April 2, 2009

“Patent Exhaustion” [8:28 am]

It appears that Static Control has scored some more points in its dispute with Lexmark, this time also possibly deflating some of the notions of “clickwrap” as well. See 5:02-517 & 5:04-84, Static Control v. Lexmark, from US District Court, Eastern District of Kentucky; March 31, 2009; Judge Gregory F. Van Tatenhove.

In more general terms, “The authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control postsale use ofthe article.” Id. According to the Supreme Court, then, the LGE-Intel agreement did not impose conditions on the sale of the patented products, but rather attempted to impose conditions on the use ofthose products after a fully authorized sale.

In its Motion to Reconsider, Static Control asserts that “[t]he patent exhaustion doctrine articulated in Quanta invalidates Lexmark’s effort to create patent-based use restriction through its postsale Prebate terms, as well as Lexmark’s attempt to enforce the Prebate terms under patent law against Static Control.” [R. 1422-2 at 6.] This Court Agrees. Like LGE, Lexmark does not impose any restrictions on the sale of its patented products-toner cartridges. Additionally, like LGE, Lexmark attempts to reserve patent rights in its products through post-sale restrictions on use imposed on its customers. This is what Quanta says Lexmark cannot do. As Static Control puts it, “LGE could not preserve its patent rights through a postsale restriction on an authorized sale, even when the subsequent purchaser was on notice of the asserted patent rights.” Now, neither can Lexmark.

[...] In sum, after Quanta this Court is compelled to reconsider and reverse a decision that at the time was consistent with the Federal Circuit’s articulation of the law. Because Lexmark’s patent rights in its toner cartridges were exhausted by the authorized, unconditional sales of the cartridges to end users, Lexmark’s attempt to impose single-use restrictions on the cartridges fails. The Prebate Program is invalid under patent law.

For a little background, see By Tearing Open That Cardboard Box, Are You Also Signing on the Dotted Line? (pdf). The text of the Lexmark “clickwrap” can be found in a footnote in the cited decision:

RETURN EMPTY CARTRIDGE TO LEXMARK FOR REMANUFACTURING AND RECYCLING

Please read before opening. Opening this package or using the patented cartridge inside confirms your acceptance of the following license agreement. This patented Return Program cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for remanufacturing and recycling. If you don’t accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available.

Also from the decision, a primer on “patent exhaustion,” which is essentially an application of the notions of “first sale” in conjunction with the concept of patents:

In sum, the Supreme Court’s overview of its history of statements on the law of patent exhaustion [in Quanta] reveals that the Court has consistently held that patent holders may not invoke patent law to enforce restrictions on the post-sale use of their patented products. After the first authorized sale to a purchaser who buys for use in the ordinary pursuits of life, a patent holder’s patent rights have been exhausted.

Quanta itself reaffirms the Supreme Court’s articulation of the doctrine of patent exhaustion as set forth in the cases discussed in the previous section. It represents a change in the law, however, because the Court reasserted a broad understanding of patent exhaustion in the face of Federal Circuit case law that had narrowed the scope of the doctrine. That Federal Circuit case law had been followed as binding precedent by the district courts, including this one.

Or, in other words, this decision says that the constraints that have been creeping in to limit “patent exhaustion” are probably not going to survive, in this Court’s opinion.

We’ll see, of course

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“Piracy?” [8:02 am]

While I am confident that a breach of contract has been committed, it’s not clear yet that it’s even a crime. And “piracy?” Amazing how we manipulate language these days: Piracy Puts Film Online a Month Before Theater Opening (pdf)

The troubling leak — which some people initially dismissed as an April Fool’s Day prank — occurred at a time when media companies are working harder than ever to curtail digital piracy of content. Illicit recordings of films usually appear on the Internet shortly after their theater debuts, but leaks before the premiere dates are rare. Hollywood studios spend millions of dollars to track every step of the film production process to avoid such potentially costly leaks.

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