Exhaustion under Judge Rich

Reading Prof. John Witherspoon’s recent remarks about Judge Giles S. Rich led me to a 1999 interview of Judge Rich by Prof. Janice Mueller titled An Interview with Judge Giles S. Rich, 9 FED. CIR. B.J. 75 (1999).  One of the topics discussed was the doctrine of patent exhaustion – also known as the first sale doctrine. The doctrine was central to Bowman v. Monsanto Co., 133 S.Ct. 1761 (2013) and is also central to the case now pending before the Supreme Court, Impression Products, Inc. v. Lexmark International, Inc., Supreme Court Docket No. 15-1189 (2017).

The following is an excerpt:

Question: I’ve heard that you disagree with the reasoning of the so-called “first sale doctrine.” What’s wrong with the idea that the first authorized sale of a patented product “exhausts” the patentee’s right to control the subsequent disposition of that particular item?

Judge Rich: My position is simple: No patent right is involved and nothing is exhausted. Talking about exhaustion of the patent right is nonsense and it’s about time to stop talking nonsense. To explain, I have to discuss two things: (1) what the patent right is; and (2) what is the meaning of “exhaustion.” It is no longer debatable what the patent right is. As I just explained, the Supreme Court told the country in 1852 in Bloomer v. McQuewan that it consists altogether in the right to exclude others – and that is all it is. It is not an ambiguous “exclusive right”; it is a simple right to exclude others. Period.

Now, the premise is that the patentee made and sold the patented invention. That was the so-called “first sale.” What did his right to exclude others have to do with those acts? Absolutely nothing! In manufacturing, was he excluding anyone? No. In selling, was he excluding anyone? No! Then he wasn’t exercising his patent right, was he? The trouble stems from the old ambiguous statutory definition of the patent right as the “exclusive right to make, use and sell.”

Turning to the meaning of “exhaustion,” it means the state of being drained or used up completely. It assumes that there is something to be used up. Well, since the patent right is not involved, how could it be used up? It couldn’t have been used, even a teeny bit, and it certainly was not exhausted.

But that’s not all there is to the analysis. What is this so-called “first sale” of an article on which the seller happens to have a patent? It is a simple transfer of ownership – a chattel or personal property – from one person to another. The rights of the buyer are governed by the law of property or the law of sales or both. And the law of patents has nothing whatever to do with those rights. Any restraints on the new owner have to be made under the law of contracts, and any contractual restrictions are subject to the antitrust laws. So there is neither use nor exhaustion of patent rights.

Conclusion: The term “exhaustion doctrine” is meaningless nonsense. The legal result is okay but the reasoning is all wrong. The simple fact is that no patent right is involved in the sale of merchandise by the patentee, nothing is exhausted, and the adjective “first” in “first sale” is also without significance. Let’s clean up the thinking about this law.

I do not always agree with Judge Rich’s positions – the fact that he wrote the statute did not give him unlimited authority to interpret the statute.  However, his logic is fairly sound here. The question in my mind is whether the laws of property and sales would be able to pick-up the slack — especially under our federalist system where state laws (i.e., those that govern personal property and sales) are subservient to national laws (e.g., the patent laws).  Seemingly, no state law that limits patent rights could be enforceable.  The saving grace in this chain of thought comes from 35 U.S.C. 261 which states “Subject to the provisions of this title, patents shall have the attributes of personal property.”