Source: https://patentlyo.com/patent/2016/02/retroactive-license-exhausts.html
Timestamp: 2019-04-24 18:38:17+00:00

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The Federal Circuit has released an interesting new (though non-precedential) decision on patent exhaustion – in particular the court affirmed a lower court finding of exhaustion based upon a retroactive sublicense filed after the lawsuit was filed and the patents had expired. The case offers some further guidance as to how patent licenses are treated in complex mergers.
In High Point SARL v. T-Mobile, the patentee (High Point) sued T-Mobile for infringing its patents. The set of patents themselves have an interesting history. They were originally owned by AT&T but then spun-off to Lucent when that company was created. Avaya bought the patents from Lucent in 2000 and then the Luxembourg-based patent assertion entity High Point bought them from Avaya in 2008.
T-Mobile uses the technology allegedly covered by the patents, but it is not the manufacturer. In particular, various portions of the accused systems were purchased from Alcatel Marketing US, Nokia Siemens Networks US, and Ericsson US. The district court held (and now the appellate panel) that these parts used in the system were all licensed under the patents and “substantially embodied” the asserted claims.
Nunc pro tunc: After the litigation began, Ericsson LM granted its subsidiary Ericsson US a “nunc pro tunc” sublicense that was made retroactive back to 2002. The courts found that retroactive sublicense effective even though the license was conveyed after the patents had expired. Further, the courts found that the retroactive sublicense also retroactively exhausted the patent vis-à-vis products sold by Ericsson US after the 2002 back-date. The appellate court found that this right to retroactively sub-license was simply paperwork and that, in effect, the subsidiary was always licensed.
Here, Ericsson U.S. was at all times authorized to sell the accused equipment to TMobile because when the sales took place neither Lucent nor any of its successor entities could have sustained an infringement claim based on those sales. To the contrary, if they had attempted to bring suit, LM Ericsson had the unrestricted right … to immediately grant Ericsson U.S. a [retroactive] sublicense, thereby immunizing Ericsson U.S. from any potential infringement liability.
Thus the result was that the parts supplied by Ericsson US were deemed licensed and authorized and thus patent rights associated with those parts were exhausted.
For Alcatel Marketing US, it turns out that in 1996 AT&T had licensed the patents to Alcatel (France). By its terms, the 1996 license extended to both current and future subsidiaries, but was limited only to products “of the kind” being furnished or used by Alcatel back in 1996. In 2006, Alcatel and Lucent merged, to form Alcatel-Lucent. Alcatel Marketing US was already a subsidiary of Alcatel and merged with a Lucent subsidiary to become Alcatel-Lucent USA. Of importance, although Alcatel did use and sell parts similar to those at issue here back in 1996, it did not manufacture those parts back then but instead purchased them from Spatial Communications (Alcatel later acquired Spatial). In reviewing this history, the courts found that the patents were properly licensed to Alcatel Marketing and that the “of the kind” language was broad enough to include more modern switches.
Finally, for Nokia-Siemens US, Siemens originally obtained a patent cross license from AT&T in 1988. That license was extended in 1995 to include an allowance for sublicensing to divested businesses. In April 2007, Siemens divested its carrier division into a joint venture (Nokia-Siemens BV) and then granted a retroactive sublicense to the new venture. In 2011, Nokia-Siemens BV granted a retroactive sublicense to its US subsidiary Nokia-Siemens US. It was this US sub that sold the parts to T-Mobile and, according to the court, those sales were (at least retroactively) licensed under the patents and thus the patent rights exhausted.
Substantial Embodiment and a Combination of Licensed Parts: As suggested above, the authorized supplied parts here do not themselves individually infringe the asserted patents. However, the particular combination of the parts (along with some other parts) does result in a system that allegedly infringes. In the appeal, High Point argued that the asserted claims include innovative features beyond the licensed parts and that, as a consequence, the patents were not exhausted as to the unique combination claimed.
In Quanta, the Supreme Court roughly addressed this issue – stating that “[M]aking a product that substantially embodies a patent is, for exhaustion purposes, no different from making the patented article itself.” Likewise, in Univis Lens, the court wrote that sales of an article that “embodies essential features of [a] patented invention” exhausts the patent rights.
 High Point SARL v. T-Mobile USA, Inc., App. No. 15-1235 (Fed. Cir. February 8, 2016) (Judges Reyna, Mayer, and Chen). District court decision available at High Point SARL v. T-Mobile USA, Inc., 53 F. Supp. 3d 797 (D.N.J. 2014).
 U.S. Patent Nos. 5,195,090 (the “’090 patent”), 5,195,091 (the “’091 patent”), 5,305,308 (the “’308 patent”), and 5,184,347 (the “’347 patent”).
 United States v. Univis Lens Co., 316 U.S. 241, 251 (1942).
What this case illustrates is that patents held by big companies who routinely cross license are almost worthless from the point of view of a monetizing entity. I wonder why how big companies can justify the fraud they practice upon innocent purchasers when they sell them patents from their portfolio, knowing they are worthless, for big bucks.
Yeah, I know the answer to this. Caveat emptor. But the gall of these big companies is amazing.
There is far more naivety among some in-house corporate “patent licensing experts.” For example, not appreciating that the PAE may sue, and anger, some of their own important customers. Or, telling their management that they will get rich with no costs by “selling” patents with contracts for a % return of whatever litigation-avoidance settlement payments the PAE can collect. Miss-representing that the company will never get involved in those lawsuits, even though third party subpoena discovery demands and depositions of the corporate employee patent attorneys and inventors involved in obtaining the subject patent are far more likely from the defendants of the PAE suits than depositions of the PAE personnel who had nothing to do with the preparation or prosecution of those patents or their prior art.
Last I checked it was still a foundational element of US patent law to be able to fully alienate one’s patent property, so the implication here of somehow possibly being NOT “innocent purchasers” sounds a bit biased and untowards as to what the law is.
Maybe you should go back and try again to have a registration number and actually understand things from the property owner’s side, Paul.
“anon” t was still a foundational element of US patent law to be able to fully alienate one’s patent property, so the implication here of somehow possibly being NOT “innocent purchasers” sounds a bit biased and untowards as to what the law is.
Congrats, “anon.” This is even more nonsensical and incoherent than your usual ranting. Please, please, please take a remedial writing class or learn to keep your trap shut.
Paul, the purchasers may be innocent to the extent they thought they were getting something of value.
I fully agree about your observations about in-house counsel.
Ned: the purchasers may be innocent to the extent they thought they were getting something of value.
That gets back to the “buyer beware” issue which you already raised.
Remember: we’re talking about patent attorneys going around and buying the right to threaten and sue people. These people are the furthest thing imaginable from “innocent” grandmothers purchasing constipation pills off an infomercial.
Because somehow the ability to enforce patent rights by lawsuit is “bad”…..
Sure. There is no propaganda effort here whatsoever, huh?
Patent attorneys buying the right to sue are not the furthest thing from gandmothers purchasing constipation pills from an infomercial “because somehow the ability to enforce patent rights by lawsuit is ‘bad'”. Patent attorneys engaging in that behavior are the furthest thing from those grandmothers because, unlike the typical constipated old lady watching M*A*S*H reruns, patent attorneys are almost always highly sophisticated professionals who are very familiar with both the enforcement and licensing aspects of the system they are seeking to exploit.
You have explained NOTHING in regards to the property aspect and the right to use that property that includes (Oh Noes) enforcement in a court of law.
Your jibe about “patent attorneys are almost always highly sophisticated professionals” is completely immaterial to the aspects that I am talking about.
it is most likely that you are just engaging (again) in your classic rhetoric of AccuseOthersOfThatWhichMalcolmDoes with your (baseless) accusation of “Stop arguing with your imaginary “enemies” about baloney that only exists in your own mind.” and your manifestations of cognitive dissonance.
But the patent system needs a monetizing system in order to function properly. Otherwise, universities, small inventors and failed startups, will be left with their patents and no way to enforce them to the extent they have to do all the infringement research themselves, and to pay their litigation counsel out of pocket.
This is NOT a new position for him, and it is rather doubtful that you cannot know this already.
The evidence again multiplies that when one sells a partially completed product of a patented process, and that process is completed by a third party performing conventional steps, that there direct infringement by that third party performing the last step, and contributory infringement by the party making the partially completed product and selling it to one it knows will complete the process.
This line of thought from you remains Quixotic.
The point you seem unable to grasp is the interplay of when something is exhausted – and thus loses the ability to be a point in determining infringement, and when actual infringement occurs.
The item, earlier in the chain – BEFORE that last other party performs that last step – reaches a point of being exhausted in a sale.
How can a post sale that exhausts be what you want to label as direct infringement? How do you want to have infringement on an exhausted item?
Can you address and clarify this point?
My $0.02 – the problem is the Court confused two related, but distinct, doctrines. Which is the incongruity you are seeing in sales of all vs sales of less than all.
The problem is (i) Exhaustion vs. (ii) Implied License. They are different.
So how can you exhaust a patent right by selling less than the whole? You can’t. You can, however, and do, grant an implied license. Same effect but a different legal argument.
Under the facts in this case, would an implied license defense have worked? Looks like it.
So why did the Fed Cir create confudion and issue it as nonprecedential?
Under the FRCP a license defense has to be pled or it is waived. The SJ motions should have been filed as license issue. T-Mobile and Nokia filed exhaustion motions – wrong! But Ericsson filed a license motion – correct! License defenses are personal and there is a chance that could have been a chance that there was a user who only had T-Mobile / Nokia equipment and not Ericsson. So, in theory, if you just granted Ericsson’s motion you would leave T-Mobile and Nokia hanging out there because of decisions of their counsel, nothing a little judicial activism can’t fix! Blend some doctrines, hide behind a nonprecedential opinion and voila!
Actually, you can. That is the holding in Quanta and Univis. In both, the claims recited an “inventive” element (or step) and conventional elements. Sale of the inventive element exhausts the entire claim.
In Quanta, on page 2121, the Court distinguished Aro Mfg.(to do with convertible tops) because “the combination itself is the only inventive aspect of the patent,” all the elements being conventional.
There are licensing issue in all these cases (except Aro), but I think my general statements still apply.
The “license to practice” is the implied license. That is different from patent exhaustion.
When I buy the whole patented good, I get to use it (exhaustion).
When I buy less than the whole, if the only use (or foreseeable use) is to practice the patent, I get to use it (Implied license).
Exhaustion and implied license are VERY similar defenses but they also VERY different in what they apply to and how you raise them. Or so says FRCP 8(c)(1) (“license”). The High Point decision takes liberties with the entire issue – result oriented.
The point of Ned’s that I am trying to grasp is that very conflation of exhaustion versus licensing.
Ned appears to want to take exhaustion cases in which the unfinished product is “close enough” prior to that last third party obtaining the item and somehow have that same third party doing something “enough” such that it is the party that would be a direct infringer.
The problem as I see it is that the item that that third party is receiving has been determined to have been exhausted.
How – and on what basis – is it possible for that third party to take as input something that is exhausted, do their thing (which is admittedly a common enough act on its own), and yet come away as being the direct infringer?
I would look at how the Court (in Univis) said: “close enough, thus you do exhaust.” They said this prior to the third party doing what that third party did as a normal part of what they do. I “get” how the “gee, what else are you going to do with a lens blank except grind the lens into a finished shape,” but they were explicit in saying that the item TO the third party WAS exhausted.
It is this very notion of the third party receiving an exhausted item that speaks directly OPPOSITE of what Ned reads that case to hold. If your input is exhausted, there is just no possible way for you to be the direct infringer.
Not only (as you point out) are these different defenses, the viability of patent rights on leaving the premises of that third party are very different.
Ned does not seem to say that these are not in truth exhaustion cases – or does not effectively deal with the Court itself saying these are exhaustion cases.
What I am talking about is when third parties that have no license at all are doing all the steps. I contend that under the facts of Univis Lens there is both direct and contributory infringement, yet neither party practiced all the steps, and the finisher may be completely independent of the vendor of the partially competed product — just that the contributory infringer knew that the independent vendor will, and in fact does, complete the product.
Sorry Ned- but your thought train still derails.
Your attempt here to insert “license” back into the point on exhaustion just does not fit. The disconnect remains.
Now if you want to change that pattern and omit entirely the element of exhaustion, then you might carry some persuasiveness (but you would need a different case to cite for your position).
anon, you have to consider that I am talking about 3rd parties performing all process steps without a license to do so. There can be no exhaustion.
Ned – as I stated: you keep on citing the wrong case for that proposition.
That case – based as it does on exhaustion occurring before the actions of the third party simply cannot reach what you keep on saying that decision holds.
That’s why I keep on wanting you to actually link what you say the case holds and what the case actually states.
Ned, your latest reply is not in sync with the comment at 2 that started this discussion.
Kindly move the goal posts back, and address the exhaustion issue of an item that is NOT complete (but “close enough”) that is deemed exhausted prior to that third party NOT “performing all process steps,” but merely some finishing step on an item already deemed “close enough” to have been exhausted prior to any actions by that third party.
Your post at 2 simply cannot stand. And certainly NOT with the citations that you want to use to back to your legal assertion.
Let me help a F-Heller out….I think the issue (confusion) you are seeing is, once again, caused by sloppy opinions. Quanta was a method claims.
So take a step back at how method claims are infringed. “Congress has consistently expressed the view that it understands infringement of method claims under section 271(a) to be limited to use.” NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1319 (Fed. Cir. 2005). OK, but what about selling an apparatus that can be used in a method? Well “[t]he law is unequivocal that the sale of equipment to perform a process is not a sale of the process within the meaning of section 271(a).” Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 773 (Fed. Cir. 1993). So if the sale of the equipment in not an act of direct infringement, how can the sale exhaust the patent rights associated with it?
Enter Quanta, which really just extends exhaustion to method claims, but to do that it needs to use the concept of substantial similarity or ??? or pick a term you like. It really becomes a technical issue of how close you can come and trigger exhaustion. Granted if you can’t trigger it, you can drop to implied license. BUT it is possible to be close enough an hit exhaustion on a method claim. As an attorney would you ever rely only on exhaustion though? Yet some do, go figure.
So what does substantial mean and how does that all add up with direct infringement of a method claim? Good question, but they are not symmetric legal analysis. Asymmetric application of the law does happen.
Not withstanding any veracity in what you post, I do not see how what you post helps that certain “F-Heller” out.
He keeps on wanting to cite to a case on exhaustion as if there was NO exhaustion involved.
Look here and now at him scramble to change the “conditions” to be a third party practicing ALL of the process steps, with NO exhaustion.
Yet he continues to attempt to put forth a position of law and cite a Supreme Court case that simply does not back his view of the law.
I “get” that he might want to put forth a position.
I “get” that he might want to sound impressive and have a Supreme Court case that backs up his view.
But that certainly is NOT the case here with his view as posted above at post 2.
And the sad thing is, that come soon, he will AGAIN make that very same mistake as if no one said anything that points out his error. It will be as if the “shouting down” of an opposing view occurs (in the internet style of being able to simply engage in a drive-by monologue and merely repeat the mantra of what one wants the law to be).
Well, a-hole-JRF, as you note, the Federal Circuit has introduced the asymmetry. That means the Feds have it wrong once again.
I do not think that JRF’s “Let me help a F-Heller out…” was meant to be derogatory Ned, so your classic “Malcolm-like” response is just not warranted.
Further, you have not (still, as of yet) provided the on point clarification to which this sub-thread is aiming for.
Maybe less mis-aimed ad hominem, and more on point response…..
For those keeping track, “at the time” in this instance is 1991.

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