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Patent Exhaustion Territoriality

Posted Monday, April 22, 2013 by Mike Cicero

Patent Exhaustion is a doctrine governing the effect of an unconditional sale of a device that is covered by a valid and otherwise enforceable patent. Generally, under the patent exhaustion (also known as “first sale”) doctrine a patentee’s rights over a particular article end following an authorized sale of the particular article. A currently hot issue regarding this doctrine is whether there is a territoriality requirement for patent exhaustion or, in other words, whether a sale made outside the U.S. or its territories triggers patent exhaustion.

Intellectual property cases are seemingly being taken up by the Supreme Court of the United States with greater frequency now than they have been in the past. One recent and somewhat controversial case is that of Kirtsaeng v. John Wiley & Sons, Inc., which dealt with a copyright issue regarding first sale. 568 U.S. ___ (2013). Here, book publisher John Wiley & Sons filed a copyright infringement suit against a Thailand native Supap Kirtsaeng for importing certain textbooks made and sold outside the U.S. (presumably in Thailand but it is unclear from the decision) and then resold within the U.S. by Kirtsaeng on eBay. Because the identical books were sold much cheaper in the non-U.S. market, Kirtsaeng was able to import them and sell them at a steep profit. In a 6-3 decision, the Court held that the first sale doctrine applies to articles made and sold outside the U.S. because such articles are “lawfully made under this title” according to the Court’s reading of the applicable statute.

Although policy concerns of patent and copyright law are similar and often lead to somewhat analogous provisions, this is an area where the two areas of law sharply differ (at least for now). In contrast to copyright law, the patent exhaustion does have a territoriality requirement that was announced in Jazz Photo Corp. v. International Trade Commission and which requires that an authorized sale take place within the U.S. in order to exhaust the patent owner’s rights. 264 F.3d 1094 (Fed. Cir. 2001). This principle was reaffirmed in Fujifilm Corp. v. Benum, wherein the Court of Appeals for the Federal Circuit rejected arguments that that the Supreme Court had eliminated the territoriality requirement in *Quanta Computer, Inc. v. LG Electronics, Inc., *553 U.S. 617 (2008) and has not been readdressed to date. 605 F.3d 1366 (2010).

So as of this point in time first sale doctrine of patent law requires an authorized sale to take place within the U.S. (or its territories) while the first sale doctrine of copyright law has no such requirement. Despite this apparent conflict, however, the Supreme Court has recently denied a petition for a writ of certiorari submitted by NineStar seeking for the Court to align the international patent exhaustion laws with the newly announced rule of copyright. Defendants in patent suits will surely continue to be raised until eventually the Supreme Court speaks on the issue.

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