A patent is a limited monopoly awarded to an innovator for a period of time to exclude others from certain activities. As such, it represents a limited exception to antitrust laws and pro-competitive public policy. The dividing line between what the patent statute and courts convey to a patent owner as an award for innovation and what the law reserves to the public domain is in a constant state of flux. One way the reach of patent rights is limited is by the doctrine of “patent exhaustion,” which, simply put, is the point at which a patentee’s rights can no longer be used against third parties because the patentee has exceeded the true scope of the patent’s exclusionary right, i.e., the rights become “exhausted.” A basic example includes a patentee making an unrestricted sale of a patented product to a third party, thereby transferring ownership, at which point the patentee cannot stop the third party from doing what it wants with the purchased product.
For years, patent owners operated with a couple basic assumptions related to patent law and the doctrine of exhaustion when creating licensing structures and sales agreements. One is that a patent holder has the ability to sell and license its patent rights to third parties and incorporate in its sales contracts or licenses lawful conditions or restrictions on downstream actions without necessarily exceeding the scope of the patent rights. The other assumption is that an initial sale outside the United States by a patentee would not exhaust the patentee’s right to block goods from importation into the United States. These assumptions are relevant to evaluating the impact of changes recently made to patent exhaustion law.
