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First Sale, Patent Exhaustion Face Stiff Debate In Courts, Classrooms

Publication Date: 
November 09, 2010
BNA Patent Trademark & Copyright Journal

Professor Mark Lemley is quoted in the following story from the BNA Patent Trademark & Copyright Journal. His comments about contract law and patent exhaustion can be found here:

As the U.S. Supreme Court prepared to hear arguments in how far intellectual property holders can reach to restrict downstream sales, law professors Nov. 5 gathered in Silicon Valley to debate liability issues and limitations of the first sale doctrine.

In a evolving world of digital copies, shrinkwrap licenses, internet auctions, and cloud applications, the question of who owns what and who controls what become billion-dollar issues for content creators, users, sellers, and resellers.


Stanford Law Professor Mark Lemley of said changes in the past 20 years to contract law and to the law of antitrust and misuse “end up rebounding in odd ways in the patent exhaustion world.’’

The rule, said Lemley, is “you only get to sell your invention once. You don't get to sell the same invention multiple times.’’ A consumer who buys a car and drives it off the lot cannot be sued for patent infringement on grounds of driving a car and even reselling it, he said.

But, Lemley said, the Federal Circuit and the patent bar “have convinced each other over the past two decades that the same thing was not true if your patent covered a method rather than a product’’ and thus the person driving off the lot could be sued because patent exhaustion did not apply.

The question not clearly answered by such cases as Quanta Computer Inc. v. LG Electronics Inc ,553 U.S. 617, 86 USPQ2d 1673 (2008)( was the extent to which patent law can be abrogated by contract, he said. The Federal Circuit over the past two decades “made it extraordinarily easy to do so,’’ including the 1992 decision in Mallinckrodt Inc. v. Medipart Inc., 976 F.2d 70, 24 USPQ2d 1173 (Fed. Cir. 1992) that a sticker put on a medical device created a contract sufficient to allow a patentee to avoid exhaustion.

As a matter of contract law, Lemley said, Mallinckrodt“was an insane decision’’ for which there was no precedent, he said. “Unfortunately, in the intervening last two decades, we've bought into crazy,’’ Lemley said.

In the past decade the issue has moved even further so just visiting a website is deemed to have created a contract, Lemley said, notwithstanding that the only way to see those terms and conditions is to visit the site.

“The result is I think that as we move from a world in which the default rule is patent exhaustion, but sophisticated parties can contract around it, to a world in which contracting around the patent exhaustion rule become in the Federal Circuit's view the norm,’’ Lemley said.