© 2004 Implied Patent Licenses and Patent Exhaustion D. Patrick O ’ Reilley IP Licensing & Litigation Seminar Taiwan, November 2004

2 IMPLIED LICENSES I No formal granting of a license is necessary in order to give it effect. Any language used by the owner of the patent, or any conduct on his party exhibited to another from which that other may properly infer that the owner consents to his use of the patent... upon which the other acts, constitutes a license and a defense to an action for a tort. DeForest Radio v. United States, 273 U.S. 236, 241(1927), accord Wang v. Mitsubishi, 103 F3d 1571 (Fed. Cir. 1997)

3 IMPLIED LICENSES II Implied licenses arise by acquiescence, by conduct, by equitable estoppel or by legal estoppel – Wang, supra. ( “ These labels describe not different kinds of licenses, but rather different categories of conduct which lead to the same conclusion: an implied license. The label denotes the rationale for reaching the legal result ” )

4 IMPLIED LICENSES III Acquiescence – Patent owner tolerates infringement for extended period – Estoppel presumed from 6 years of laches Aukerman v. Chaides, 960 F.2d 1020 Conduct – Implied in fact - facts inferring mutual consent i.e., payment and acceptance of royalty Must reflect mutual expectations of the parties Must be connection between facts and implied license  Stickle v. Heublein, 716 F.2d 1550 Cannot be inconsistent with express terms, i.e., disclaimer

5 IMPLIED LICENSES IV Conduct – Unrestricted sale of patent product by patentee or under his authority (unrestricted, authorized sale by licensee) Patent exhaustion Conveys to purchaser implied license to use, repair and resell the product  Aro v. Convertible Top, 377 U.S. 476, 484

6 IMPLIED LICENSES V Equitable Estoppel – Arise From Misleading Conduct of Patent Owner Inducing Detrimental Action/Reliance Each Case is Fact Dependent  Scholle v. Blackhawk, 133 F.3d 1469 — traditional failure to sue after threat  Ricoh v. Nashua, 185 F.3d 884 (non- precedential) — silence re pending appl'n not estoppel Aukerman v. Chaides, 960 F.2d 1020; Wang v. Mitsubishi, supra – Must be aware of patent and conduct Winbond v. Atmel, 262 F.3d 1363 (Fed. Cir. 2001)

7 IMPLIED LICENSES VI Legal Estoppel – Attempt to derogate from right granted – After Acquired Right AMP v. U.S., 389 F.2d 448 But see, Spindelfabrik v. Schubert, 829 F2d 1075; ZapatA v. W.R. Grace, 51 USPQ2d 1619 (buyer ’ s assumption of license agreement does not create license under buyer ’ s prior patents) – Unlicensed Dominant Patent Can Avoid With Notice and Disclaimer Cannot Avoid With Nondisclosure  3M v. DuPont, 448 F.2d 54

8 IMPLIED LICENSES VII Disclaimer – "Nothing contained in this Agreement shall be construed as conferring by implication, estoppel or otherwise, upon any party licensed hereunder, any license or other right under any patent except the licenses and rights expressly granted hereunder." Lemelson Medical v. Intel Corp., 52 USPQ2d 1122 Used to preclude construction of grant clause to encompass patents not expressly licensed May not work for legal estoppel

9 EXAMPLES OF IMPLIED LICENSES Patents on Adopted Standards – ANSI Regulations Require Licensing – Implied License if Owner Participated in Setting Standard Potter v. Storage, 207 USPQ 763 Stambler v. Diebold, 11 USPQ2d 1709 But see, Rambus v. Infineon, 2003 US App LEXIS 1421 – FTC may take action In re Dell Computer, 121 FTC 616 (1996) Rambus, Sun and Unocal actions pending – But if Disclose Patent and License Terms Townshend v. Conexant, 55 USPQ2d 1011

10 EXAMPLES OF IMPLIED LICENSES License For Life of Product, Not Patent – Carborundum v. Molten Metal, 72 F.3d 872 Implied license to patented system dependant on purchase from patent owner of non-staple pump Remedy for Patent Owner Breach of Supply Contract – McCoy v. Mitsuboshi, 67 F.3d 917 Sale of Patented Product Made Under Contract with Patent Owner

11 IMPLIED LICENSES IN PATENT CONTEXT To Make Implies To Have Made To Make Implies To Use or Sell To Make and Sell Implies To Use To Make and Use Does Not Imply To Sell To Sell Does Not Imply To Make – If Product Otherwise Available Will To Sell Imply Offer to Sell? Will To Sell Imply Import?

12 PATENT EXHAUSTION Authorized and unrestricted sale of patented product conveys implied license to use and resell that product – Adams v. Burke, 17 Wall 453; Braun v. Abbott, 124 F.3d 1419 Unrestricted sale of component having no use except in patented product, exhausts patent to product – U.S. v. Univis Lens, 316 U.S. 241 Unrestricted sale of product having no use except in patented system, exhausts patent to system – Elkay v. Ebco, 42 USPQ 2d 1555 any "reasonable or practical use" precludes license – Glass Equipment v. Besten, 174 F.3d 1337 Sale of unpatented product does not exhaust patent if product has "reasonable" non-infringing use

13 PATENT EXHAUSTION II Includes Right to Repair But Not Reconstruct – Aro Mfg. v. Convertible Top, 365 US 336 – Zenith v. Universal, 846 F.Supp. 641 – Jazz Photo v. ITC, 264 F.3d 1094 – Includes replacing or modifying parts not broken or worn Surfco Hawaii v. Fin Control Sys., 264 F3d 1062

14 PATENT EXHAUSTION III Exhaustion may be avoided by conditioning – Express contractual restriction imposed on purchaser Mallinckrodt v. Medipart, 976 F.2d 700 Braun v. Abbott Labs, 124 F.3d 1419 Cf. Met-Coil v. Korners, 803 F.2d 684 Pioneer Hi-Bred v. Ottawa Plant, 283 F.Supp 2d 1018 Arizona Cartridge v. Lexmark, 290 F.Supp 2d 1034 – Condition must be in form of a contract Jazz Photo v. ITC, 264 F.3d 1094 LG Electronics v. Asustek, 248 F.Supp 2d 912

15 International Exhaustion Unrestricted sale of product in one country authorized by owner of IPR in second country prevents enforcement of IPR in second country against import, use or sale – Only applies if second country has adopted international exhaustion as part of its law – Difference between international exhaustion and territoriality of IPR

16 International Patent Exhaustion Varies country by country Territorial patent rights applied in Belgium, Brazil, France, Germany, Korea International exhaustion may apply in countries with Common Law heritage (Canada, Australia, Singapore), Japan, Venezuela

17 International Patent Exhaustion in the United States Recent change in the law – Jazz Photo v. ITC, 264 F.3d 1062 (Fed. Cir. 2003) Clear statement that exhaustion of U.S. patent requires sale under U.S. patent Cites Boesch v. Graff, which does not stand for proposition Until clarified or modified by statute, international patent exhaustion does not exist in U.S.

18 U.S. Legislative Action Parallel imports of pharmaceutical products politically popular – Import price controls to reduce cost to consumer Pharmaceutical Market Access Act of 2004 (S 2328) – It shall not be an act of infringement to use, offer to sell, or sell within the United States or to import into the United States any patented invention under section 804 of the Federal Food, Drug, and Cosmetic Act that was first sold abroad by or under authority of the owner or licensee of such patent. Not law. Will not pass this year. Probably unlawful under TRIPS Treaty May be violation of U.S. Constitution

19 Future of Exhaustion In 1990 ’ s trend was toward international exhaustion – Japan changed its law – patents artificial obstacle to international trade Since then EU has confirmed and U.S., with little discussion, invoked territoriality of IPR No clear industry position Academics take various positions Future is not clear.

20 For More Information D. Patrick O ’ Reilley Finnegan, Henderson, Farabow, Garrett & Dunner LLP Washington