Patent Exhaustion Applies to Gifts, Too

November 4, 2013

Turhan F. Sarwar

What This Means to You

  • Even free distribution of products that substantially embody a patent claim can trigger patent exhaustion.
  • Businesses relying on refills for revenue should be especially conscious of how patents are used to protect core technology. To the extent possible, target claims that cover the refills to avoid patent exhaustion issues.

Overview

In LifeScan Scotland, Ltd. v. Shasta Technologies, LLC, the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) addressed whether patent exhaustion principles apply to products distributed for free. The Federal Circuit reversed a district court’s preliminary injunction and remanded, holding that LifeScan’s distribution of free blood glucose meters exhausted its patent rights because the meters substantially embodied the asserted patent claims.

Case Background

LifeScan filed suit against defendant Shasta, alleging that the manufacture and distribution of Shasta’s GenStrips—a blood glucose test strip designed to work with LifeScan’s “OneTouch® Ultra®” monitoring system—indirectly infringed LifeScan’s patent.

LifeScan’s patent covers a “method of measuring the concentration of a substance in a sample liquid” by using multiple sensors (on a strip, for example) and a device capable of measuring electric currents.

LifeScan sought a preliminary injunction. Shasta opposed, arguing that the OneTouch® Ultra® device substantially embodied LifeScan’s invention, which exhausted LifeScan’s rights under the patent. The district court granted LifeScan’s motion for a preliminary injunction and held that LifeScan was likely to establish that its patent was not exhausted with respect to at least the meters distributed for free; the court also held that the meters sold did not exhaust LifeScan’s rights, because the meters did not embody the inventive feature of the asserted patent.

Decision Analysis

In reversing, the Federal Circuit established definitively that a patent can be exhausted via any legal transfer of a product embodying the inventive feature of an asserted patent, regardless of whether that transfer is a gift or a sale.

The Federal Circuit also rejected a number of LifeScan’s attempts at avoiding exhaustion.

LifeScan argued that its meters had reasonable (if unintended) non-infringing uses, and thus it had not exhausted its patent rights in the infringing use covered by the claims. In response, the Federal Circuit held that the existence of a potential non-infringing use did not prevent patent exhaustion when the accused use was contemplated by the patent itself.

LifeScan also argued that its meters did not embody essential features of the patent, and that in fact its test strips were the inventive aspect of its invention. The Federal Circuit pointed to the specification, claims, and prosecution history for support that the meters did in fact embody the invention. In particular, the Federal Circuit highlighted steps in the claims that only the meters could accomplish, and noted that claims for test strips were rejected during prosecution and subsequently abandoned.

Takeaways

This case highlights the dangers that the patent exhaustion doctrine poses to business models relying on refills. If you anticipate profiting primarily from refills, isolate what it is you intend to base your profits on during patent prosecution, and consider crafting your claims to narrowly protect that. Broader claims that also cover aspects of—or tasks completed by—the products that use your refills will put you in danger of exhausting your rights.

Remember that once the legal rights to a product change hands—by sale or by gift—if a court finds that the product substantially embodies your patent, your options for protecting your rights against competitor refills are limited.