The term “patent exhaustion” does not refer to the feeling you get when an IP lawyer talks for 3 hours about invalidity for lack of obviousness. No, this is the patent law concept that the first authorized, unrestricted sale of a patented item ends, or “exhausts,” the patent-holder’s right to ongoing control of that item, leaving the buyer free to use or resell the patented item without restriction. For example, if you buy a patented mouse-trap from the patent owner, you can resell that mouse-trap to your neighbour without fear of infringing the patent.
This concept was recently tested in the case of Monsanto Co. v. Vernon Hugh Bowman (PDF) No. 10-1068 (Fed. Cir. Sept. 21, 2011) related to Monsanto’s patented “Roundup Ready” seeds. A farmer planted a first crop from Monsanto seeds, under license, and he did not save any of those seeds for replanting, in accordance with the license. The farmer then bought “commodity seeds” from a local grain elevator. These seeds are a mixture of regular seeds and seeds from “Roundup Ready” plants. Not that you can tell by looking at them. I don’t believe Monsanto has developed a method of displaying the Roundup patent numbers on the seeds themselves. He planted a second crop from these “commodity seeds”. He then saved some of the seeds from this second crop grown from the “commodity seeds”.
Monsanto sued, claiming the second crop and the saved seeds infringed on its patent, because its patented technology existed somewhere in that crop. The farmer defended by claiming the defence of “patent exhaustion” - that any patent rights in the second crop of seeds were exhausted, and further use or sale of those seeds would not infringe Monsanto’s patent. The Court rejected this defence, reasoning that by planting the commodity seeds containing the “Roundup Ready” patented technology, he created an infringing article (i.e. the plant grown from the next generation of seeds). This replication of the patented article constituted an infringement, which was not excused by the “patent exhaustion” doctrine. This is because there was no unrestricted sale, since the use of the seeds by the farmer was conditioned upon obtaining a license from Monsanto. The court did not review the question of whether someone else (someone who is not subject to Monsanto’s license agreement) would benefit from the “patent exhaustion” doctrine if they grew and collected “commodity seeds”.