Thursday, April 09, 2009

CAFC addresses patent exhaustion in Transcore

Exhaustion was found and the patentee lost.

Of note:

Rather, our analysis begins with the premise that one cannot convey what one
does not own. This principle is particularly important in patent licensing, as the grant of
a patent does not provide the patentee with an affirmative right to practice the patent but
merely the right to exclude. See 35 U.S.C. § 154(a)(1)

Supreme Court made clear that the patent laws provide a limited right to exclude others
from making, using, or selling a claimed invention for a limited period of time, but afford
no affirmative right to make, use, and sell a patented invention.” (citing Bloomer v.
McQuewan, 55 U.S. (14 How.) 539, 548 (1852)

It follows, therefore, that a patentee, by license or otherwise, cannot convey
an affirmative right to practice a patented invention by way of making, using, selling,
etc.; the patentee can only convey a freedom from suit.

To like effect,
this court and its predecessors have on numerous occasions explained that a non-
exclusive patent license is equivalent to a covenant not to sue:

As a threshold matter, a patent license agreement is in essence nothing
more than a promise by the licensor not to sue the licensee. Even if
couched in terms of “[l]icensee is given the right to make, use, or sell X,”
the agreement cannot convey that absolute right because not even the
patentee of X is given that right. His right is merely one to exclude others
from making, using or selling X. Indeed, the patentee of X and his
licensee, when making, using, or selling X, can be subject to suit under
other patents. In any event, patent license agreements can be written to
convey different scopes of promises not to sue, e.g., a promise not to sue
under a specific patent or, more broadly, a promise not to sue under any
patent the licensor now has or may acquire in the future.
Spindelfabrik Suessen-Schurr, Stahlecker & Grill GmbH v. Schubert & Salzer
Maschinenfabrik Aktiengesellschaft, 829 F.2d 1075, 1081 (Fed. Cir. 1987)

The topic of parol evidence arose:

As a subordinate issue to the proper interpretation of the covenant not to sue,
TransCore argues that the district court abused its discretion by excluding parol
evidence of TransCore’s and Mark IV’s intent at the time they entered into the
settlement agreement. We disagree. (...)

Applying Fifth Circuit law, “unless the trial court
has abused its discretion and a substantial right of the defendant has been affected, we
will not reverse on the basis of [an] evidentiary ruling in question.” United States v.
Saldana, 427 F.3d 298, 306 (5th Cir. 2005).

The concept of "sister company" arose:

Because the term “sister company” is commonly used and generally
understood to refer to a subsidiary company that shares common ownership (i.e., a
common “parent”) with another subsidiary company, see generally, e.g., Poly-America,
L.P. v. GSE Lining Tech., Inc., 383 F.3d 1303 (Fed. Cir. 2004) (referring to two
corporations that share a common parent as “sister corporations”); Humana Inc. v.
Comm’r, 881 F.2d 247 (6th Cir. 1989) (referring to all subsidiaries of Humana, Inc. as
“brother-sister” corporations), we find it to be beyond dispute that Mark IV US is a
“sister” company of Mark IV Canada and thus has the same express authority under the
TransCore–Mark IV settlement agreement as any other “sister” company.

The topic of legal estoppel came up:

As explained by our predecessor court in AMP Inc. v. United States, 389 F.2d
448 (Ct. Cl. 1968):

[W]hen a person sells a patent which employs an invention which infringes
a prior patent, the person selling is estopped from bringing an action
against his grantee for that infringement, even though the earlier patent is
acquired after the sale of the later patent. The same principle applies to
the grant of a patent right by license as well as assignment.
Id. at 451 (citation omitted). Although TransCore argues that this form of legal estoppel
only applies to “prior” or “earlier” patents, we see no reason for so fine a distinction—the
timing of patent issuance is no more relevant to this inquiry than the timing of
acquisition. Indeed, the court in AMP explained the policy rationale underlying the legal
estoppel doctrine in the following manner:

The essence of legal estoppel that can be found in the estoppel of the
implied license doctrine involves the fact that the licensor (or assignor) has
licensed (or assigned) a definable property right for valuable
consideration, and then has attempted to derogate or detract from that
right. The grantor is estopped from taking back in any extent that for
which he has already received consideration.

Id. at 452. The basic principle is, therefore, quite simple: “Legal estoppel refers to a
narrow[] category of conduct encompassing scenarios where a patentee has licensed or
assigned a right, received consideration, and then sought to derogate from the right
granted.” Wang Labs., Inc. v. Mitsubishi Elecs. Am., Inc., 103 F.3d 1571, 1581 (Fed.
Cir. 1997).


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