US Federal Circuit Narrows Exhaustion Doctrine in Helferich Patent Licensing v NYTimes and JCPenney

In Helferich Patent Licensing LLC v New York Times Company, No 14-1196(Fed Cir Feb 10, 2015), the United States Court of Appeals for the Federal Circuit (CAFC) imposed new restrictions on the “first sale” or “exhaustion doctrine”, finding that the district court erred in holding that the patentee’s claims were barred due to exhaustion.

Under the exhaustion doctrine, after a patentee authorizes the sale of a particular device or article, the patentee no longer has any further exclusive patent rights in association with that authorized article. Accordingly, when the authorized product is later used or re-sold, the patentee cannot claim damages for infringement.

Exhaustion is intended to prevent a situation where a patent holder can “send its machines forth into the channels of trade of the country subject to conditions as to use or royalty to be paid, to be imposed thereafter at the discretion of the patent owner” (Motion Picture Patents Co v Universal Film Manufacturing Co, 243 US 502 (1917) at 516).

Helferich Patent Licensing LLC (Helferich) has over 30 patents all relating to wireless handsets and related communication methods. Helferich licenses its portfolio to most handset makers selling in the U.S. However, those licences expressly carve out activity by “content providers”, stating particularly that the licences do not grant any rights for content providers to practise the claimed methods.

Helferich sued the New York Times, JCPenney and other content providers for infringing their patents by alerting cell phone users that content was available for download on the devices. In defence, the content providers asserted that Helferich authorized cell phone manufacturers to make phones that practise its patents and the exhaustion doctrine blocks any use of the phones that could be seen as infringing.

The Court of Appeals for the Federal Circuit found that the exhaustion doctrine did not block Helferich’s claims. The Court narrowly construed the exhaustion doctrine, asserting that it only applies when “the patentee’s assertion of infringement was, or depended on, an assertion that an authorized acquirer was using the same invention by infringing the asserted claims”. This limits the doctrine to a defence asserted by the acquirer of an authorized article (here, a handset), and does not apply to protect other parties. The distinction is important because according to this decision, the patentee retains rights in the article against parties who are not “authorized acquirers”.

Although the Court found that the patentee authorized a first sale of the devices, the New York Times and other defendants were not “authorized acquirers” of the patented devices. The defendants never acquired the devices at all; they merely sent messages to consumers who happened to be using the devices. For this reason, the Court held the defendants could not rely on the exhaustion doctrine to escape liability for infringing Helferich patent rights in the licensed cell phones. The Court concluded that it will not apply the exhaustion doctrine “to hold that authorized sales to persons practising the handset claims exhaust the patentee’s rights to enforce the asserted content claims against different persons.”