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IP Alert: Federal Circuit Applies Patent Exhaustion Doctrine to Method Claims

October 21, 2013

On October 17, 2013, in Keurig, Inc. v. Sturm Foods, Inc., the Court of Appeals for the Federal Circuit issued an opinion clarifying the doctrine of patent exhaustion in the context of method patent claims.

The doctrine of patent exhaustion provides an affirmative defense to a claim of patent infringement. Under the doctrine, the sale of a patented item by the patentee “exhausts” all patent rights to that item. The doctrine is predicated on the theory that after such an initial authorized sale, the patentee no longer has the right to control the purchaser’s use of the item because the patentee has received full value for the goods. The doctrine has been most clearly established for patent claims that cover articles of manufacture. A patentee who sells a patented product generally may not sue the purchaser for patent infringement based on the purchaser’s use of the product.

Keurig, Inc., the patentee in this case, holds a number of patents that relate to single-serve beverage brewers. In these products, hot water is forced through a cartridge inserted into the brewer to produce a single-serve hot beverage, such as coffee. Keurig manufactures both single-serve coffee brewers and its own line of beverage cartridges. Other companies have begun selling cartridges that may also be used in such brewers, including the accused infringer, Sturm Foods, Inc.

Keurig filed suit against Sturm on two of Keurig’s patents, and in the lawsuit asserted only method claims of the patents. The asserted claims were drawn to a “method of brewing a beverage,” a method that ordinarily is practiced by the end user of the beverage brewers and not by the seller of the cartridges. Keurig alleged that purchasers of its brewers directly infringed the patent claims by using the brewers with Strum cartridges, and that Strum induced that infringement by selling the cartridges knowing that they would be used by the end users in this fashion. Sturm moved for summary judgment on its exhaustion defense, and the district court granted Sturm’s motion.

On appeal, the Federal Circuit affirmed. The court observed that Keurig offered its brewers for sale without condition, and that this act granted its customers the right to use those machines for as long as the machines remained functional. The asserted patents contained both method and apparatus claims, and Keurig acknowledged that its brewers were commercial embodiments of the apparatus claims. Accordingly, the court held that Keurig’s patents were exhausted in the entirety by the sale of the brewer, such that the customers “obtained the unfettered right” to use the brewers any way they chose.

Keurig pointed to earlier Supreme Court cases, Quanta Computer, Inc. v. LG Electronics, Inc. and United States v. Univis Lens Co., in which the Court established another test for patent exhaustion. In Quanta, the Court held that method claims of a patent are exhausted by an authorized sale of an item that substantially embodies the method if the item (1) has no reasonable noninfringing use and (2) includes all inventive aspects of the claimed method. Keurig argued that this test was the “only relevant analysis” for exhaustion of its asserted method claims. It then argued that its brewers could be used in a way that did not practice the method steps, specifically via the use of reusable cartridges.

The Federal Circuit disagreed. The court observed that in the earlier Quanta and Univis cases, the products that were sold by the patentees (microprocessors and eyeglass lens blanks) were not themselves patented. On the other hand, Keurig’s products were covered by other claims of the very patents asserted in the lawsuit. The court held that this resulted in an even stronger basis for applying the doctrine of patent exhaustion than in Quanta and Univis, and that a contrary holding would vitiate the exhaustion doctrine by allowing Keurig to control the post-sale use of its brewers despite having made an authorized unconditional sale. The court held that the “substantial embodiment” test created “a framework for determining whether the sale of an unpatented component . . . which by itself does not practice the patented method, is still sufficient for exhaustion.”

Keurig also argued that the exhaustion doctrine must be applied on a claim-by-claim basis. The court rejected this argument as well, holding that the Supreme Court’s 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.

In a concurring opinion, Judge O’Malley agreed that Keurig’s asserted patent rights were exhausted by sale of its patented brewers but opined that the majority had overreached in holding that exhaustion must be assessed based on the entirety of the patents at issue, rather than on a claim-by-claim basis. She stated that there may be instances in which a claim-by-claim analysis would be “necessary and appropriate” because each claim defines a separate invention and stands independent of the other claims.

The decision leaves certain questions unanswered. For instance, the court did not address what the result would have been if Keurig’s method claims and product claims had been presented in separate patents. While the court expressed a favorable opinion of the policy of preventing a patentee from controlling post-sale use, the specific grounds on which the court found exhaustion would not be present in such case. The court also did not address any attempt to impose post-sale contractual limitations on the use of a product.

If you would like to discuss the implications of the Keurig decision, please contact Fitch Even partner Stephen S. Favakeh.

Written by Fitch Even attorney Nicole L. Little

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