Strike Three: Lexmark Can't Use Patents, Trademarks Or Copyright To Block Third Party Ink Cartridges

from the good-to-see dept

Printer companies have long used the fairly straightforward business model of "sell cheap printers, and make all the money by price gouging the ink." As we've noted, one study found that a swimming pool filled with printer ink would cost you almost $6 billion at retail (and that was almost 15 years ago, so the number is likely much higher today). For this business model to function at truly monopolistic pricing levels, it requires that the printer manufacturers figure out ways to block third parties from selling cheaper ink for their printers. Lexmark has been among the most aggressive in doing so, and has gone for the intellectual property trifecta: abusing copyright, trademark, and patent laws to try to block third party ink sales. Back in 2004, it lost its attempt to abuse copyright law to block sales. In 2014, the Supreme Court told Lexmark to stop abusing trademark law to scare off customers of third party ink sellers. And, today, the Supreme Court has completed the triad and told Lexmark that it cannot abuse patent law to stop third party ink cartridges as well. In the process, the Supreme Court, once again, smacked down the Court of Appeals for the Federal Circuit (CAFC), the appeals court that is supposed to be the "experts" in patent law, but keep getting the basics wrong.

The specific issue here was one of patent "exhaustion." That is, when a manufacturer (legally) sells a patent product, has it "exhausted" its rights to its patents regarding that particular product, or can it continue to hang onto those rights and block legal purchasers from doing things with it. This is important, if you believe in the right to actually own what you buy. Lexmark tried to argue that even after it sold its printers, it could block third party ink (or, in this specific case, laser toner) cartridges, by claiming that using such cartridges violated its patents. If you follow this stuff, you may remember two previous big Supreme Court cases, dealing with the concept of "exhaustion." There was the Kirtsaeng case regarding copyright exhaustion (once you've sold a copyrighted work, you can't stop the buyer from reselling it) and Quanta v. LG that said the same basic thing for patents.

But CAFC twisted itself in knots to argue that this case was different, saying that Quanta was only about blocking sales, and this case -- titled Lexmark v. Impression Products at CAFC and now Impression Products v. Lexmark at SCOTUS -- was different because it involved a "limited license" rather than a direct sale. That is, Lexmark basically sold its products with a license agreement, saying "hey, don't use third party cartridges, and if you do, we effectively are pulling our patent license and will sue you for infringement."

The Supreme Court is not impressed with the CAFC's pretzel logic and notes that it's pretty damn obvious that once you've sold a patented product, you've exhausted the right to pull back the license on that product and claim infringement:

We conclude that Lexmark exhausted its patent rights in these cartridges the moment it sold them. The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.

The Patent Act grants patentees the “right to exclude others from making, using, offering for sale, or selling [their] invention[s].” ... For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude.... The limit functions automatically: When a patentee chooses to sell an item, that product “is no longer within the limits of the monopoly” and instead becomes the “private, individual property” of the purchaser, with the rights and benefits that come along with ownership.... A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser.... The sale “terminates all patent rights to that item.” ...

This well-established exhaustion rule marks the point where patent rights yield to the common law principle against restraints on alienation. The Patent Act “promote[s] the progress of science and the useful arts by granting to [inventors] a limited monopoly” that allows them to “secure the financial rewards” for their inventions.... But once a patentee sells an item, it has “enjoyed all the rights secured” by that limited monopoly.... Because “the purpose of the patent law is fulfilled . . . when the patentee has received his reward for the use of his invention,” that law furnishes “no basis for restraining the use and enjoyment of the thing sold.”

Simple, right? And, once again, the (unanimous) SCOTUS ruling is not kind to the lower judges at CAFC:

This venerable principle is not, as the Federal Circuit dismissively viewed it, merely “one common-law jurisdiction’s general judicial policy at one time toward anti-alienation restrictions.” ... Congress enacted and has repeatedly revised the Patent Act against the backdrop of the hostility toward restraints on alienation. That enmity is reflected in the exhaustion doctrine.The patent laws do not include the right to “restrain[ ] . . .further alienation” after an initial sale; such conditions have been “hateful to the law from Lord Coke’s day to ours” and are “obnoxious to the public interest.”... “The inconvenience and annoyance to the public that an opposite conclusion would occasion are too obvious to require illustration.”

And then, to help the CAFC out, after quoting another case saying that this result is "too obvious to require illustration"... immediately provides an illustration. In other words, "hey CAFC, how can you be this stupid? You even need us to draw you a picture."

But an illustration never hurts. Take a shop that restores and sells used cars. The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale. Those companies might, for instance, restrict resale rights and sue the shop owner for patent infringement. And even if they refrained from imposing such restrictions, the very threat of patent liability would force the shop to invest in efforts to protect itself from hidden lawsuits. Either way, extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain. And advances in technology, along with increasingly complex supply chains, magnify the problem.

As an aside, this "illustration" being used to mock CAFC is likely to come in handy elsewhere. We've been writing a bunch lately about companies trying to kill off "right to repair" laws, and here's the Supreme Court, in a unanimous decision written by the Chief Justice, using the right to repair as a fundamental and obvious point. "That smooth flow of commerce would sputter..." Indeed.

The opinion continues to smack down CAFC later, noting that it "got off on the wrong foot."

The Federal Circuit reached a different result largely because it got off on the wrong foot. The “exhaustion doctrine,” the court believed, “must be understood as an interpretation of ” the infringement statute, which prohibits anyone from using or selling a patented article “without authority” from the patentee.... Exhaustion reflects a default rule that a patentee’s decision to sell an item “presumptively grant[s] ‘authority’ to the purchaser to use it and resell it.” ... But, the Federal Circuit explained, the patentee does not have to hand over the full “bundle of rights” every time.... If the patentee expressly withholds a stick from the bundle—perhaps by restricting the purchaser’s resale rights—the buyer never acquires that withheld authority, and the patentee may continue to enforce its right to exclude that practice under the patent laws.

The misstep in this logic is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on “the scope of the patentee’s rights.”... The right to use, sell, or import an item exists independently of the Patent Act. What a patent adds—and grants exclusively to the patentee—is a limited right to prevent others from engaging in those practices.... Exhaustion extinguishes that exclusionary power.... As a result, the sale transfers the right to use, sell, or import because those are the rights that come along with ownership, and the buyer is free and clear of an infringement lawsuit because there is no exclusionary right left to enforce.

There was a separate, but related question in the case as well, concerning "international" exhaustion. The above parts were about what happened to cartridges Lexmark sold within the US. But Lexmark had argued separately that products sold outside the US shouldn't be subject to patent exhaustion, so if those cartridges were then sold back into the US, they should be subject to infringement cases, since the exhaustion had not occurred under US patent law (the same issue that came up under copyright in the Kirtsaeng case). And, here, SCOTUS (at 7 to 1, with Justice Ginsburg dissenting) found that the same applies to patent law, pointing to the ruling in Kirtsaeng, ans saying that the analysis is effectively the same here:

Applying patent exhaustion to foreign sales is just as straightforward. Patent exhaustion, too, has its roots in the antipathy toward restraints on alienation... and nothing in the text or history of the Patent Act shows that Congress intended to confine that borderless common law principle to domestic sales. In fact, Congress has not altered patent exhaustion at all; it remains an unwritten limit on the scope of the patentee’s monopoly.... And differentiating the patent exhaustion and copyright first sale doctrines would make little theoretical or practical sense: The two share a “strong similarity . . . and identity of purpose,” ... and many everyday products—“automobiles, microwaves, calculators, mobile phones, tablets, and personal computers”—are subject to both patent and copyright protections.... There is a “historic kinship between patent law and copyright law,” ... and the bond between the two leaves no room for a rift on the question of international exhaustion.

The opinion also makes fun of the White House for weighing in on this case with little relevant to add, and with a confusion about the fact that patent law is based on the public interest, rather than as what's in the best interest for the two parties in the transaction:

The Government has little more than “long ago” on its side. In the 1890s, two circuit courts—in cases involving the same company—did hold that patentees may use express restrictions to reserve their patent rights in connection with foreign sales.... But no “coalesc[ing]” ever took place: Over the following hundred-plus years, only a smattering of lower court decisions mentioned this express-reservation rule for foreign sales.... And in 2001, the Federal Circuit adopted its blanket rule that foreign sales do not trigger exhaustion, even if the patentee fails to expressly reserve its rights.... These sparse and inconsistent decisions provide no basis for any expectation, let alone a settled one, that patentees can reserve patent rights when they sell abroad.

The theory behind the Government’s express-reservation rule also wrongly focuses on the likely expectations of the patentee and purchaser during a sale. Exhaustion does not arise because of the parties’ expectations about how sales transfer patent rights. More is at stake when it comes to patents than simply the dealings between the parties, which can be addressed through contract law. Instead, exhaustion occurs because, in a sale, the patentee elects to give up title to an item in exchange for payment. Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principle against restraints on alienation. Exhaustion does not depend on whether the patentee receives a premium for selling in the United States, or the type of rights that buyers expect to receive. As a result, restrictions and location are irrelevant; what matters is the patentee’s decision to make a sale.

As for Ginsburg's dissent over international exhaustion, she also dissented from Kirtsaeng, and more or less repeats that argument here.

In the end, this is a big win for consumer rights, and blocks companies from trying to abuse patent law from restricting how people can actually use products they bought.

Filed Under: cafc, ink cartridges, patent exhaustion, patents, scotus, supreme court
Companies: impression products, lexmark

After Failing To Use Copyright & Trademark Law To Stop Printer Ink Resellers, Lexmark Finally Scores A Victory With Patent Law

from the all-about-the-control dept

Intellectual property: if you fail to block competition with one kind, apparently you can try, try again with another kind -- and eventually you'll end up in the Court of Appeals for the Federal Circuit, who will mess everything up and kill off the competition. Printer company Lexmark has been at war with alternative suppliers of ink for well over a decade. As you may be aware, printer ink is sold at a ridiculously high markup, such that one estimate (from over a decade ago) noted that in order to fill an Olympic-sized swimming pool with printer ink, it would cost you $5.9 billion (yes, with a "b") at the checkout counter of your local office-supply retailer. The printer makers have notably taken a "give away cheap crappy printers at a low cost, and make it up in seriously overpricing the ink" strategy to their businesses. This kind of thing works great until someone tries to step in and sell competing ink.

The various printer companies have tried all sorts of tricks to fight back against this, with Lexmark being one of the most aggressive (though, others, including HP and Epson, have been fairly aggressive as well). Back in the early 2000s, Lexmark started out by arguing that replacement inkjet cartridges violated copyright law. Their claim rested on the idea that resellers were "circumventing" the technological protection measures that Lexmark placed on its ink cartridges, and thus were violating Section 1201 of the DMCA, which made it copyright infringement to "circumvent" technological protection measures. While a lower court agreed, the Sixth Circuit appeals court overturned the ruling, and smacked Lexamark around a bit for abusing the DMCA -- properly noting the ridiculous end result that would occur if it bought Lexmark's argument:

"If we were to adopt Lexmark's reading of the statute, manufacturers could potentially create monopolies for replacement parts simply by using similar, but more creative, lock-out codes. Automobile manufacturers, for example, could control the entire market of replacement parts for their vehicles by including lock-out chips. Congress did not intend to allow the DMCA to be used offensively in this manner, but rather only sought to reach those who circumvented protective measures "for the purpose" of pirating works protected by the copyright statute."

That case, somewhat surprisingly, did not end there. The reseller that it had sued originally, Static Control Components (SCC), then countersued Lexmark, arguing that Lexmark violated trademark law when it basically sent a letter to every SCC customer it could find, telling them that SCC had broken the law. That case then made its way through the courts, and just about two years ago, the Supreme Court ruled against Lexmark again, and basically rewrote the rules for who could sue over a "false advertising" trademark claim by effectively throwing out all previous tests.

In that case, Lexmark didn't technically use trademark law to try to stop SCC, but very well may have abused trademark law to scare off SCC's customers.

And, of course, there was still a third option. While Lexmark had also used patent claims against SCC, the jury in the case ruled against Lexmark as well, even saying that Lexmark had misused its patents. However, Lexmark was also suing other ink sellers for patent infringement as well, and suing in the courts and using the ITC loophole as well. Basically, Lexmark will use and abuse any and all tools at its disposal to stop competition in ink sellers.

And it finally won one. Last week, the Court of Appeals for the Federal Circuit (CAFC) -- the court that is somewhat infamous for so frequently getting things wrong -- finally gave Lexmark the victory it so desperately had sought for over a decade, saying that Impression Products violated Lexmark's patents in selling its laser printer toner cartridges (which, yes, are slightly different than inkjet ink cartridges).

In this case, the key issue was basically over patent "exhaustion" and the question of if you first allowed for a sale overseas, could that product then be refurbished and resold back in the US. If this sounds familiar, you may remember that the Supreme Court ruled a few years ago in the Kirtsaeng case that you can resell goods you bought outside the US back in the US and it doesn't violate copyright law. However, CAFC in this case basically says "Sure, but that's not true with patents."

Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.

Of course, there are other cases, mainly the well-known Quanta v. LG case that said that "exhaustion" applies to patents as well, and once you've sold a product, you can no longer use patent law to block future sales. But here, the court spends a lot of time trying to distinguish the differences between the Quanta case and this case -- basically saying that there is no exhaustion when there's a limited license, rather than a direct sale.

And the crux of its reasoning: "if we rule otherwise, that would really upset pharmaceutical companies who want to charge cheaper rates overseas and don't want to see those cheap drugs resold back in the US." Basically, there are neat business models that would be upset by geographical arbitrage:

At the same time, the conduct challenged here can have benefits. Lexmark’s Return Program provides customers an immediate up-front benefit: a choice between two options, one offering them a lower price in exchange for the single-use/no-resale limitation. And a company in Lexmark’s position could have a plausible legitimate interest in not having strangers modify its products and introduce them into the market with the quality of modifications (including ink refills) not subject to Lexmark’s control: lower quality of remanufactured cartridges could harm Lexmark’s reputation.... A medical supplier in Mallinckrodt’s position plausibly may have similar reason to believe that reuse, when not under its own control, carries a significant risk of poor or even medically harmful performance, to the detriment of its customers and its own reputation. Such interests are hardly unrelated to the interests protected by the patent law—the interests both of those who benefit from inventions and of those who make risky investments to arrive at and commercialize inventions.

Of course, that was the same argument that publishers made in the Kirtsaeng case, and the Supreme Court rejected it, so it seems like there's at least a decent chance that should SCOTUS take this up on appeal, it may be yet another opportunity to smack CAFC around for getting things totally backwards (now becoming something of an annual tradition at SCOTUS).

There is a dissent from Judge Dyk (with Judge Hughes) that suggests that the majority's decision here does not make sense in following Supreme Court precedent -- and recognizing that the majority has just set up CAFC for yet another smackdown. The dissent notes a long line of cases saying that patent exhaustion is a thing and finds it troubling that the ruling ignores all that, and suggests SCOTUS won't particularly like CAFC ignoring it all.

The majority’s justifications for refusing to follow Supreme Court authority establishing the exhaustion rule misconceive our role as a subordinate court.

First, the majority characterizes the statement of the exhaustion rule in the Supreme Court cases as mere dictum because in those cases there was either no restriction imposed or the restriction would otherwise violate the antitrust laws. But the cases impose no such qualification on the rule announced. The Supreme Court has repeatedly advised the courts of appeals that our task is to follow the rules proclaimed by the Court, and not to attempt to distinguish Supreme Court cases on their facts...

Not surprisingly, Impression Products has suggested it will appeal to the Supreme Court, so this case is far from over. However, once again, we see how companies will use intellectual property law however they can to try to block out competition.

Filed Under: cafc, copyright, copyright exhaustion, dmca, exhaustion, false advertising, ink, patent exhaustion, patents, printer ink, printers, supreme court, trademark
Companies: lexmark

EFF And App Developers Alliance To Court: Don't Let Patent Troll Lodsys Avoid Apple's Attempt To Intervene In Bogus Threats

from the patent-exhaustion-is-exhausting dept

We've covered patent troll Lodsys a bunch of times. If you don't recall, it's one of many patent trolls using patents it obtained via Intellectual Ventures, to shake down tons of mobile app developers, not for anything unique that they developed, but rather because they use Apple and Google's basic in-app payment mechanisms to let people buy stuff from within the app. Lodsys has been particularly aggressive in going after smaller independent developers who likely can't afford a full defense. Lodsys has claimed that Apple and Google each have licensed the patents, and that shows the validity of the patents in question, but they ignore that those licenses came from deals with IV that covered a wide portfolio of patents, not this one in particular. Furthermore, Lodsys, really, really wants to avoid anyone pointing out that the fact that Apple and Google already licensed these patents suggests that developers who use Apple and Google's tools are covered by those licenses under the concept of patent exhaustion, which says that if a supplier licenses a patent to build it into a product, the patent holder doesn't get to double/triple/quadruple collect, by demanding licenses from everyone up and down the supply chain.

Apple, in fact, has tried to intervene in the cases that Lodsys has actually filed (against a subset of the companies to which it has sent threatening demand letters). However, it appears that Lodsys has been quite aggressive in getting companies in such cases to settle (likely by making such a settlement super cheap -- much cheaper than actually going to court) and then arguing that Apple cannot intervene since the case is actually settled.

EFF and the App Developers Alliance (disclosure: the App Developers Alliance sponsors this blog, but we've been covering Lodsys since long before they existed, and will continue to cover them going forward as is newsworthy) have now filed an amicus brief arguing that the court should deny Lodsys' attempt to keep Apple out of one of these cases, because it should be determined once and for all if app developers are immune from Lodsys' questionable threats via Apple's own license. As the brief notes, without this, app developers have significant uncertainty when receiving a threat letter -- and with it a strong incentive to just settle, even if they strongly believe they do not infringe upon the patent (or that the patent is invalid).

If this Court rules in Apple’s favor, it would also grant certainty to the millions of app developers in this country who face an open-ended threat from Lodsys. It would have the added benefit of putting litigants and potential targets in other en masse end-user suits on notice of the scope of risk they might be undertaking when they face these demands.

Filed Under: patent exhaustion, patent trolls, patents
Companies: app developers alliance, eff, intellectual ventures, lodsys

Monsanto Wins Case Of Seed Patents; Planting Your Own Legally Purchased & Grown Seeds Can Be Infringing

from the this-is-the-world-we-live-in dept

We've written a few times now about Vernan Bowman's legal fight against Monsanto, concerning patents over so-called "Roundup Ready" seeds, which Monsanto has patented. Here's the quick version of the details from an earlier post:

The farmer, Vernan Bowman, bought official Monsanto seeds and planted his crops. Yet, Monsanto has rules that say you can't re-use "Roundup Ready" seeds, but you can apparently sell "second-generation" seeds to grain elevators for use as "commodity seeds," and doesn't require that there be any restriction on the sale. Bowman later bought a bunch of such "commodity seeds," which included some Roundup Ready seeds, and some that weren't. Bowman was able to determine which of the plants came from Roundup Ready seeds... and then saved those seeds for replanting. Monsanto claimed this was infringement, even though the seeds were legally sold to the grain elevator and then from the elevator to Bowman without restrictions. On top of that, while Bowman had signed an agreement for his original seeds, he did not with this batch (and, indeed, even Monsanto admits he didn't break the user agreement -- just patent infringement for using the seeds).

Note the key things here. Bowman did not break any license agreement over seeds that he bought. He also legally purchased other seeds that had been legally provided to grain elevators to be sold. All he did was plant those legally purchased seeds, for which he was not violating any license agreement, and then harvest and replant the seeds that came from them. And this, apparently, is illegal under our patent system.

Given the fire power that came out in support of Monsanto -- including the federal government -- it shouldn't come as a huge surprise that the Supreme Court just gave a complete and total victory to Monsanto. The key issue was whether or not this was a case of "patent exhaustion." There was a key case a few years ago that mostly said that once a patent holder sells a product, the patent is "exhausted" so that the patent holder can't demand licensing fees up and down the supply chain. However, they distinguish this case by saying that this is different because it's a "copy" of the legally purchased seed. I could see how that would make sense if we were talking about someone building a copy of a machine in a garage or something, but this is a seed. Copying itself is what seeds do. That's kind of their entire purpose.

Yet, throughout the decision, the court (with a decision written by Justice Kagan) acts as if Bowman just built a replica. But that ignores the fact that this is nature we're talking about seeds that replicate themselves naturally, because that's what seeds do. The court has no problem with this, but it seems somewhat ridiculous that someone can legally buy something, have it do what it naturally does (and has done for nearly all of history) and then be told that violates a patent. When addressing Bowman's point concerning the fact that seeds by nature, replicate themselves, they basically brush that aside by noting that Bowman then harvested them. As if he's supposed to ignore what's happening?

But we think that blame-the-bean defense tough to credit. Bowman was not a passive observer of his soybeans’ multiplication; or put another way, the seeds he purchased (miraculous though they might be in other respects) did not spontaneously create eight successive soybean crops. As we have explained... Bowman devised and executed a novel way to harvest crops from Roundup Ready seeds without paying the usual premium.

The decision keeps restating the myth that patent holders wouldn't innovate if they weren't blocked from any and all competition.

That is because, once again, if simple copying were a protected use, a patent would plummet in value after the first sale of the first item containing the invention. The undiluted patent monopoly, it might be said, would extend not for 20 years (as the Patent Act promises), but for only one transaction. And that would result in less incentive for innovation than Congress wanted. Hence our repeated insistence that exhaustion applies only to the particular item sold, and not to reproductions.

That's a pretty bold statement, and one not supported by any evidence. There are plenty of reasons to innovate that have little to do with patents, and competition in the marketplace is a big one. The process Bowman used above may have created some competition for Monsanto, but hardly in a way that destroyed the value of the patent. Monsanto was still first to market and still could control various uses via licensing agreements. Furthermore, the process that Bowman went through was inexact and required a few years of harvests.

The one thing that the ruling does say, however, is that no one should take this ruling to apply to other self-replicating products, such as technology:

Our holding today is limited—addressing the situation before us, rather than every one involving a self-replicating product. We recognize that such inventions are becoming ever more prevalent, complex, and diverse. In another case, the article’s self-replication might occur outside the purchaser’s control. Or it might be a necessary but incidental step in using the item for another purpose. ... (“[I]t is not [a copyright] infringement for the owner of a copy of a computer program to make . . . another copy or adaptation of that computer program provide[d] that such a new copy or adaptation is created as an essential step in the utilization of the computer program”). We need not address here whether or how the doctrine of patent exhaustion would apply in such circumstances.

While it's good that they acknowledge this, you can bet that this case will be cited heavily when the same issue comes up in court concerning self-replicating software and hardware...

Filed Under: patent exhaustion, patents, seed patents, seeds, self-replicating, supreme court, vernan bowman
Companies: monsanto

Supreme Court Set To Hear Case On Whether Or Not Planting Legally Purchased Seeds Infringes On Monsanto Patent

from the please-get-this-right dept

The Supreme Court will be hearing a big patent case tomorrow. We wrote about it back in 2011 when the federal circuit appeals court (CAFC) put forth an absolutely horrible ruling basically saying that a farmer who legally purchased "community seeds" that included (legally) some Monsanto "Roundup Ready" seeds, violated Monsanto's patent. The case is a bit complex, but I'll just rerun my summary from back then:

The farmer, Vernan Bowman, bought official Monsanto seeds and planted his crops. Yet, Monsanto has rules that say you can't re-use "Roundup Ready" seeds, but you can apparently sell "second-generation" seeds to grain elevators for use as "commodity seeds," and doesn't require that there be any restriction on the sale. Bowman later bought a bunch of such "commodity seeds," which included some Roundup Ready seeds, and some that weren't. Bowman was able to determine which of the plants came from Roundup Ready seeds... and then saved those seeds for replanting. Monsanto claimed this was infringement, even though the seeds were legally sold to the grain elevator and then from the elevator to Bowman without restrictions. On top of that, while Bowman had signed an agreement for his original seeds, he did not with this batch (and, indeed, even Monsanto admits he didn't break the user agreement -- just patent infringement for using the seeds).

As we noted at the time, this seemed to be a clear case of patent "exhaustion," which the Supreme Court has supported in the past. Under patent exhaustion, once you sell a "licensed" offering, reselling it further down the supply chain does not infringe on the patent, since the initial purchase was authorized and the patent holder's rights over that specific product have been "exhausted." CAFC said exhaustion didn't apply here because the seeds are "new." That seems like a very troubling interpretation, and hopefully the Supreme Court (yet again) smacks a bad CAFC patent ruling down.

Lots of big farms have come out in support of Monsanto and, tragically, so has the federal government (pdf). Believe it or not, the Business Software Alliance (mostly a Microsoft front) has also sided with Monsanto (pdf), ridiculously arguing that a ruling against Monsanto could "facilitate software piracy on a broad scale." That makes no sense, especially since software "piracy" is a copyright issue, not a patent issue. However, they're arguing that people will interpret this to mean that "temporary additional copies" of software are made all the time (i.e., in RAM) and somehow that leads to piracy. Having read the brief a few times, they never really explain how they make that leap in logic, but they sure do bring up the totally debunked bogus stats about how copyright infringement is costing the industry "billions."

The case really is ridiculous on many levels, but seeing how much firepower has come out in support of Monsanto (basically tons of big companies, lawyers groups and the US government), you can see that a lot of people have a lot of money tied up in keeping this broken system in place. Hopefully the Supreme Court sees through all of that and realizes that this entire case is ridiculous.

Filed Under: patent exhaustion, patents, seeds, supreme court, vernan bowman
Companies: bsa, monsanto

Monsanto Wins Patent Dispute Against Farmer Who Bought Legal Seeds

from the patent-insanity dept

We've had numerous stories of Monsanto's rather aggressive patent enforcement efforts, and unfortunately it appears the company has chalked up another victory in the courts. Glyn Moody points us to the story of CAFC (the nation's patent appeals court) siding with Monsanto against yet another farmer.

The details of this story are really quite incredible. The farmer, Vernan Bowman, bought official Monsanto seeds and planted his crops. Yet, Monsanto has rules that say you can't re-use "Roundup Ready" seeds, but you can apparently sell "second-generation" seeds to grain elevators for use as "commodity seeds," and doesn't require that there be any restriction on the sale. Bowman later bought a bunch of such "commodity seeds," which included some Roundup Ready seeds, and some that weren't. Bowman was able to determine which of the plants came from Roundup Ready seeds... and then saved those seeds for replanting. Monsanto claimed this was infringement, even though the seeds were legally sold to the grain elevator and then from the elevator to Bowman without restrictions. On top of that, while Bowman had signed an agreement for his original seeds, he did not with this batch (and, indeed, even Monsanto admits he didn't break the user agreement -- just patent infringement for using the seeds).

It's difficult to see how this is possibly infringement. In common patent law terms, the patent issue should be "exhausted." Setting aside the insanity of using patents to tell farmers they can't re-use their own seeds, once Monsanto has given farmers the rights to sell second-generation seeds to the grain elevators for resale with no restrictions, it's hard to see how Monsanto should have any subsequent patent claim on any further use of those seeds or their progeny. In fact, Bowman was so sure that he was doing absolutely nothing wrong, that he freely shared the details of what he did with people from Monsanto. But the court, as it seems to do with alarming frequency, seems to see no trouble with granting a patent holder significantly extended control.

Patent exhaustion is supposed to cover these situations. A few years ago, the Supreme Court, in the Quanta case, made it clear (or so we thought) that a legal sale of a licensed component "exhausts" the patent holder's rights to go after later buyers in the supply chain for infringement. Bowman correctly pointed out that if this isn't a clear cut case of patent exhaustion, then the concept is pretty useless.

Monsanto's bizarre argument is that while it agrees to let farmers sell the seeds as a commodity without restriction, it still doesn't want anyone to plant with them, so anyone who does so did not make an authorized purchase, and thus no exhaustion has occurred. I can't see how that makes any sense at all. First of all, no restrictions were placed on the sale, so later claiming restrictions makes no sense. Furthermore, retroactively declaring a sale by two separate independent parties "unauthorized," after the fact, based on what the buyer does, is flat out crazy.

The court here says that exhaustion is meaningless, because the seeds Bowman planted are new seeds, and thus newly infringing -- yes, despite the legal purchase:

Patent exhaustion does not bar an infringement action. Even if Monsanto�s patent rights in the commodity seeds are exhausted, such a conclusion would be of no consequence because once a grower, like Bowman, plants the commodity seeds containing Monsanto�s Roundup Ready technology and the next generation of seed develops, the grower has created a newly infringing article.

It's hard to read decisions like this and not realize how horribly broken the patent system is, aided by courts like CAFC and a Congress that fails to fix such clear abuses.

Filed Under: cafc, patent exhaustion, patents, roundup ready, seeds, vernon bowman
Companies: monsanto

Is It Patent Infringement To Reuse Recycled Apple Magsafe Connectors?

from the patent-exhaustion dept

AppleInsider has the details of yet another patent infringement lawsuit filed by Apple, who has become a lot more aggressive on the patent front lately. This lawsuit is against Sanho, a company that makes a variety of external batteries for Apple products. There are six patents listed in the lawsuit, but two are design patents, which are pretty narrow. The four (really three) utility patents are

• 7,517,222: Magnetic connector for electronic device
• 7,627,343 & 7,751,853 (really the same patent, as one is a continuation of the other: Female receptacle data pin connector
• 7,783,070: Cable adapter for a media player system

All of them, obviously, have to do with the connectors Apple uses to charge its various products, including the famed "MagSafe" charger found on Apple laptops that connect via a magnet, which break away easily (such as if someone trips over the cord). I do remember when this first came out, that Apple indicated it had patented up the technology and would block others from using it.

However, where this gets interesting is that, according to Sanho's website, it doesn't make its own magnetic connectors, but simply recycles official Apple connectors:

"Our charging cables use original Apple MagSafe connectors for maximum compatibility,"

If that's the case, it seems to raise some questions about patent exhaustion, where a company can't license a patent for one player in a supply chain, but then claim that later buyers, who are buying from the original licensee need to re-license the patent. Think of it as being similar to the principle of "first sale" in copyright. I would think that, on those connectors at the very least, Sanho could make a case for patent exhaustion if it really is just buying up official Apple MagSafe connectors and repurposing them.

Filed Under: first sale, magsafe, patent exhaustion, patents
Companies: apple, sanho

Supreme Court Says Patent Holders Can't Shake Down Entire Supply Chain

from the big-win dept

The Supreme Court continues to bring a bit of common sense back to the patent system. While most of the tech world was sitting around paying attention to whatever Steve Jobs has to say this morning, the really big news in the tech industry may be the Supreme Court's decision that patent holders can't shake down the entire supply chain, by forcing each level of the supply chain to also license the patent (even if they bought a product from someone who had licensed the patent).

This the LG v. Quanta case that the Supreme Court agreed to hear last fall. Basically, LG had some patents that it licensed to Intel. Intel then sold products based on those patents, which its customers used to build other products. LG demanded license fees from those customers as well, even though they bought fully licensed products from Intel. LG insisted that since its contract with Intel said that the license didn't cover any additional products, then the patents had to be relicensed by each player down the supply chain. To some extent, this question of "patent exhaustion" is similar to questions about first sale doctrine when it comes to copyright, in determining if you have a right to actually resell a product that was legally purchased. And, thankfully, the Supreme Court agrees that patent exhaustion is an important concept.

This is yet another very important limitation on patent holders, preventing them from stifling innovation at every step of the product process, and double-, triple- and quadruple-dipping off a product based on a single use of their patented invention. Hopefully this will lead to the quick dismissal of a bunch of cases that were filed last fall against a ton of companies up and down various supply chains. A lot of patent hoarders, fearing this exact decision, tried to just sue everyone at once, hoping for quick settlements before the Supreme Court stepped in. It's great to see the Supreme Court taking such an active interest in rolling back massive abuses of the patent system. Update: The EFF has a good take on the ruling, noting some of the holes in it, suggesting that it's unfortunate the the Supreme Court wasn't as clear as it could/should have been.

Filed Under: contracts, first sale, patent exhaustion, patents, supply chain, supreme court
Companies: lg, quanta