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Abstract: Ofer Tur-Sinai

Abstract: Under the doctrine of patent exhaustion, an authorized sale of a patented item exhausts the patentee’s rights with respect to that item, leaving the purchaser and subsequent owners free to use or resell it without fear of an infringement lawsuit. In 2017, the U.S. Supreme Court issued its landmark decision in Impression Products v. Lexmark International, which strengthened the exhaustion doctrine in various significant manners. The Court held that an authorized sale of a patented item exhausts all patent rights with respect to that item regardless of any contractual restrictions on use or resale the patentee purports to impose. The Court further held that exhaustion is triggered not only by local sales but also by authorized sales outside the United States. The decision is likely to have considerable implications across various industries.

This Article examines the immensely valuable but underexplored role that the exhaustion doctrine could play in the context of cumulative innovation. Research and development efforts often involve the need to use earlier patented inventions. Unfortunately, licensing transactions between cumulative inventors are characterized by particularly high transaction costs and other factors that may impede the ability of the parties to reach an agreement. As a result, the patent system may end up stifling technological progress rather than promoting it.

This Article demonstrates that this concern may be mitigated by the Lexmark decision. The patent exhaustion doctrine, as construed by the Supreme Court, could constitute an effective policy tool for facilitating cumulative innovation in a variety of settings. For instance, under the post-Lexmark exhaustion doctrine, a patent owner would not be able to invoke patent law to prevent a purchaser of a patented product from reverse engineering it while developing an improved version or a compatible product; from using the patented product as a research tool in the investigation of any subject matter; or from combining the product with other components or integrating it into a larger system. Most importantly, the post-Lexmark exhaustion doctrine would shield such activities of a follow-on inventor notwithstanding any contractual post-sale restrictions and regardless of the location of the sale. Overall, applying the exhaustion doctrine to cumulative innovation settings in the manner proposed by this Article could have vast implications for our innovation ecosystem.

Citation: Tur-Sinai, Ofer, Exhaustion in the Service of Progress (April 1, 2018). Cardozo Arts & Entertainment Law Journal, Forthcoming.

Full paper on SSRN: https://ssrn.com/abstract=3154011