United States: Claim Drafting Exhaustion: Potential Implications Of Claim Format

In the landmark case Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), the Supreme Court considered whether and to what extent the authorized sale of an unpatented component may exhaust patent rights covering a method performed by the component when integrated into a product.  The Court held that exhaustion may arise where the component includes all inventive aspects of the patented method and has no reasonable noninfringing use.  Id. at 638.  The Federal Circuit recently considered whether this two-part test—the so-called "substantial embodiment" test—applies in the situation where the product being sold is itself patented.  In Keurig, Inc. v. Sturm Foods, Inc., 732 F.3d 1370 (Fed. Cir. 2013), the Federal Circuit held that the substantial-embodiment test is inapplicable in that situation and exhaustion applies based on the authorized sale of the patented product.  The Federal Circuit's decision is relevant to practitioners when deciding what types of claims, e.g., method and/or apparatus, to include in an application.

In the Keurig district court litigation, Keurig alleged that single-serve beverage cartridges manufactured and sold by Sturm for use in Keurig's beverage-brewing machines infringed two Keurig patents.  The claims asserted by Keurig were all method claims, and were directed to brewing a beverage (e.g., coffee) using a cartridge.  Keurig alleged that the method claims were directly infringed based on the use of Sturm cartridges, and that Sturm was liable for indirect infringement by inducing and contributing to that infringement.

At summary judgment, Sturm argued that it did not infringe the claims because Keurig's patent rights were exhausted.  In particular, Sturm argued that Keurig's initial authorized sale of its brewing machines triggered exhaustion, because the machines completely practiced the claimed invention.  According to Sturm, because the brewing machines themselves were patented articles—rather than mere components that incompletely practiced the invention—the substantial-embodiment test from Quanta did not apply.  The district court agreed with Sturm and granted summary judgment of noninfringement.

On appeal, Keurig argued that the district court erred by not applying Quanta's substantial-embodiment test.  Keurig argued that there was no exhaustion because, under that test, its brewers did not substantially embody the asserted method claims due to the machines' various noninfringing uses.  Sturm responded that the substantial-embodiment test was inapplicable, because it was created only to address situations where the component being sold is unpatented.  According to Sturm, because the brewer itself is patented and is the article being sold, exhaustion applies without regard to the substantial-embodiment test.

The Federal Circuit agreed with Sturm and affirmed the district court's summary judgment of noninfringement.  As the Federal Circuit explained, the underlying rationale of the exhaustion doctrine is 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."  Id. at 1373.  The Federal Circuit noted that the Supreme Court's decisions in Quanta and United States v. Univis Lens Co., 316 U.S. 241 (1942), dealt with situations where the product being sold was unpatented but nonetheless substantially embodied a patented method.  Here, by contrast, the product being sold was patented, because it was undisputed that Keurig's brewers were commercial embodiments of the apparatus claims in its patents.

The majority of the Federal Circuit panel also expressed concern that Keurig's argument, if accepted, would undermine the policy of exhaustion.  As the majority explained, Keurig's argument would allow patentees to include both apparatus and method claims in their patents, where the apparatus claims could potentially be exhausted without the method claims being exhausted.  The majority also noted that "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, 732 F.3d at 1374.  Consequently, "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."  Id.

In a concurring opinion, Judge O'Malley agreed that Keurig's method claims were exhausted but based on a simpler analysis.  Judge O'Malley explained that a long-standing principle of exhaustion, that "the initial authorized sale of a patented item terminates all patent rights to that item," was sufficient to resolve the case.  Id. at 1375 (O'Malley, J., concurring) (quoting Quanta, 553 U.S. at 625).  According to Judge O'Malley, "Keurig's patent rights covering normal methods of using its brewers to brew coffee would be exhausted by the sale of the Keurig brewers, regardless of which patent or patents contain the relevant apparatus and method claims."  Id.

Practitioners should take note of Keurig when deciding what types of claims to include in a patent application.  Keurig reiterated the holding in Quanta that exhaustion can apply to all types of claims (e.g., method or apparatus).  Nevertheless, it was important to each of the judges that issued the Keurig decision that the Keurig brewers were themselves patented articles.  The majority appeared to reach this conclusion because the "brewers are commercial embodiments of the apparatus claims of the [asserted] patents."  Id. at 1373 (majority opinion).  If the patents included only method claims, not apparatus claims, the court may have been less willing to find that Quanta's substantial-embodiment test was inapplicable and, hence, exhaustion may have been tougher to prove.1  Therefore, when practitioners consider what types of claims to draft for a contemplated commercial product, they should be cognizant of the increased likelihood of exhaustion applying when an apparatus claim is included that embodies the product.


1 For a very recent example of how the Quanta "substantial embodiment" test applies, refer to the Federal Circuit's decision in LifeScan Scotland, Ltd. v. Shasta Technologies., LLC, No. 2013-1271 (Fed. Cir. Nov. 4, 2013).  In LifeScan Scotland, the Federal Circuit found that a patent claiming a method for using a blood-glucose meter was exhausted by the sale of testing strips because they substantially embodied the patented method.

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