Federal Circuit Finds Patent Exhaustion From Sale of Keurig Coffee Machines

25 October 2013 PharmaPatents Blog

In Keurig, Inc. v. Sturm Foods, Inc., the Federal Circuit upheld the district court’s decision that Keurig’s patent rights were exhausted by the sale of its machines, and so not infringed by the defendant’s sale of replacement coffee cartridges. Foley &Lardner LLP represented the appellee in this appeal, but this summary is based only on the public record, as reflected in the Federal Circuit decision.

The Patents At Issue

The patents at issue were Keurig’s U.S. Patent 7,165,488 and U.S. Patent 6,606,938. Claim 6 was designated as representative:

6. A method of brewing a beverage from a beverage medium contained in a disposable cartridge, comprising the following steps, in sequence:
(a) piercing the cartridge with a tubular outlet probe to vent the cartridge interior;
(b) piercing the cartridge with a tubular inlet probe;
(c) admitting heated liquid into the cartridge interior via the inlet probe for combination with the beverage medium to produce a beverage; and
(d) extracting the beverage from the cartridge interior via the outlet probe.

Keurig asserted that Sturm was liable for contributory infringement because the use of Sturm’s replacement cartridges “in certain Keurig brewer models” directly infringed its claims. As summarized by the Federal Circuit, “Sturm asserted the affirmative defense of patent exhaustion and moved for summary judgment of noninfringement, which the district court granted.”

The Federal Circuit Decision

The Federal Circuit decision was authored by Judge Lourie and joined by Judge Mayer. Judge O’Malley filed a concurring opinion.

The Federal Circuit summarized the doctrine of patent exhaustion as follows:

“The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta [Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617,] 625 [(2008).] The rationale underlying the doctrine rests upon the theory that an unconditional sale of a patented device exhausts the patentee’s right to control the purchaser’s use of that item thereafter because the patentee has bargained for and received full value for the goods.

The Federal Circuit explained that “[t]he leading cases in which the patent exhaustion doctrine has been applied to method claims are Quanta and United States v. Univis Lens Co., 316 U.S. 241 (1942),” and summarized these cases as establishing that “method claims are exhausted by an authorized sale of an item that substantially embodies the method if the item (1) has no reasonable noninfringing use and (2) includes all inventive aspects of the claimed method.” The court also noted that in these cases the Supreme Court “emphasized the unpatented nature of the products sold. Thus, the Federal Circuit reasoned that the “substantial embodiment test” is applied when determining “whether the sale of an unpatented component … is still sufficient for exhaustion.” Because the machines sold by Keurig were patented, the Federal Circuit found that the district court had not erred in not applying this test.

The court explained and rejected Keurig’s arguments as follows:

Keurig did not assert its cartridge patent against Sturm and does not dispute that its rights in its brewers were exhausted with respect to the apparatus claims of the asserted patents. …. Instead, Keurig alleges that purchasers of its brewers infringe its brewer patents by using Sturm cartridges to practice the claimed methods and therefore that Sturm is liable for induced infringement. However, as the Supreme Court long ago held [in Quanta], “[W]here a person ha[s] purchased a patented machine of the patentee or his assignee, this purchase carrie[s] with it the right to the use of the machine so long as it [is] capable of use.” …. Keurig sold its patented brewers without conditions and its purchasers therefore obtained the unfettered right to use them in any way they chose, at least as against a challenge from Keurig. We conclude, therefore, that Keurig’s rights to assert infringement of the method claims of the ’488 and ’938 patents were exhausted by its initial authorized sale of Keurig’s patented brewers.

The Federal Circuit also rejected Keurig’s argument that “patent exhaustion must be adjudicated on a claim-by-claim basis.”

The Court’s patent exhaustion jurisprudence has focused on the exhaustion of the patents at issue in their entirety, rather than the exhaustion of the claims at issue on an individual basis. …. Keurig’s decision to have sought protection for both apparatus and method claims thus means that those claims are judged together for purposes of patent exhaustion.

 Hmmm.

Judge O’Malley’s Concurrence

Judge O’Malley wrote separately concurring “in the judgment only,” and disagreeing that “exhaustion should not be assessed on a claim-by-claim basis.” (She also characterizes that portion of the majority decision as dicta.) She explained her views as follows:

There could be instances where assessing exhaustion on a claim-by-claim basis—the same way we conduct almost every analysis related to patent law—would be necessary and appropriate. “[E]ach claim must be considered as defining a separate invention.” …. “Because patent claims are independent of each other, it stands to reason that the legal doctrine of patent exhaustion should apply on a claim-by-claim basis.” …. Thus, to the extent the majority purports to lay down a blanket rule affecting cases with facts that diverge widely from those we consider today, I must dissent.

Patent Prosecution Strategies Under Keurig

Although Keurig did have patents on its coffee cartridges, this cases serves as a reminder that it can be important to have patents specifically directed to the items that will be sold in the commercial or consumer marketplace, even if a larger product (or method) also is patented.

If the majority view that patent exhaustion applies to a patent as a whole stands, applicants may want to consider filing separate patent applications to pursue claims directed to subject matter related as combination and subcombination, or at least consider not arguing against an examiner’s decision to restrict such claims.

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