United States: Federal Circuit Saves Complementary Products From Exhaustion

In Helferich Patent Licensing v New York Times the Federal Circuit reversed the holding of the Northern District of Illinois on a summary judgment that earlier licences to handset makers exhausted the patent owner's rights on different patents directed to providing content. Helferich owned patents, deriving from a common specification, covering wireless communication technologies. Some patents covered handsets, while others covered the provision of content information to handsets. The court deemed these inventions to involve complementary activities or goods, where the use of one tended to make the other more useful.

Helferich licensed its portfolio to handset manufacturers. This exhausted its claims against possessors of handsets from licensed manufacturers ('authorised acquirers'). Importantly, Helferich's handset licences distinguished handset manufacturers from content providers. Helferich reserved its right to pursue infringement claims against the content providers and did so, accusing content providers of directly infringing the content claims.

On summary judgment, the district court concluded that Helferich's patent rights were exhausted. It reasoned that because Helferich had authorised every handset manufacturer to sell handsets, it had exhausted its ability to assert its content claims against content providers, as third parties which interact with handsets. However, the district court did not focus on the details of any particular patent claim or determine that the content providers or handset possessors infringed any of the handset or content claims. Rather, it premised its holding on its understanding that the content claims required use of a licensed handset.

Central to the appeal was whether the handset licences exhausted Helferich's infringement claims against content providers, which allegedly practised the content claims by providing information to handsets. In reversing the district court's decision, the Federal Circuit pointed out that the accused content providers did not purchase or use the licensed handsets, and Helferich did not accuse them of infringing any handset claims. As a result, the licensed handset claims were not asserted against any entity in the lawsuit; only the content claims were asserted.

The Federal Circuit rejected the content providers' argument that because Helferich had licensed the handsets, exhaustion should apply to any complementary products, such as the content provided to those handsets, even if separately patented. Exhaustion, the court reasoned, requires proof of infringement of the asserted claims (the content claims) by the authorised acquirers under the licence (the handset purchasers and possessors). This was not established. Helferich did not allege that any handset possessor practised any of the content claims—only that the content providers did so. Had the handset possessors' practice of the handset claims necessarily implied infringement of the content claims or vice versa, exhaustion may have applied. However, the parties disputed whether the content claims required a handset at all or, more narrowly, whether the content claims required handsets that embodied the inventive features of Helferich's handset claims, instead of an ordinary handset.

In reaching its conclusion, the Federal Circuit emphasised that the handset claims recited a separately patentable and distinct invention, subject to no restriction requirements by the US Patent and Trademark Office. When two related and complementary products are both patented, the court concluded, the authorised sale of a product under one patent does not necessarily prevent the patentee from enforcing its rights against the sale of complementary products under a second patent claiming a separate and distinct invention. This is true, according to the court, even if the two products are designed to be used together. Companies often innovate complementary goods to enhance the value of their products, which can lead to complementary patents being owned by a single patentee. Given the pervasiveness of complementary goods in the modern-day marketplace, the court declined to extend exhaustion by requiring an analysis of whether enforcement of a separate and distinct patent right against one complementary product would hamper an authorised acquirer's use of the licensed counterpart.

In reaching its conclusion, the Federal Circuit reasoned that its decision was supported by the Supreme Court's seminal decision in Quanta Computer v LG Electronics because the handset claims and content claims had their own separate inventiveness. Handsets meeting the handset claims did not necessarily perform the content claims and, likewise, content providers meeting the content claims did not necessarily do so using the claimed handsets. This independent inventiveness meant that enforcing the content claims did not leave the handset licenses worthless. Under the rationale of Quanta, the Federal Circuit could not conclude that the authorised handsets had no reasonable non-infringing use with respect to the content claims. Likewise, the Federal Circuit could not conclude that the handsets necessarily included all inventive aspects of the content claims.

The court's decision in Helferich confirms that exhaustion may not apply to third parties that have not acquired the licensed products. In appropriate circumstances, patentees can thus enforce separate patent rights even after licensing complementary goods or activities. Licensors can thus use Helferich as a guide to carve out complementary inventions in future licensing agreements in order to preserve their right to seek licences from entities providing complementary goods or activities. So long as the patents claim separately patentable inventions, a patentee's right to enforce complementary patents may be shielded from the exhaustion defence.

Originally printed in IAM Magazine.

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Events from this Firm
27 Nov 2017, Seminar, London, UK

Finnegan partner Anthony Tridico will present “U.S. Patent Case Law Update” at the Chartered Institute of Patent Attorneys’ annual Patent Case Law Review.

28 Nov 2017, Seminar, Milan, Italy

Finnegan partner John Paul will present “Internet of Things: Patent Liability, Enforcement and Licensing” and will join the Mock WIPO Mediation at International Technology Transfer—Licensing and ADR, co-hosted by Licensing Executives Society and World Intellectual Property Organization.

29 Nov 2017, Seminar, Tel Aviv, Israel

Finnegan is a platinum sponsor IVC Research Center’s start-up forum, “The Most Promising Start Ups for 2017 – A Synergy of Big Data, Artificial Intelligence, Machine Vision and IoT.”

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