of a portfolio of patents directed to sending – to mobile devices – alerts containing links to content. HPL has licensed the patents to hundreds of parties, including all players in the mobile device manufacturing industry. Recently, HPL sued several parties ("the Defendants") in the Northern District of Illinois, for infringement of the patents.1 The Defendants filed a motion for Summary Judgment claiming that, under the doctrine of "patent exhaustion," the licenses to the mobile device manufacturers prevented HPL from collecting royalties based on use of the same mobile devices. The court granted Summary Judgment in favor of the Defendants.

Summary of the Court's analysis

The well-established doctrine of patent exhaustion is a defense to patent infringement that requires that, after an initial sale of a licensed product, all patent rights terminate in that product.2 In other words, if a patent owner collects a royalty for a product, the patent owner cannot collect a royalty for the same patent based on subsequent use of the same product. In this case, HPL had licensed the patents to the mobile device manufacturers and thus, according to Defendants, could not collect a royalty on the use of those same mobile devices to receive the messages and retrieve the content. HPL countered that the license to the mobile device manufacturers was limited to specific claims in the patents and did not extend to claims directed to content retrieval, and thus such claims were not subject to patent exhaustion.

The court determined, for public policy reasons, that HPL could not divide up the claims of patents in this manner. The court stated:

If HPL were permitted to license some claims but not others, the effect would be to vitiate the doctrine of patent exhaustion… once a licensee sells a mobile device that partially embodies HPLs patent, even if the device does not completely practice HPL’s patent, that patent is exhausted.

The court noted that, if patent owners were permitted to carve out individual claims of a patent from licenses, the result would be that greater uncertainty would exist regarding the rights of third parties. This uncertainty would frustrate the purpose of patents, which is to promote innovation.

Effects of the Decision

HPL will likely appeal the Decision, and could ultimately have the Decision overturned and the case sent back to the District Court. However, if the Decision stands, the considerations for a licensing program are significantly altered. Therefore, licensors should determine if their licensing strategy relies on restricting the license to specific claims of a patent. If so, the licensor might want to rethink the strategy. Licensees should consider whether they are making royalty payments that could be avoided. Of course, such situations are very fact-specific and should be addressed only under guidance of counsel.
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1. Helferich Patent Licensing LLC v. The New York Times Company, et al., Case Nos. 10-cv-4386, 11-cv-7395, 11-cv-7607, 11-cv-7647, 11-cv-9143, (D. Ill.).
2. Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008).
 
 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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