從廣達與LGE案看專利權耗盡之專利授權管理策略 - 政大學術集成

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(1)From Quanta v. LGE to Patent Licensing Management Strategies 從廣達與 LGE 案看專利權耗盡之專利授權管理策略. 政治大. 立. ‧ 國. 學 Cynthia Yuan-Ling Huang. 苑. ‧. 黃. 菱. Nat. io. n. al. 震. 宇. 教授. er. 指導教授：馮. sit. y. Supervisor: Professor Jerry Gen Yu Fong. Ch. engchi. i n U. v. 2012. Taiwan National Chengchi University The Institute of Law and Inter-discipline 台灣國立政治大學二. ○. 一. 法律科際整合研究所二. 年. 六. 月.

(2) 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v.

(3) 摘. 要. 自從美國最高法院在廣達與 LGE 案中作出解釋後，便將權利耗盡理論亦稱為第一次銷售理論帶往另一個層次。此案已被普遍認為對於美國過去的判例影響甚鉅，對於產業界的商業活動發展更是具有深遠的影響。智慧財產權旨在保護發明及創造公眾利益間取得一平衡點，權利耗盡理論長久以來已被視為專利法中重要的一環，並藉以杜絕專利權人的過當控制。而最高法院對於第一次銷售理論的解釋，則進而撼動專利權人長此以往對限制性銷售策略的仰賴。. 治政即便銷售後限制(Post-sale restriction)確實提供了專利權人避免耗盡大立其權利的好方法，但專利權範圍則限縮了專利權人所享有的權利控制範圍，換 ‧ 國. 學. 言之，專利權人僅能擁有專利法所賦予的權利，且其加諸於被授權人的購買條件限制僅限於該專利之功能及使用目的。而超越該專利功能及使用目的的過分. ‧. 限制，則可能導致專利權濫用。而在開放 WTO 框架下，國際貿易的頻繁也使得. Nat. al. er. io. 交易的興盛而隨之重要。. sit. y. 權利耗盡衍生出了在散佈等方面的相關討論，平行輸入/輸出的議題亦隨著跨國. n. v i n Ch 故此篇論文的研究目的不僅僅探討權利耗盡理論及其相關議題，更旨在藉 engchi U 由廣達案的啟發，提供台灣的 IT 產業一有效的專利授權策略，並提供不論專利權人或被授權人於制定授權契約時，能有一更具有策略性的思考方向。. 【中文關鍵字】：權利耗盡、第一次銷售理論、限制性銷售、銷售後限制、專利權濫用、平行輸入、散佈、廣達、專利授權策略、契約法。.

(4) Abstract The Supreme Court’s current decision in Quanta Computer, Inc. v. LG Electronics, Inc. brings the exhaustion doctrine also known as first sale doctrine up to a new phase. This case is believed significantly overcome quite a lot of past precedents and will effectively influent industry business operations in the future. The core goal of intellectual property right aims to find a balance between protecting the incentives to create and innovate, and providing the benefits to public. 政治大. interests. Exhaustion doctrine has been long standing as part of patent law to. 立. prevent patentees’ over control. The interpretation made by Supreme Court. ‧ 國. 學. regarding the first sale doctrine does vibrate the conditional sale strategies long believed by patentees. Now the Supreme Court brings the issue from the phase of. ‧. patent law down to the contract law level. Subsequently, the litigations of antitrust. y. Nat. and fair trade are therefore involved while patentees are tempting to make an. n. er. io. al. sit. “end-run” control over the downstream purchasers.. Ch. i n U. v. Though applying post-sale restriction provides a way out for intellectual. engchi. property owner from triggering the exhaustion, however, the scope of the patent claims determine how far the privilege is given to the inventors. A patent owner or licenser can only enforce its patent right while the right is truly granted by the patent law. Subsequently, the restriction set forth to limit the licensees or purchasers must be accordance with the function or feature of the patent claims for. On the contrary, the patentee intends to restrict its purchasers by holding the exclusive right which beyond the scope of the patent granted may result to patent misuse, for instance, the resale price maintenance, prohibition of manufacturing the competing products, the conditional license which incorporates another license, and overwhelming royalties on the price of the whole product instead of the actual usage.

(5) of the patented article.. Under WTO, the concern of intellectual property protection has become more critical in the perspective of international trade, different issues and disputes regarding exhaustion have also been generated. Not alike the traditional domestic exhaustion, the discussion regarding distribution has therefore been derived. Moreover, the issues related to parallel import/export are generated in accordance with the frequent cross-border transaction.. 政治大. The purpose of this research does not merely lead us look into the doctrine and. 立. restriction patentees used to impose for avoiding exhaustion. But I intend to further. ‧ 國. 學. illustrate a guideline based on the inspiration from Quanta and the explanation of the Courts. This guideline should provide both patentees and licensees an. ‧. orientation while considering making a licensing agreement.. y. Nat. er. io. sit. 【Key Words】: Exhaustion doctrine, First sale doctrine, Post-sale restriction, Patent law, Quanta v. LGE, Mallinckrodt, Conditional sales,. n. al. Ch. i n U. v. Licensing strategy, Parallel Trade, Contract law. engchi.

(6) Table of Contents. Acknowledgement ..................................................................................................... 4 Chapter 1. Introduction ............................................................................................ 6. 1.. Inspiration of the Research ................................................................................ 6. 2.. Description of the Chapters ................................................................................ 8. 3.. Methodology of the Research ............................................................................ 9 3.1. Research Philosophy and Approach .......................................................... 10 3.2. Research Strategy ......................................................................................11. 4.. 政治大. Research Limitation ......................................................................................... 13. Chapter 2. 立. The Development of Exhaustion Doctrine and Post-Sale Restriction ... 15. Principle of Exhaustion Doctrine ..................................................................... 15. 2.. Fundamental to U.S. First Sale Doctrine .......................................................... 17. 3.. Post-sale Restriction ........................................................................................ 22. ‧. ‧ 國. 學. 1.. sit. y. Nat. 3.1 Restriction on Territory ............................................................................ 22. io. er. 3.2 Restriction on Price .................................................................................. 25 3.3 Restriction on Use .................................................................................... 31. n. al. Ch. i n U. v. 3.4 Restriction on Frequency of Use ............................................................... 32. engchi. 3.5 Repair and Reconstruction ........................................................................ 35 3.6 Discussions ............................................................................................... 36 4.. International Exhaustion .................................................................................. 41. 5.. Conclusion ....................................................................................................... 42. Chapter 3 1.. Quanta v. LGE and Its Influences ......................................................... 44. Decisions Made of Quanta Computer, Inc. v. LG Electronics, Inc.................... 44 1.1. District Court............................................................................................ 45 1.2. Federal Circuit .......................................................................................... 46 1.3. Supreme Court .......................................................................................... 46. 2.. The Effects of Quanta ...................................................................................... 49. 1.

(7) 2.1 Method Patent is Exhaustible ................................................................... 50 2.2 The Scope of Post-sale Restriction ........................................................... 51 2.3 The Further Impacts of Quanta ................................................................. 53. 3.. 3.1.1. Innovation ................................................................................. 53. 3.1.2. Efficiency and Costs .................................................................. 55. 3.1.3. Freedom of Contract .................................................................. 57. 3.1.4. The Interference of Law and The Implication of Quanta ............ 58. Conclusion ....................................................................................................... 60. Chapter 4. International Exhaustion Doctrine and Its Future Impact on Global. 政治大. Market ..................................................................................................................... 62. 立. The Future Development of International Exhaustion ...................................... 62. 2.. The Impacts of Exhaustion Doctrine on Global Market ................................... 64. ‧ 國. 學. 1.. 2.1 European Union ........................................................................................ 64. ‧. The Perspective of EU on Exhaustion Doctrine ......................... 64. 2.1.2. Practice of the Post-sale Restriction in EU ................................ 66. sit. y. Nat. 2.1.1. 2.2 Japan ........................................................................................................ 69. io. n. al. er. 2.3 People’s Republic of China ...................................................................... 71. 3.. v. The Status of China regarding Exhaustion Doctrine .................. 71. 2.3.2. Practice IP Protection in China .................................................. 72. engchi. Conclusion ....................................................................................................... 73. Chapter 5 1.. Ch. i n U. 2.3.1. Taiwan’s IT Industry Research and Licensing Strategies Management . 76. Industry Background of Taiwan ....................................................................... 76 1.1 IC Industry ............................................................................................... 80 【Table 1】 ............................................................................................ 81 【Table 2】 ............................................................................................ 83 1.2 Computer Industry .................................................................................... 84 1.3 Limits and Threaten of IT Technology in Taiwan ..................................... 85. 2.. IP Management for IT Industry ........................................................................ 87. 2.

(8) 2.1 Implementation of Patent Management .................................................... 87 2.2 License ..................................................................................................... 89 3.. Licensing Strategies for IT Industry ................................................................. 90 3.1 Decision Making for Licensing ................................................................ 90 3.1.1. Licensing Out ............................................................................ 92. 3.1.2. Licensing In ............................................................................... 92. 3.1.3. Cross-licensing .......................................................................... 93. 3.1.4. Technology Development .......................................................... 93. 3.2 Post-Quanta Strategic Licensing Agreement ............................................. 94 Restrictions ................................................................................ 94. 3.2.2. Vertical Licenses ........................................................................ 97. 3.2.3. Direct Sales License .................................................................. 98. 3.2.4. Post-sale Restrictions through Licensees ................................... 98. 立. ‧. ‧ 國. 學. Conclusion ....................................................................................................... 99 Conclusion ......................................................................................... 100. y. Nat. Chapter 6. sit. 4.. 政治大. 3.2.1. 2.. The Future Development of Exhaustion and Licenses .................................... 102. n. al. er. Conclusion of the Research ............................................................................ 100. io. 1.. Ch. i n U. v. Bibliographies & References ................................................................................. 105. engchi. 1.. Journals, Law Reviews, and References ......................................................... 105. 2.. Cases ............................................................................................................. 108. 3.. Rules and Regulations .................................................................................... 109. 3.

(9) Acknowledgement. Recalled those days as I was younger, law had never been an option of my career nor study, not even a flash. Under a very rare occasion while I was back to Taiwan and was facing some challenges for managing the intellectual property from work, my senior back to the college, Chung-An Chen (陳重安), recommended this program of NCCU to me. I therefore streamed into the grand ocean of law as a tiny drop.. 政治大 Along the long journey of my study in law, there were countless nights that I 立. had asked myself whether it’s a right choice to return to school. More than hundred. ‧ 國. 學. times that I had thought of giving up in the middle, and fortunately I did not.. ‧. Professor Jerry Gen-Yu Fong (馮震宇) have helped me the most since I started my first year. Though his schedule has been always full, Professor Fong had always. y. Nat. sit. spared time for me from understanding my goal of research, recommending me the. n. al. er. io. book list, many times of topic and structure discussion, reviewing and advising me. i n U. v. while writing the thesis, to correct the detail and ensure my whole work much better. Ch. engchi. than I have expected. I have been amazed and surprised by his patience and enthusiasm. Without his kindly assistance, no way I can reach this land.. Moreover, I do have to thank Professor Chung-Lun Shen (沈宗倫) who inspired me the topic of Patent Exhaustion when I took his class in first year. Both Professor Shen, and Professor Hon-Wen Tsai (蔡鴻文) have suggested me some valuable opinions and granted me a very warm score within my oral inspection. These have made my thesis more comprehensive and fulfilled.. The list of people shall be acknowledged here are just too long to count them all. My family, friends, school mates, colleagues, professors who have ever taught 4.

(10) me in class, and the every teacher assistant in administration office of NCCU Law School are my biggest supports to company me accomplishing my school and research. Without their consideration, encouragement, and aid, I would not have obtained such achievement and wonderful three years experience in Institute of Law and Inter-discipline. The most importantly, I now appreciate that I had made such wise decision of returning to NCCU and have studied in law.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 5. i n U. v.

(11) Chapter 1 1.. Introduction. Inspiration of the Research The Supreme Court’s current decision in Quanta Computer, Inc. v. LG. Electronics, Inc. brings the exhaustion doctrine as known as first sale doctrine up to a new phase. This case is believed significantly overcome quite a lot of past precedents and will effectively influent industry business operations in the future. On the other hand, Post-sale restrictions have been commonly adopted by patentees. 政治大 Courts have cautiously discussed about the conditional sales or restricted sales and 立 on contracting and licensing especially in the field of computing technologies. The. ‧ 國. 學. tried to draw a scope of the limitations in order to prevent patentees from end-run monopoly. However, in the case of Quanta v. LGE, the Supreme Court reversed the. ‧. Federal Circuit’s decision and looked back into the initial purpose of patent right and first sale doctrine solely. The Supreme Court brought its opinions standing from. y. Nat. io. sit. the jurisprudence of patent law. However, the Court did not grant its ruling based on. n. al. er. the perspective of patent exhaustion in stead of emphasize that LGE failed to make. i n U. a powerful contract to restrict the sale made by Intel.. Ch. engchi. v. Although the discussion about patent exhaustion is not new to patent law, relative fewer Taiwanese scholars have looked in depth of the jurisprudence of this doctrine and its impacts. Even less people are studying about the decisions and effects of Quanta while the global economy and environment are critical to Taiwan’s IT industry. Nonetheless, as a country with its economy highly depends on the OEM and ODM of IT industry, we seem under value the influence of the issues related to post-sale restriction may cause to our industry. Quanta’s case should not only remind us to think about the legislations but also inspire us to reconsider about the strategies while making licensing management. This research is going to grant an insight into exhaustion doctrine and post-sale restrictions. There are, besides, 6.

(12) some suggestions to the management and practical strategies will be provided for companies no matter intending to grant their patent license or obtain the rights from patentees. The core goal of intellectual property right aims to find a balance between protecting the incentives to create and innovate, and providing the benefits to public interests 1 . Exhaustion doctrine has been longstanding as part of patent law to prevent patentees’ over control. On the other hand, post sale restrictions have been supported by Courts in some past cases such as Mallinckrodt, Inc v. Medipart, Inc. 2 and General Talking Pictures Corp. v. Western Electric Co. 3 which allows patentees. 政治大. to contract around the exhaustion. The Supreme Court in Quanta’s case is. 立. controversial about whether it has overruled the decisions made in Mallinckrodt. It. ‧ 國. 學. has raised the discussions regarding whether the post sale restrictions merely imposed on the transfer of patented products or products embodying patent. ‧. inventions will no longer accepted. Though the Supreme Court in fact did not. sit. y. Nat. mention about Mallinckrodt in its ruling, rather granted its decisions based on the. io. er. contractual limitations instead of exhaustion doctrine. The interpretation made by Supreme Court regarding the first sale doctrine does vibrate the conditional sale. n. al. Ch. i n U. v. strategies long believed by patentees. Now the Supreme Court brings the issue from. engchi. the phase of patent law down to the contract law level. Subsequently, the litigations of antitrust and patent misuse are therefore involved while patentees are tempting to make an “end-run” control over the downstream purchasers.. U.S. has been playing a key role in global economy with its strong consuming power that is considered as the first priority market for most of industries up to date. Most transactions would therefore take U.S. regulations into account at the first place. Besides, doctrine of exhaustion is expressly stated in U.S. intellectual 1. Saami Zain, Quanta Leap or Much Ado About Nothing? An Analysis on The Effect of Quanta VS. LG Electronics, 20 Alb. L.J. Sci.& Tech. 67,69 at 2 (2010). 2 Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 ( Fed. Cir. 1992) 3 305 U.S. 124 (1938) 7.

(13) property law. More than that, Federal Circuit in U.S. have been long recognized as patentee-friendly that results to patentees seek to raise litigation in U.S.. Hence, litigations referred hereinafter would be mainly cases in U.S.. Nonetheless, in order to provide the management and licensing strategies enforceable to global market, the major economic entities around the world includes European Union, Japan, and China laws will also be inducted for providing comparative perspectives. This research primarily focuses on the jurisprudence of the exhaustion doctrine under the U.S. patent law. Following to the perspective of international exhaustion, further discussions regarding the related legislation and comparison laws will be roughly mentioned.. 立. Description of the Chapters. ‧ 國. 學. 2.. 政治大. The research method adopted in this research will be continuingly introduced. ‧. and explained for the reasons of choosing these methods and strategies. In Chapter. sit. y. Nat. 2, the jurisprudence of exhaustion doctrine will first be stated and explained. The. io. er. litigations related to post-sale restrictions and interpretation of the previous Courts. al. will be stated in the following. Additionally, the major types of post-sale restrictions. n. v i n have commonly adopted on C licensing purchasing agreements will meanwhile be U h e nand i h gc illustrated. Followed by the literature reviews discussing about the enforcement and limits of patent exhaustion will then point out the key elements of the doctrine and its limits. The derived issues regarding international doctrine will also be discussed within this chapter.. The decision of Quanta v. LGE will be studied individually in Chapter 3. This study will bring an insight into the decisions made by each Court and further analyze the factors considered. Following I will discuss about the impacts on patent law post Quanta and the issues arisen since then. And Chapter 4 will discuss about the further development of international exhaustion doctrine in U.S. and its. 8.

(14) influences on global market. The major economic entities of world will also be introduced about their legal status of exhaustion theories and how it has been applied in each region.. As mentioned in the earlier section, this research does not only provide a detail understanding about exhaustion doctrine and its effect on business world, but also to suggest a practice instruction for patent licensing management and strategies applied on Taiwan’s IT industry or even others. I will roughly overview the background and current circumstances of Taiwan IT industry in the beginning of. 政治大. Chapter 5. The present business environment in Taiwan, the current technology. 立. level, and business model running presently will also be taken place within this. ‧ 國. 學. chapter to provide us a better vision about how this industry work and how good it has been managed up to day. Some discussions about how the current industries. ‧. make their patenting and licensing decisions and agreement will also be stated.. sit. y. Nat. According to the current limitations in IT industry while licensing, I will therefore. io. er. provide a guideline for licensing strategies based on the earlier studies in the previous chapters. Here we can develop effective and enforceable legal and. n. al. Ch. i n U. v. management suggestions on licensing which may possibly benefits the entities in. engchi. Taiwan’s IT industry to achieve their ultimate goal. 3.. Methodology of the Research This research is emphasizing on figuring out a clear concept of patent. exhaustion which enables to consequently bring the patentees and licensees an instruction regarding their licensing strategies. Patentees and licensees are normally recognized as affiliates, however, in many cases, are found standing at opposite position in terms of business. Patentees grant the license to licensees and expect to get the consideration in return, on the other hand, the licensees expect to earn the profit from manufacturing, selling, or using the patented articles in order to cover. 9.

(15) the royalties paid to the patentees. Patentees would expect to receive as much as royalties or consideration through license. Licensees, in contrary, would expect to pay the patentee as little as possible. This is also the reason why exhaustion doctrine nowadays becomes more important.. 3.1. Research Philosophy and Approach. In terms of law research, Interpretivism is most common which can be often seen in the rulings of the Courts. The grounds of the legal proposition are not about. 政治大. the legal requirements in any jurisdiction but the question of what makes the. 立. content of the law as what it is. On the other word, to find out the concept of why. ‧ 國. 學. the law is interpreted in certain form that we needs to first explain the factors and to understand the virtue of the law 4. Although this research is not aimed to generate a. ‧. new legal proposition, we are still required to review and analyze the past rulings. sit. y. Nat. granted by Court in order to understand the concept of the Patent exhaustion.. io. er. Therefore, Interpretivism will still be accepted to orientate us to see the whole phases of the proposition and to understand the purpose of the legislation.. n. al. Ch. engchi. i n U. v. Two standard approaches of research, deductive and inductive, have been normally accepted respectively to fulfill research. The purpose of this research is ultimately to generate a framework of strategic licensing for Patentees and Licensees by primarily reviewing the existing Court cases and literatures. Furthermore, this framework is expected to be able to apply on general circumstances and meanwhile to meet the proposition of patent law. Hence, deductive approach is taken into account which was defined as “[R]esearch approach involving the testing of a theoretical proposition by the employment of a. 4. Stavropoulos, Nicos, & Interpretivist Theories of Law, The Stanford Encyclopedia of Philosophy (Fall 2008 Edition), Edward N. Zalta (ed.), http://plato.stanford.edu/archives/fall2008/entries/law-interpretivist/ 10.

(16) research strategy specifically designed for the purpose of its testing.”5. Deductive research tends using data to test theory in accordance with the path it implements the whole research cycle6. I will therefore first collect the past Court rulings regarding Patent exhaustion and Post-sale Restrictions to present a clear jurisprudential concept. And the case of Quanta v. LGE will be discussed after to further point out its impact on U.S. Patent Law and the entities of the transactions.. 3.2. Research Strategy. 立. 政治大. Legal research is somehow relative subjective due to regulation proposition. ‧ 國. 學. and concept can be varied depends on the culture and politics of respectively countries. As mentioned in the previous sections, this research will emphasize on. ‧. the concept of exhaustion doctrine and its philosophy related to patent law. No. sit. y. Nat. Judges can give their decisions or verdicts interfering with the other existing laws,. io. er. therefore Interpretivist turns out becoming a significantly important method for Judges to analyze the factors and to grant their opinions. When matters are involved. n. al. Ch. i n U. v. with law or regulations, most of time we can only consider the factors case by case. engchi. and issues of Patent exhaustion have no exception. Therefore, Qualitative research will be employed here in order to implement this research. Qualitative research is based on a phenomenological paradigm which holds that reality is socially constructed through individual or collective definition of the situation 7 . The following chapter will first start from explaining the concept of the legislations regarding to Patent exhaustion and Post-sale Restrictions through some most recognized and significant litigations thereof. Accompanied with some discussions 5. Saunders et al, Research Methods for Business Students, 3rd Edition, Harlow: Financial Times :P Prentice Hall, at 476 (2000). 6 Eisenhard, Kathleen M., & Graebner, Melissa E., Theory Building From Cases: Opportunities and Challenges, 50 Academy of Management Journal 1, 25-32 (2007). 7 Taylor, S.J., & Bogdan, R., Qualitative Research Methods: The Search for Meanings, 2nd Edition, New York: John Wiley (1984) 11.

(17) of scholars will then give an overview of this research and insight of the philosophy and proposition of exhaustion doctrine.. For the purpose to provide an instruction for patent licensing and management strategies suit to Taiwan’s IT Industry, to understand the present challenges the industry is facing to will be first taken into account. Quanta as one key player of Taiwan’s IT industry, winning the suit in U.S. Supreme Court against to LGE have been seen as an achievement in the development of Taiwan’s IT industry. Yet, Quanta was the only defendants in this litigation brought the suit to Supreme Court,. 政治大. rest of defendants either had chosen to settle or pay the penalty before or after. 立. Federal Circuit. Therefore, the case study of Quanta v. LGE will be hold as a. ‧ 國. 學. research strategy to point out how licensing strategies is important to business. Additionally, case studies can be used to accomplish various aims such as to. ‧. provide description, test theory, or generate theory.8. sit. y. Nat. io. er. Primarily, the Quanta case will be inducted to explain why this case has brought so much discussion and arguments. The effects to Patent Law and to the. n. al. Ch. i n U. v. other legislations extended from exhaustion doctrine based on Quanta’s decision. engchi. will be then taken into account for us to get the idea about what Quanta might or may impact the nowadays and future global market. Subsequently, I will have a study about the background of IT industry in Taiwan and to illustrate the challenges and limitations of the present licensing strategies. Based on the previous studies, we will accordingly introduce a practical guideline or framework for Patent Licensing in order to provide patentee a better protection from triggering the exhaustion and grant licensee an understanding about how to avoid the end-run monopoly intended by patentees.. 8. Eisenhard, Kathleen M., Building Theories from Case Study Research, 14 Academy of Management Rev. 4, at 532-550 (1989). 12.

(18) 4.. Research Limitation The disputes between exhaustion doctrine and post-sale restrictions are seen as. a cliché which has tangled with the issues of jurisdiction, anti-competition, parallel trade, and contract law due to the complicated global economy. More importantly, behind these, certain international associations have been supporting free tariff to achieve the fare trade, eliminating the discrimination to improve the wealth fare, and enforcing the treaties to establish a harmonized agreement beyond individual laws in order to bind the member countries. However, there are always conflictions. 政治大. occurred for the considerations about politics and economic that results to no. 立. solutions can be made to fit all.. ‧ 國. 學. The arguments related to fare-trade, anti-competition, and contract law will. ‧. only be roughly mentioned in the later chapter. Nevertheless, each of these topics. y. Nat. may deserve a full scale of research and study to reach the core. As mentioned. io. sit. earlier, a guideline enable Taiwan’s IT industry to follow when considering their. n. al. er. patent licensing and management strategies is my ultimate purpose in this research.. Ch. i n U. v. With the very limited scope and the specific goal, the theory discussed within this. engchi. thesis will be concentrated on exhaustion doctrine and post-sale restrictions hereinafter.. Exhaustion doctrine although has been developed to many different phases of theories in accordance with diverse jurisprudence of each country. Moreover, it has been interpreted differently in common law and civic law. Within this research, U.S. law is chosen as the main jurisprudence due to the tight trading relationship between Taiwan’ IT industry and U.S. market. Most importantly, some Taiwanese companies have lately been involving in the law suit in U.S. that U.S. law does play a more significant role. Therefore, exhaustion doctrine and rules of post-sale. 13.

(19) restrictions practiced by EU, Japan, and China law are only mentioned roughly and taken place as a comparison to bring a more comprehensive idea to the readers.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 14. i n U. v.

(20) Chapter 2. The Development of Exhaustion Doctrine and Post-Sale Restriction. 1.. Principle of Exhaustion Doctrine Intellectual property rights grant the inventors or authors the right to prevent. others from duplicating, copying, producing, selling, marketing, and any other means infringing the IP owners’ rights. In the other words, IP rights enable the IP owners to monopoly their inventions and creations legally prior sold. In perspective of the. 政治大 innovation in order to benefit the public interest. Therefore, exhaustion doctrine is 立. ultimate purpose of IP rights law, which aims to encourage the incentive to create. ‧ 國. 學. evoked to balance the dominating power of IP proprietors.. ‧. The concept of exhaustion doctrine is accompanied by Chattel Law. As soon as the IP right holders sell or release the products into the market, their rights to control. y. Nat. io. sit. the articles would have been terminated. This rule has formed to the basic concept of. n. al. er. exhaustion doctrine or as known as first sale doctrine. In general, exhaustion doctrine. i n U. v. is existed in IP Laws of every nation though the interpretation may be slightly. Ch. engchi. different due to the diversities of the jurisprudence. Two major discussions regarding exhaustion doctrine are the scope of the right on use and the distribution. In terms of the right of use, post-sale restrictions are often adopted to extend the control and avoid exhaustion. U.S. emphasizes exhaustion doctrine on the principle of “first sale”. Once the goods are placed in the market or past hand to the purchasers, the IP owners then are forfeited the right to control the goods and the purchasers obtain the right to resell, use, or operate the goods. EU law then tends to more focus on the activity to put the goods in to the market circulation. As long as the goods are lawfully sold or launched inside anywhere of the member states, the monopoly of IP right owner. 15.

(21) would be exhausted. 9. The issues of distribution occurred by the frequent trading activities then raise the controversial opinions regarding parallel trade and the jurisdiction. Exhaustion doctrine is therefore developed and divided into three phases of theories: 10. -. National exhaustion: The fundamental theory of exhaustion and is also recognized as domestic exhaustion. As long as the goods are sold within the national territorial market with the consent of the IP right holders, IP. 政治大. right owners subsequently lose their control power within the said. 立. territory. Yet, the IP right holders can still block the unauthorized. ‧ 國. ‧. -. 學. products parallel imported from outside of the territory.. Regional exhaustion: This theory is normally adopted by a region. sit. y. Nat. consisted of certain nations for instance EU. Once the goods are put into. io. er. the market within the region, the IP right holders can no longer claim the monopoly of the goods. However, the unpermitted goods parallel. n. al. Ch. i n U. v. imported from outside the region are still prohibited.. -. engchi. International exhaustion: This theory supports an absolute termination as long as the goods are sold into anywhere of the global market under the permission of the IP right owners. IP right owners cannot prevent any other persons from selling or operating the goods regardless where they are.. U.S. emphasizes exhaustion doctrine on the principle of “first sale”. Once the 9. Tommaso M. Valletti & Stefan Szymanski, Parallel Trade, International Exhaustion and Intellectual Property Rights: A Welfare Analysis, LIV J. Indus. Econ. 499, at 500 (2006). 10 Marco M. Slotboom, The Exhaustion of Intellectual Property Rights – Different Approaches in EC and WTO Law, J. World Intell. Prop. 421, at 422-423. 16.

(22) goods are placed in the market or past hand to the purchasers, the IP owners then are forfeited the right to control the goods and the purchasers obtain the right to resell, use, or operate the goods. EU law then tends to more focus on the activity to put the goods in to the market circulation. As long as the goods are lawfully sold or launched inside anywhere of the member states, the monopoly of IP right owner would be exhausted.11. Although the philosophy of exhaustion doctrine seems simple and plain, it has turned to more critical when the cross border transaction is involved. The thriven. 政治大. international affiliates and associations which promoting an open market have. 立. simultaneously raised more disputes regarding the exhaustion. Therefore, the Article. ‧ 國. 學. 6 of TRIPS explicitly states that “[F]or the purpose of dispute settlement under this Agreement, subject to the provisions of Article 3 and 4 nothing in this Agreement. io. y er. Fundamental to U.S. First Sale Doctrine. sit. Nat. 2.. ‧. shall be used to address the issue of the exhaustion of intellectual property rights. ”12. al. In order to understand exhaustion doctrine in-depth, this research will be. n. v i n case C lawh hereinafter. TheUU.S. doctrine engchi. focused on the U.S.. of exhaustion was. initially defined by Court in 1852 prior to state it in Intellectual Property Law and aims to prevent the patent, copyright or trademark owner from over controlling the disposition of an article after it has been sold by or under the authority of the IP owner. 13 Here in this thesis, exhaustion doctrine under patent law is what the research intends to discuss about. After the discussion through a series of case law, the exhaustion doctrine has been officially stated in Patent Act in 2011 as:. “[T]he sale or other disposition of a useful end product produced by a 11. Supra note 9, at 500. See Agreement On Trade-Related Aspects of Intellectual Property Rights (TRIPS). 13 James B. Kobak, Jr., Exhaustion of Intellectual Property Right and International Trade, Hughes Hubbard & Reed LLP & Fordham University School of Law, at 2. 12. 17.

(23) patented method, by a person entitled to assert a defense under this section with respect to that useful end result shall exhaust the patent owner’s rights under the patent to the extent such rights would have been exhausted had such sale or other disposition been made by the patent owner.”14. The theory behind this doctrine refers to the interpretations made by the past precedents. In this chapter, some of the significant courts cases in the past will be conducted and studied for leading us an insight into the interpretation of judges and the principle of the law. Furthermore, the post-sale restriction is often recognized as. 政治大. the key strategy by the patentee. I will also discuss through subsequently in order to. 立. direct an effective guideline of patent licensing strategies. In light of the following. ‧ 國. 學. study, we can be taught how post-sale restrictions have been applied in the past and also categorize the common restrictions up to date.. ‧ y. Nat. The exhaustion doctrine as named as first sale doctrine was first applied in the. er. io. sit. decisions made by Supreme Court in Bloomer v. McQuewan in 1852 15. Same to what it was written, this doctrine emphasized on the action of the first time sale. n. al. Ch. i n U. v. taking place which would terminate the patent owner ’s monopoly. The doctrine is. engchi. thereafter standing in U.S. Patent jurisprudence as a principle to balance the insentive to innovate, and the limitation of the patentee to control the downstream purchasers with their exceeding power.. In the case of Bloomer v. McQuewan, McQuewan was granted a patent license from Barnet for Woodworth’s planning machine which was owned by Bloomer. Barnet was the assigned for a limited right to construct and use the machine during the residue of the patent right terms for fourteen years. Barnet later assigned all his “right, title, interest, and claim of the within patent for Woodworth’s planning 14 15. 35 U.S.C. §273 (Defense to infringement based on earlier inventor) See Bloomer v. McQuewan, 55 U.S. 539, at 549 (1852) 18.

(24) machine” to McQuewan. The disputes occurred due to the act of Congress to extend the patent for 7 years from 27 th of December, 1849. The question in this case, therefore, is whether the right McQuewan was authorized can also be extended along with the 7 years extension granted to the patentee.. This extension is congressionally passed which gives the patentee extension right for monopolizing its patent for a longer time. However it comes with the argument about whether this act also legally grants the licensee an equally right for using the patented machine during the extension. The Justices held that the act of. 政治大. Congress does ensure the extended right of patent but never expressly interfere the. 立. general law. More importantly, the Congress shall not happen to have the intension. ‧. ‧ 國. 學. to design a law to injure the existing right and interests of public and individual.. In order to better solve the disputes in this case, the Court therefore. sit. y. Nat. distinguishes the right to make and vend the machine, and the right to use it. The. io. er. Court explains the purchaser buys the franchise for exclusively manufacturing and vending the machine which obtains continuingly profit or interest from selling the. n. al. Ch. i n U. v. patented machine. This right of franchise is limited under certain period that patent. engchi. is valid for and the value of this right is based on the duration of this purchase and privilege. On the other word, the privilege of the exclusive right would increase the value of this transaction itself.. On the contrary, the purchasers buy the machine for the purpose to use it that the value is embodied with the machine itself in the ordinary pursuit of life. The Court stated that “[w]hen the machine passes to the hands of the purchaser, it is no longer within the limits of the monopoly. It passes outside of it, and is no longer under the protection of the act of Congress.”16 This concept since then has been. 16. Id. at 549 19.

(25) cited as the fundamental principle to exhaustion doctrine. While the patented subjects are purchased and passed hand to become individual properties that simultaneously terminate the monopoly, and the value of this purchase is attached to the usage of this subject or the implement. The Court consequently claims that the machines after purchased would become private property protected by the laws of the State instead of the Federal Laws.17 The purchasers pay the price for using this machine as long as it is capable to use and found to be profitable but not only limited for certain duration conditioned by the patentees under the exclusive right.. 政治大. Besides, in the case of Bloomer v. McQuewan, there’s no set forth limitation. 立. about the duration of time to use the machine while purchasing and paying taken. ‧ 國. 學. place for the right to construct and use this article.18 The inventor obtains the fair consideration for the duration of exclusive privilege granted to the franchiser, and. ‧. the franchiser receives his compensation from selling this patented article to the. sit. y. Nat. buyers who purchase for the purpose to use. 19 After the distributors vended this. io. er. machine to McQuewan, the only value consists in their use. The Supreme Court held that there’s no any reason to convince any body to believe the Congress would. n. al. Ch. i n U. v. authorize any inventor to recall the right has been granted. 20. engchi. The Supreme Court again affirmed similar opinions in Mitchell v. Hawley (1872) 21 by claiming that the patentees who have made one or more articles patented and later vend such right to others for authorizing them to exclusively make, vend, and use these articles. While the patentees grant assignee the parted 17. Id. at 550 (The implement or machine becomes his private, individual property, not protected by the laws of the United States, but by the laws of the States in which it is situated.) 18 Id. at 550 (the value of the implement or machine in the hands of the purchaser for use, does not in any degree depends on the time for which the exclusive privileges is granted to the patentee;. . .) 19 Id. at 553 (The right to construct and use these planning machines, had been purchased and paid for without any limitation as to the time for which they were to be used. They were the property of the respondents. Their only value consists in their use.) 20 Id. at 553-554 (that Congress may, from time to time, as often as they think proper, authorize an inventor to recall rights which he had granted to others; or reinvent in [sic] him rights of property which he had before conveyed for a valuable and fair consideration.) 21 See Mitchell v. Hawley, 83 U.S. 544, at 547 (1872) 20.

(26) privilege rights, the patentee himself has extend the monopoly and obtains the royalty in return from each parted exclusive privilege authorized. Although the patent proprietor make and vend the patented article himself instead of authorizing such right to any others, he still receive the consideration from purchasers for the purpose to practice or use this article. Hence, the Supreme Court clearly pointed out and affirmed the idea of separating the patent right in different phases. The Court believes that the patentee must have understood the extent of his exclusive right which is limited and segmented. That has simultaneously exhausted the interest of control at the time regardless when the patented article so sold, delivered, or. 政治大. authorized to be constructed and operated. Therefore, the owner of the patented. 立. articles regardless he constructs or buys it, as long as he also purchases the right to. ‧ 國. 學. use and operate this article during the lifetime of the patent, may continue to use it until the time is terminated.22. ‧ sit. y. Nat. In Mitchell v. Hawley, the Court also cited the distinction first made in. io. er. Bloomer v. McQuewan and held that purchaser for implementing or operating the patented articles for the purpose of using them can only obtain the benefits from. n. al. Ch. i n U. v. using. The Court has also stated in Mitchell that [w]hen it rightfully passes from the. engchi. patentee to the purchaser, ceases to be within the limits of the monopoly.23. The exhaustion doctrine as known as first sale doctrine refers to exhaust the patentee’s monopoly after the patented articles are passed hand lawfully without any set forth conditions to the purchasers. This solid rule has therefore been established to limit the patentees’ exclusive privilege. On the other hands, the Court has been emphasizing the unconditional sales would trigger the exhaustion to 22. Id. at 547-548 (…but when they have made one or more of the things patented, and have vended the same to others to be used, they have parted to that extent with their exclusive right, as they are never entitled to but one royalty for a patented machine,…);(Patented implements or machines sold to be used in the ordinary pursuits of life become the private individual property of the purchaser,…) 23 Id. at 548 21.

(27) terminate the patentee’s consequent control over the patented article. 24 The development of trading structures have subsequently carried out diverse disputes and further generated the set forth conditions. Nonetheless, exhaustion doctrine of U.S. has also been shaped and developed through these disputes incurred from these conditional transactions. The cases arguing about post-sale restrictions and its relative matters are studies hereinafter. 3.. Post-sale Restriction. 政治大. Like mentioned in the earlier section, the complicated trading structures have generated various forms of business models intending to waive the exhaustion. The. 立. patentees tend to impose barriers and conditions on the right granted in ahead which. ‧ 國. 學. is recognized as post-sale restriction. Such restrictions would limit the right of licensees and assignees and further extend the patentees’ control over the. ‧. passed-hand patented articles.. sit. y. Nat. io. er. 3.1 Restriction on Territory. al. n. v i n According to Mitchell C v. h Hawley, patent right is recognized to consist with engchi U. parted rights and to contain different extent depends on the contractual conditions. The very early common limitation is to restrict the licensees or purchasers to make, vend and use the patented articles within geographic territory. Adams v. Burke25 raised the question of whether an assignment of a patented invention with a limit on specific district grants the assignee the right to sell the articles to be used outside of the limited territory26. The assignee was authorized the exclusive right to make, use, 24. Id. at 547 (when he has himself constructed a machine and sold it without any conditions, or authorized another to construct, sell, and deliver it, or to construct and use and operate it, without any conditions,…,the rule is well established that the patentee must be understood to h ave parted to the extend with all his exclusive right,…) 25 84 U.S. 453 at 457 (1873) 26 See Adams v. Burke., 84 U.S. 453, at 457 (1873) (The question raised in this case is whether an assignment of a patented invention for a limited district, . . ., c onfers upon the assignee the right to sell the patented article to be used outside of such limited district.) 22.

(28) and vend the patented coffee-lid within the restricted territory described under the contract; but was not granted the right to make, use, and vend the same outside of the limits that constructed a conditional license. However, the assignee can easily defeat the contractual limitation after the patented articles are lawfully made and sold for example by authorizing the other parties to use them outside of the district. And this subsequent authorization or transaction might diminish the patentee’s remaining in- hand monopoly value.27. Furthermore, after the assignees make the patented article and later sell or. 政治大. authorize to the other parties to enable them to further vend or use this article. 立. outside the limited territory. It emerges the question of whether the assignees can. ‧ 國. 學. lawfully grant such rights to the other parties that they have never been given. On the other hand, it was also considered by the Justice about whether the limits would. ‧. be solid enforced to the parties who purchased from the assigned manufacturers or. sit. y. Nat. vendees and have chance to bring the patented articles to outside of the district. As. io. er. the example made by the Justices of Adams v. Burke concerning whether a consumer would be recognized to infringe the patent by wearing a clothes with a. n. al. Ch. patented button which is geographical restricted.. engchi. i n U. v. Nonetheless, in Adams v. Bruke., the Supreme Court still made the decision to reverse. Judge Bradley although acknowledged the opinion of the Circuit Court whom referring Bloomer v. McQuewan. He, however, commented this opinion is based on the timeframe of the patent residue but not geography restrictions as in this case.28 Also, the protection for the patentee by limiting territory will be worthless if. 27. Id. at 457-459 (As the assigned right to make the lids was a restricted right, limited to the territory; so the assigned right to use them was a restricted right limited in the same manner….For if the assignees, after making any number of lids within the limited district, could use them or authorize others to use them outside of the district, the balance of the monopoly remaining in hands of the patentees might be rendered of little value.) 28 Id. at 460 (He was speaking of time, not territory; of the right to use a machine after the original patent had expired and a renewal had been granted, not of using it in a place outside of the grant.) 23.

(29) obeying the doctrine to exhaust patentee’s right after passing this article to assignee within the limited district. Judge Bradley furthermore affirmed that the assignee should not grant any right to the other parties over the patented articles while they have never be given such right to.29 In the other words, the assignee should have been aware of the right they purchased from the patentee only contains the limited value that both parties have agreed from the beginning. The geographic restrictions are since after affirmed by the Supreme Court.. Though the Supreme Court did not made a clear comment about whether it is. 政治大. lawful for the purchaser to use the patented articles what he purchased from outside. 立. of the contractual territory. In Hobbie v. Jennison 30, the Supreme Court has affirmed. ‧ 國. 學. the licensees granted restricted geographic right are not liable for vending to the customers who later move the articles outside the limited districts and use them out. ‧. there. Supreme Court disagreed with the patentee by referring the earlier Adams v.. sit. y. Nat. Burke that in fact made the proposition holding the assignee is only given the right. io. er. and is allowed to sublicense based on what the patent proprietors grant. Instead, Hobbie v. Jennison discusses about whether the purchaser who intends to use a. n. al. Ch. i n U. v. patented article outside of the restricted territory may infringe the patentee’s right.31. engchi. The Supreme Court found the transaction were taken place lawfully within the restricted territory, although the goods were end up shipped to outside of the territory and were used there by the real buyer. The Court also considered the geography restricted right has provided the patentees the right to protect themselves and bind every licensee or assignee. 32 While the patentees grant the exclusive right 29. Id. at 460 (it was limited in locality, both as to manufacture and use, and that he could not convey to another what he did not have himself.) 30 See Hobbie v. Jennison, 149 U.S. 355 (1893) 31 Id. at 363 (But we are of opinion that the case of Adams v. Burke cannot be so limited; that the sale was a complete one at Bay City; and that neither the actual use of the pipe in Connecticut, nor a knowledge on the part of the defendant that they were intended to be used there, can make him liable.) 32 Id. at 363 (It is easy for a patentee to protect himself and his assignees when he conveys exclusive rights under the patent for particular territory. He can take care to bind every licensee or assignee, if he gives him the right to sell articles made under the patent, by imposing c onditions 24.

(30) to anyone and permitting them to sell patented articles which also prevent any licensee or assignee from being interfered with. The questioned articles here in this case were sold lawfully under the condition, and the purchaser only bought for the purpose of use and necessarily perished in the using.33 Therefore, the Supreme Court upheld that this transaction was made lawfully and has effected to the exhaustion.. 3.2 Restriction on Price. 政治大. A condition set forth to restrict the sales price is also an ordinary restriction. 立. but meanwhile a very tricky one. In most transactions, if not all, the price restriction. ‧ 國. 學. is prohibited and lead to a violation of the common law and antitrust law. However, in terms of the disputes arisen in patent law referring to violate exhaustion doctrine,. ‧. the opinions given by the Supreme Court in United States v. General Electric Co.. er. io. sit. y. Nat. are carried out here to bring us a clearer picture 34.. General Electric Co. (GE) owned a patented lamp and assigned certain layers. n. al. Ch. i n U. v. of distributors to sell the lamps with fixed price decided by GE. The distributors. engchi. were divided into B agent and A agent. The business model of GE in this case was also divided to three classes. 35 At the first class, GE had its own employees so called sales team to deal directly with large consumers. The negotiation would be done directly by GE’s sales team and products would be delivered to consumers directly from GE’s factories and warehouse. At the second class, the large consumer might also deal with the agents which are identified as B agent and had contract. which will prevent any other licensee or assignee from being interfered with.) 33 Id. at 363 (because he had a right, under the patent, to make, use, and vend the patented article in the state if Michigan, and the article was lawfully made and sold there….but were merely used there, and necessarily perished in the using.) 34 See United States v. General Electric Co., 272 U.S. 476 (1926) 35 Id. at 481 (The plan of distribution by the Electronic Company divided the trade into three classes.) 25.

(31) with GE. The deliveries were made from the stock in agents’ custody. Interestingly, B agent did not own those goods though the goods were stock in their warehouse. They were merely in charged of taking care of those goods and had to report to GE every certain period for the sales and stock volume. And the unsold stock must be returned to GE after the for-sale period. The agent would, on the other hand, earn the commission from selling those goods which also covered the expenses of delivering the goods to consumers’ place. The third class of sales consists of authorized A agent which bought those goods from either GE’s sales tram or the B agents. The A agent would therefore sell the goods to normal individual consumers. 36. 立. 政治大. ‧ 國. 學. In terms of the custody of the B agent, the period of time to sell, to stock, and to return the goods was determined by GE. The company, GE, owns the right of the. ‧. products until they were sold to the consumers. No matter under which class the. sit. y. Nat. products were sold to consumers, the prices were specified by the company. The. io. er. United Sates as the appellant argued the transaction between GE and its agents have triggered the patent exhaustion that GE shall not control the selling price any more.. n. al. Ch. i n U. v. The Supreme Court, therefore, had to deconstruct the distribution structure in order. engchi. to figure out the real ownership of the patented subjects.. The Court also emphasized on the spirit of patent right that is to monopoly the rights derived from the patent granted. The patentee owns the right to make, to sell, to use and to dispose the patent and the patented articles which allow him to exclusively or non-exclusively license such rights to its licensees.37 Patentees seek for money reward by setting conditions to secure his status of monopoly was seen normal and reasonable by the Court. On the other hand, the patentee may also earn 36. Id. at 481-483. Id. at 485 (But under the patent law the patentee is given by statute a monopoly of making …, [a]nd the comprehensiveness of his control of the business in the sale of the patented article is not necessarily an indication of illegality of his method.) 37. 26.

(32) the profit in return by granting the right of patent to licensee, and more powerful of the right granted would bring more profit to patentee. 38. In terms of this case, though there were contracts between GE and its agents for authorizing them to sell the product, no any given right were entitled in the patent.39 GE authorized those agents to vend the products but only gained the profit from the price sold instead of from the license on the patent. Although the products are patented, the Justice distinguished between the right of selling the patented products and the right of merely selling products would represent different levels of profit return to the patentee.. 立. 政治大. ‧ 國. 學. Moreover, the agents were not entitled to own the goods although the goods are in their custody, therefore no such pass-hand transaction took place as in Adam v.. ‧. Bruke. In light of the contract, no any evidence showed the agreements were made. y. Nat. to give the licensee the right of patent, in turns no patent exhaustion issue should be. er. io. sit. concerned here 40 . Based on the domination of the patent right and under the circumstances that GE did not grant the right away to others, the fixed selling price. n. al. Ch. i n U. v. determined by GE simply referred to its power of monopoly over its patent. Every. engchi. patentee should have the right given by patent law to decide the value of its patented inventions including to secure his proper reward. 41 The Supreme Court therefore implicitly held GE’s price-fixing business model does not violate the exhaustion doctrine by referring Adams v. Burks.42. 38. Id. at 490 (One of the valuable elements of the exclusive right of a patentee is to acquire profit by the price at which the article is sold. The higher the price, the greater the profit, unless it is prohibitory.) 39 Id. at 489 (is a license giving the licensee no title in the patent and no right to sue at law in his own name for an infringement.) 40 Id. at 484-486. 41 Id. at 493 (price fixing is usually the essence of that which secure proper reward to the patentees.) 42 Id. at 493-494 (already referred to that a patentee may not attach to the article made by him or with his consent a condition running with the article in the hands of purchasers limiting the price at which one who becomes its owner for full consideration shall part with it.) 27.

(33) In the later case, United States v. Univis Lens Co. , Inc,43 which was also involved in price restriction and moreover interfered the Sherman Act. The Supreme Court intended to explicitly distinguish the long-standing ambiguity between patent monopoly and antitrust. Univis Lens had a downstream distributor channel which seems similar to GE’s but technically worked in different way. Univis Corporation was entitled the interest in the patents and trademarks which in fact owned by Univis Lens Company. The corporation then licensed Univis Lens Company to manufacture lens blanks and to sell to the indicated licensees appointed by the Corporation. The Lens Company, on the other hand, agreed to pay royalty of 50. 政治大. cents a pair upon the sales to the Corporation.. 立. ‧ 國. 學. Referring to the sixteen patents that Univis owns, that includes three irrelevant and five for methods of producing lenses blanks implemented by the Lens Company. ‧. instead of the process or method employed by licensees for completing the lens. sit. y. Nat. blanks. The rest of eight patents relates to only the size, shape, composition and. io. er. disposition of the pieces of glass of different refractive power in the blanks into which they are fused. Be more specific, the each lens blank can only be functional. n. al. Ch. and wearable after completing the combination.. engchi. i n U. v. Despite the royalty the Lens Company paid to the Corporation, the Lens Company once finished the manufacturing then subsequently sold the lens blanks to licensed wholesaler for $3.25 a pair, and to those finishing retailers for $4 a pair. The finishing retailers would grind and polish the lens blanks then sold to final customer directly with a set price of $16 a pair for white, and $20 for tinted. The prices were decided by Univis Lens Co. On the other hand, the licensed wholesaler would also grind and polish the lens blanks into the final lenses and sold to licensed prescription retailers for a set price of $7. The retailers would later resell the lenses. 43. See United States v. Univis Lens Co., Inc., 316 U.S. 241 (1942) 28.

(34) to final customer with the same price of $16 and $20. 44. In the GE case which related to the goods that were in the custody of distributors only instead of being sold or patent licensed. Therefore, the Court did not consider the goods were de facto passed hand. Contrary to GE, Univis Lens case referred to the lens blanks that manufacturer has practiced the patents while producing and were purchased by the wholesaler and retailers with fixed price set by the Company. Nonetheless, the wholesaler and distributor subsequently sold the ground and polished lens to consumers with fixed prices decided by the Company.. 政治大. As mentioned earlier, the subsequent patents referring to the size, shape,. 立. composition, and others which are owned by Univis Company. A distributor or. ‧ 國. 學. retailer without the licenses would have infringed Univis’ patents by practicing the grind and polish. The license that the distributors and the prescription retailer were. ‧. required to sign had bound the set forth price and patent rights together. 45 In the. sit. y. Nat. other words, the licensee would only be granted the right to franchise by accepting. io. er. the clause of the retailing price decided by the Company under the license. The question arisen here is whether the Company can remaining its control power over. n. al. Ch. i n U. v. the subsequent price making and sales after the original blanks have been sold.. engchi. The Court claims that regardless the sale of the blank is done by the patentee or his licensee, to the finishers, the only use of the lens blank is to enable the distributors to grind and polish it for use as a wearable lens. Though Univis argued about the novelty of the combination of shape, size, and arrangement, the Court ha s found no other function in the blanks besides of being ground and polished. The. 44. Id. at 243-244; also see Yina Dong, A Patent Exhaustion Exposition: Situating Quanta v. LGE in the Context of Supreme Court Jurisprudence, Stan. Tech. Law Review 2, at 2-3 (2010) 45 Id. at 244-245 (The retailers are licensed to purchase the blanks of the Lens Company and to sell them to their customers at prices prescribed by the Corporation licensor.) ([i]n return for which the prescription retailer agrees to sell finished lenses only to customers an d only at prices prescribed by the Corporation.) 29.

(35) only novelty feature claimed by the patentee id de facto embodied in the lens.46 Take a step further, regardless whoever sells the lens blank, the only purpose of the sale is to enable the later party to grind and polish is for the wearer. The Court therefore stated “[t]he authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold.”47. Following to the principle, the Court held the transaction between Univis and his distributor has consequently completed the transfer of ownership of the blank. 政治大. and has also permitted a license to practice the final stage of the combination. This. 立. action was protected under the patent law and had triggered the exhaustion. 48. ‧ 國. 學. Moreover, the Court emphasized that the patentee has received the full compensation and consideration of its patent reward through selling its patented. ‧. articles. Hence the patentee shall no more control the resale price of patented. er. io. sit. y. Nat. articles which he has already sold.. Price restriction normally is not only involved with patent law but also. n. al. Ch. i n U. v. Sherman Act and Antitrust Act that may only be roughly mentioned in the later. engchi. chapter in order to provide a comprehensive understanding. However, it is not hard to find from the above two cases which results into two different verdicts, whether the patented articles are virtually transferred or passed hand through purchase is the key to determine the exhaustion. And price restriction on the subsequent sale is anyway unlawful while the monopoly on the patent has been broken.. 46. Id. at 248 (each blanks, as appellees insist, embodies essential features of the patented device and is without utility until it is ground and polished as the finished lens of the patent.) 47 Id. at 249 48 Id. at 249 (Sale of a lens blank by the patentee or by his licensee is thus in itself both a complete transfer of ownership of the blank, which is within the protection of the patent law, and a license to practice the final stage of the patent procedure.) 30.

(36) 3.3 Restriction on Use. An alternative post-sale restriction is to limit the right of licensees and purchasers to specify the function and purpose of use. This was also supported by the Supreme Court in General Talking Pictures Corp. v. Western Electric Company, Inc49. General Talking Pictures purchased the patented amplifiers from a company called Transformer Company to apply on its equipments offering to theater for commercial use. However, Transformer Company was granted the right by Western. 政治大. Electric to make and sell the patented amplifiers only for radio amateur reception,. 立. radio experimental reception, and home broadcast reception within the scope of. ‧ 國. 學. private use only. Transformer Company had aware of the equipments made by General Talking Pictures are for theater at the time the sales transaction was taken. ‧. place. General Talking Pictures also had aware of Transformer Company only have. y. Nat. limited right to sell for private use. Furthermore, Transformer Company had also. er. io. sit. attached a “license notice” on each amplifier to claim the restriction on use 50. The intention to break the restriction seemed clear, but the controversy is whether the. n. al. Ch. i n U. v. boundary of use set forth by Western Electric is enforceable.. engchi. General Talking Pictures questioned that the patentee should have terminated the monopoly after the device has been passed into the hands of purchaser after the consideration has been paid. 51 By emphasizing that the sale between the Transformer Company and General Talking Picture were actually beyond the scope of its authority and both parties have acknowledged this in advance. The Court pointed out the limited right granted to Transformer Company as mentioned earlier 49. See General Talking Pictures Corporation v. Western Electric Company, Inc., et al., 304 U.S. 175, 58 S.Ct. 849 (1938). 50 Id. at 179-180 51 Id. at 180 (The owner of a patent cannot, by means of the patent, restrict the use made of a device manufactured under the patent after the device has passed into the hands of a purchaser in the ordinary channels of trade and full consideration paid therefore.) 31.

(37) in Mitchell v. Hawley, that the right granted to Transformer Company is merely a non-exclusive right to make and sell for private use. Transformer Company is not entitled to grant the license to any licensees for such rights that he per se has never owned. 52 Therefore, the disputes of whether the imposed notice enforceable is irrelevant under the phenomenon that both parties were aware of the infringement of the patent when the transaction was taken place. 53. 3.4 Restriction on Frequency of Use. 政治大. The other lately case indicating another category of restriction is regarding to. 立. the frequency of use. In Mallinckrodt, Inc v. Medipart, Inc. 54, the Federal Circuit. ‧ 國. 學. reversed District Court’s decision which favored in Medipart. Mallinckrodt sold hospital with its patented apparatus for diagnosis and treatment of pulmonary. ‧. disease. This device was manufactured by Mallinckrodt itself and vended to. sit. y. Nat. hospitals as unitary kit consists of a nebulizer, a manifold, a filter, tubing, a mouth. io. er. piece, and a nose clip. The device fit into a lead-shielded container provided by Mallinckrodt to minimize exposure and for safe disposal after use. Each device was. n. al. Ch. i n U. v. marked with the patent number, and bore the trademarks “Mallinckrodt” and. engchi. “UltraVent”, and most importantly, the inscription “Single Use Only”. Moreover, each package that contained a device was also stated “For Single Patient Use Only” and along with instruction of disposal procedure on the package.55. Medipart Inc. collected the used manifold and nebulizer from hospitals and shipped them to Radiation Sterilizers Inc. for disinfection. Medipart subsequently. 52. Id. at 181 (The Transformer Company could not convey to petitioner what both knew it was not authorized to sell.) 53 Id. at 182 (As petitioner at the time it bought the amplifiers knew that the sales constituted infringement of the patents embodied in them, petitioner ’s second questions, as to effect of the license notice, need not to be considered.) 54 Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992) 55 Id. at 702 32.

(38) assembled those disinfected parts with a new filter, tubing and put them together in a bag. Medipart Inc. then sent those “reconditioned” units back to the hospitals whence they came without applying any test for residual biological activity or for radioactivity. More than that, the reconditioned units still bore the inscription “Single Use Only” and even the trademarks of Mallinckrodt as the brand-new one. Mallinckrodt accordingly filed the action for infringement in violation of the restriction on reuse against Medipart Inc. 56. District Court was favor in Medipart by erroneously stated that no restriction. 政治大. whatsoever could be imposed under the patent law without taking some other laws. 立. into account. 57 Instead, the Federal Court emphasized that patent grants the right to. ‧ 國. 學. exclude by citing 35 U.S.C. § 154.58 This right to exclude may be waived in whole or in part depends on the conditions 59. The Federal Circuit had also referred to the. ‧. opinions in E. Bement & Sons v. National Harrow Co. as objection against the first. er. io. sit. y. Nat. trial rulings. 60. The Appeal Court also pointed out some misinterpretations made by the. n. al. Ch. i n U. v. District Court. First, the price-fixing condition is contrary to general law and to. engchi. violate the antitrust which is considered per se illegal.61 This restriction should not be analogous and does not hold that all other restrictions accompanying the sale of patented goods are deemed to be illegal. The Federal Court subsequently 56. Id. at 702. Id. at 701 (the district court held that no restriction whatsoever could be imposed under the patent law, whether or not the restriction was enforceable under some other law, and whether or not this was a fist sale to a purchaser with notice.) 58 Id. at 703, 35 U.S.C. § 154, (“Every patent shall contain…a grant…. for the term of seventeen years of the right to exclude others from making, using, or selling the invention thr oughout the United States….”) 59 Id. at 703 ( The conditions of such waiver are subject to patent, contract, antitrust, and any other applicable law, as well as equitable considerations such as are reflected in the law of patent misuse.) 60 Id. at 703 (“The rule is, with few exceptions, that any conditions which are not in their very nature illegal with regard to this kind of property, imposed by the patentee and agreed to by the licensee for the right to manufacture or use or sell the [patented] article, wil l be upheld by the courts.” E. Bement & Sons v. National Harrow Co., 186 U.S. 70 (1902)) 61 Id. at 704 (These cases established that price-fixing and tying restrictions accompanying the sale of patented goods were per se illegal.) 57. 33.