Doctrine of Patent Exhaustion: Review of Two Recent Supreme Court Decisions

Long-lasting, 150-year old Doctrine of Patent Exhaustion limiting the patent rights that survive the initial authorized sale of a patented item was at issue in two totally unrelated cases, which occurred miles away from each other. In these cases, the two Supreme Courts reached to a totally opposite verdict for application of Doctrine of Patent Exhaustion.

In a landmark case of QUANTA COMPUTER INC V LG ELECTRONICS the US Supreme Court applied thes Doctrine of Exhaustion to method patents and prevented LG Electronics from further asserting its patent rights with respect to the patents substantially embodied by those products.

However, in another landmark decision, RECYCLE ASSIST CO LTD V CANON CO LTD, the First Petty Bench of the Supreme Court of Japan held that a recycled product violates the patent right of the original product if the recycled product can be recognized as a “new manufacture” of the patent product.

According to the Exhaustion Doctrine, “when a patented item is once lawfully made and sold, there is no restriction on its use to be implied for the benefit of the patentee.” Therefore, US Supreme Court found that there right of LG Electronics exhausted when it licensed Intel to practice any of its patent and to sell products practicing those patents. Intel authorized sale to Quanta of products made by practicing LG’s patent took its product outside the scope of the patent monopoly and as a result LG can no longer assert its patent rights against Quanta.

However, Japan Supreme Court found that, Recycle assists, a company based in Tokyo, when imported the used ink cartridges from China, which was sold by the patentee through existing trade channels to consumers and sold in Japan the recycled ink cartridges, violated patent rights for the original cartridges. The Court recognized the refilled product as a new manufacture of the patented product.

The Court stated that, “The function, structure, materials of the product, its purpose, its usable life and its manner of use should be considered regarding the attributes of the patented product, and the state of the patented product when it is manufactured, the method and degree of manufacture, the usable life of the replaced components, and the technological function and economic value of the components in the patented product should be considered regarding the manner of reconstruction or replacement of the components.”

Based on abovementioned various elements, the Court recognized recycling as manufacturing.

It would be interesting to see the approach of US Courts to the Doctrine of Exhaustion to the recycling cases.