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Christopher Pignato - After years of hard work, patience, money and effort, an inventor who receives a patent finally has his ticket to easy street, right? An iron clad way of monopolizing his great invention and the ability to limit access by the public? Many unknowledgeable individuals believe that once a patent has been granted, that they have the unlimited right to control who is and is not allowed to use their patented products and by merely securing those monopoly rights the cash will roll in. While it is true that the holder of a patent may prevent others from using his patent, this right is not absolute. The common law doctrine of first sale is one such tool that can be utilized to free an individual from the monopolistic control of a patentee. The fact that first sale exists means inventors should take the time to consider other ways they can utilize their patent to bring in money, besides releasing a product into the market, such as licensing.
A patentee who has decided to provide public access to their patent should educate themselves about the first sale doctrine, so they understand the extent of their control and make an informed decision on the best way to maintain that control. Under the doctrine of first sale, once there has been an unrestricted sale of an article that has been successfully patented and this sale has been authorized by the patentee, the patentee loses the right to later restrict and control the use of the product which has been sold. Jazz Photo Corp. v. U.S., 439 F.3d 1344 (2006). One of the most common ways that the first sale doctrine is invoked is through a sale directly to the customer either from the company itself or a retailer. See eg., Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 638 (2008); Static Control Components, Inc. v. Lexmark Int'l, Inc., 615 F. Supp. 2d 575, 584-85 (2009). Once a consumer purchases an item off a store shelf, it becomes impossible for the inventor to claim either patent infringement or to later restrict the consumer from using the product as he sees fit. Static Control Components, Inc., 615 F. Supp. 2d at 584.
A common scenario worth thinking about is exemplified in the invention of the transistor radio. In this example, let’s assume that the transistor was first patented by Patentee. Lets then say that Inventor comes along and decides that he needs a transistor in order to make his new invention, the radio, function. If inventor goes directly to Patentee seeking to obtain or use a transistor from him and is denied, there is nothing Inventor can do to get around A’s decision because he has a limited monopoly on the technology. However, if Patentee has decided to sell his transistor in the store, or allows customers, like Inventor, to purchase the transistor off Patentee’s website. Inventor becomes free to use this patented device however he sees fit, as long as there are not any pre-sale requirements restricting use. Now that Inventor has purchased the transistor, the doctrine of first sale applies. Patentee cannot claim Inventor has infringed his patent because he gave up his right to enforce the patent through patent laws once the sale occurred and compensation was received.
An additional caveat to the first doctrine rule is that when a patented device has been first sold in the USA, in a lawful manner, subsequent purchasers are granted the same immunity as the first purchaser. Jazz Photo Corp. v. ITC, 264 F.3d 1094, 1105 (2001). Returning to the example above, let’s say Inventor has completed a transistor radio which contains a store bought transistor or one bought off Patentee’s website. Inventor becomes immune from being am infringer under the first sale doctrine. Let’s now say that Inventor sells his radio to Buyer, within the US. Buyer cannot be held as an infringer of Patentee’s patent either, because he is a subsequent purchaser of the patented article in the US and the previous owner had acquired the patented article in conformity with the first sale doctrine.
Furthermore Patentee cannot subsequently at a later date attempt to restrict Inventor’s use or whom he can sell the radio to. However, terms of sale can also be bargained for ahead of time, and contractually applied, such as single use of the patented item. Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 709 (Fed. Cir. 1992). Here, because the Inventor did not bargain away his rights in order to use the transistor, he obtained them restriction free and therefore the doctrine of first sale applies.
The first sale doctrine, while restrictive of an individual’s control, can be circumvented. As many inventors and patent owners know, there are other ways to make money off the use of a patent without bringing a product to the retail market. One of the most common and best ways is through the use of licensing. The first sale doctrine does not apply to a license. B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419, 1426 (Fed.Cir.1997). A license, by definition, merely grants permission to use the patent, rather than granting ownership of a patent containing product. See BLACK'S LAW DICTIONARY (9th ed. 2009), license. The license must contractually restrict the licensee’s use of the patented product.
Substantial revenues can be realized from utilizing only licenses for patents, rather than selling a product. In many cases it will also be advantageous to keep control over the patent in order to decrease potential competition. A classic example of monopolizing an industry through the use of licensed patents is the story of Howard Hughes Sr. Hughes filed patents in the early 1900’s for drill bits used in the oil industry. Howard R. Hughes, Sr., WIKIPEDIA, http://en.wikipedia.org/wiki/Howard_R._Hughes, Sr. (last visited Mar. 16, 2011). The 2 cone rotary drill bit revolutionized oil drilling because it could penetrate farther and quicker than any bit before it. Id. Hughes built the Hughes Tool company around the licensing of their drill bits instead of selling them on the market. Id. The fees from licensing were the sole basis of revenue for the company and helped propel its value into the hundreds of millions of dollars. Id. The value was mostly derived from the necessity of requiring the drill bit to discover oil. By the mid 20th century, virtually all oil discovered was through the use of Hughes’s drill bit. Id.
Overall, the first sale doctrine can be a tricky situation that must be taken into account when a patentee is deciding the best course for receiving revenues from his patent. While selling a retail product is often a fruitful venture, there are significant ramifications in losing control over the patent through the first sale doctrine. Licensing is a great alternative way to receiving revenue; however a patentee must be aware that their license agreem