Federal Circuit Limits Patent Exhaustion Doctrine for Complementary Technology

In its 2013 decision in Keurig, Inc. v. Sturm Foods, Inc., the Federal Circuit held that a purveyor of coffee cartridges did not infringe Keurig’s coffee brewing patents because Keurig had already made an unrestricted sale of its brewing machines to end users, such that any further use of those machines was protected by the doctrine of patent exhaustion. Yet, in its February 10, 2015 decision in Helferich Patent Licensing, LLC v. The New York Times Company, et al., the Federal Circuit held that, under certain circumstances, purveyors of media content to users of handheld mobile devices could be found liable for infringement even where the mobile device manufacturers had already paid for a license under the asserted patents. In reaching this conclusion, the Federal Circuit purported to harmonize long-standing principles of patent exhaustion, but many observers will likely view the Helferich decision as narrowing the scope of the defense. In particular, the Federal Circuit has now held that in the context of complementary technology – such as a machine and one of its components, or a computer and its software – the patent exhaustion defense only operates to protect so-called “authorized acquirers” of the technology, while leaving out in the cold any third parties who provide complementary components or services that are separately patented.

Why Helferich Is Different Than Keurig

The key to the Helferich decision was the fact that the asserted patent claims were specifically directed to a method by which a third party content provider delivers media content to a handheld mobile device. The Federal Circuit observed that under the traditional application of the patent exhaustion defense, the patent owner would have been precluded from asserting patent claims directed to the design of the handset itself, or to the end user’s use of the handset, because the equipment had been fully licensed to the handset manufacturers, and the end users were “authorized acquirers” of those licensed handsets who were free to use them as they wished. The court held, however, that the doctrine of patent exhaustion did not preclude assertion of the claims at issue against the content providers because the claims were directed solely to the actions of the content providers, who were not authorized acquirers of the handsets. The patent claims that covered methods of providing content thus constituted distinct complementary inventions that were separately infringed.

In the Keurig case, by contrast, the asserted patent claims covered a method of brewing coffee to be performed by the end user (i.e., an authorized acquirer). The defendant, Sturm, was accused only of inducing the end user’s infringement, rather than engaging in any separate acts of direct infringement. In ruling in favor of Sturm, the Federal Circuit explained that “Keurig is attempting to impermissibly restrict purchasers of Keurig brewers from using non-Keurig cartridges by invoking patent law to enforce restrictions on the post-sale use of its patented product.” Thus, the emphasis was on protecting the authorized acquirer who had compensated the patent owner (either directly or indirectly) for the right to use the technology, with Sturm being an incidental beneficiary of that protection.

The defendants in Helferich urged that whether the patent claims were directed to the actions of the content providers or the actions of the handset users amounted to “semantics” and “artful claim drafting.” The Federal Circuit disagreed, however, noting that the Patent Office had granted Helferich separate patent claims to methods performed by the content providers and methods performed by the handset users without issuing a double patenting rejection. The court also noted that the handset user claims were not simply the mirror images of the content provider claims, and that infringing one did not necessarily mean infringing the other. Thus, the content provider claims constituted separate inventions that were separately infringed. Under the Federal Circuit’s logic, it was as if Helferich had patented both a car and its wheels, and the defendants were trying to sell wheels to the car owners.

Authorized Acquirers Are Not Guaranteed Maximum Utility

An important consequence of the Federal Circuit’s holding in Helferich is that the doctrine of patent exhaustion will not guarantee that an authorized acquirer of a patented technology will be able to realize the maximum benefit of that technology. The district court – which had ruled against Helferich – had reasoned that “[t]here would be little value to the handset manufacturers (or their end users) to have purchased licenses to [Helferich’s] patents to receive content from a third-party content provider if the content provider, like Defendants, could not send the message to the licensed handset device without infringing the patent.” The Federal Circuit disagreed with this utility theory, however. The court drew an analogy to the owner of a patented walkie talkie who, quite naturally, would like to speak with other walkie talkie users. The court reasoned that the doctrine of patent exhaustion would not allow third parties to use the walkie talkies without a license, even though the licensed user (i.e., the authorized acquirer) arguably would receive little benefit from owning a walkie talkie with no one else to talk to. The court explained that:

there is evident value in obtaining a product (and permission to use it)…whose value depends on other people obtaining complementary products, even when the latter must themselves obtain a patent license. This is a commonplace phenomenon, and what the initial product licensees obtain is not just immediate value, which might be limited, but the potential for increasing value as the rights owner acts on its incentive to license the complementary sales.

Marginalization of the “Double Recovery” Test

Patent practitioners are accustomed to explaining the doctrine of patent exhaustion as a means to prevent patent owners from obtaining a “double recovery” by suing multiple parties in the chain of distribution over the same infringing item. The defendants in Helferich invoked this theory in their appeal, but to no avail. The Federal Circuit found that:

[the] principle [of avoiding double recoveries] has never served as an independent test for determining whether exhaustion applies. It is hard to see how it could do so unless courts first established the dollar value of the proper reward to determine when the patentee had received it and therefore had to stop seeking additional recoveries. Exhaustion doctrine has never required such an inquiry, which would present difficulties akin to those recognized in other areas where the judicial determination of a proper price has been avoided.

Thus, the significance of preventing “double recoveries” is now of diminished importance to the patent exhaustion analysis, and practitioners would do well to instead frame exhaustion arguments in terms of protecting the rights of authorized acquirers.

The Ramifications of Helferich

Absent reversal, the Helferich decision will be of significant importance to companies that supply components or complementary software to end users of patented technology. As can be seen from the comparison of Keurig and Helferich, infringement may turn on whether the patent owner has claims that are separately directed to such components or software. If, as in Keurig, the patent claims are directed only to the activities of the licensed end user, the doctrine of patent exhaustion protects third parties who merely “induce” the end user’s actions. But, if there are patent claims that separately cover the third party’s own conduct, infringement might be found. Helferich also provides unambiguous guidance to patent applicants: it pays to pursue separate claims for complementary technology.