Source: https://patentlyo.com/patent/2017/03/oconnor-exhaustion-bloomer.html
Timestamp: 2019-04-25 12:19:13+00:00

Document:
As most readers of this blog know, patent exhaustion is usually traced to Chief Justice Taney’s statement in the 1853 case of Bloomer v. McQuewan: “when the machine passes to the hands of the purchaser, it is no longer within the limits of the [patent]. It passes outside of it.” Taken on its own, the quote seems straightforward to establish the modern doctrine, perhaps relying on some underlying common law rule regarding free alienability of goods. But those who read the full opinion carefully can feel less certain of this—something doesn’t seem right. As Judge Taranto correctly noted in the Federal Circuit’s Lexmark International, Inc. v. Impression Products, Inc. opinion, currently on appeal at the Supreme Court, the transactions at issue appear to be licenses or assignments and not sales of patented machines. Recent scholarship has shed further light on the roots of exhaustion. John Duffy and Richard Hynes advance an account of exhaustion as judicial efforts to cabin overlapping fields of law. Christopher Beauchamp revealed the details behind the first patent litigation explosion, drawing similarities to modern concerns. And Adam Mossoff identified Taney’s quote as dicta, while insightfully placing it in the context of Taney’s Jacksonian Democrat politics and judicial activism.
In a paper recently posted to SSRN, I argue that, while this new scholarship is on the right track, it does not go far enough in unpacking the transactions and cases behind Taney’s quote. A careful reconstruction reveals that machine patentees were engaged in “patent farming:” franchising systems that relied on multilevel assignments and licenses down through wholesalers to local craftsmen who built and used patented machines in their businesses. This was because mass manufacturing and nationwide distribution of machines or other complex patented inventions was not feasible in the antebellum period.
These systems were disrupted under the patent term extensions authorized in the 1836 Patent Act, as patentees treated the extensions as new terms that allowed them to demand new deals from existing assignees/licensees. The latter believed that a proviso in the Act preserved their grants into the new term. Things came to a head in 1846’s Wilson v. Rousseau, a complicated set of consolidates cases that essentially had two holdings: 1) the extensions wiped away any existing assignments and licenses, unequivocally stating that the local franchisees could not continue using the machines they had built themselves in the first term; but 2) the proviso created a compulsory license authorizing the existing grantees to continue using the existing machines, but they could no longer make or sell machines even if they held those rights in the first term. Crucially, defendants raised an exhaustion-type argument that the Court rejected.
In Bloomer, the Court was called on to decide whether the proviso also applied to Congressional private act extensions that were silent on existing grantee rights. Writing for the Court, Taney made an in pari materia argument that the private acts had to be “ingrafted” onto the general Patent Act, including the proviso, because otherwise they did not provide enough details on their own. While this fully resolved the matter, Taney engaged in extensive, unnecessary dicta—as he would do in Dred Scott and elsewhere—to explain or justify Congress’ policy decision to include the proviso in the Act. It was here that he argued that, because the local licensee franchisees received no direct benefit from the patent (they could neither sell machines, grant sublicenses, or enforce the patent), such grantees’ machines should be seen as “outside the monopoly,” with continued use rights. But the compelling spatial metaphor proved more than Taney claimed. If the machine were truly outside the patent then the franchisee should be able to resell it, which the Court clearly prohibited by expressly extending Wilson’s proviso interpretation to private act extensions. Taney’s opinion seemed driven by his Jacksonian Democrat political views to limit the reach of federal power—in the form of patents—and to protect local craftsmen from distant patent sharks and financiers.
Contrary to modern cursory histories of exhaustion, Bloomer in fact made no changes to patent law (other than applying the proviso to private act extensions). Subsequent treatises and cases cited Bloomer only for this principle. But one of Taney’s fellow Jacksonians on the Court, Justice Clifford, picked up the dicta and began oddly restating it in cases as if it were a statement of law, even though it was usually inapposite to the facts at hand and itself dicta outside the case’s holding. Incrementally, Clifford seemed to convince other Justices (and lower courts) that there was some kernel of binding law here. Slowly but steadily, Taney’s dicta edged into holdings.
Notwithstanding, it took twenty years for the dicta to be used in a Supreme Court holding for use-rights only in an actuals sale of goods, and another twenty to find a right of resale as part of what was originally called “emancipation.” Patent exhaustion did not arise from common law principles of free alienability of chattels, nor was it solely a statutory interpretation issue, nor an intentional effort to protect consumer rights or limit anticompetitive behavior generally. Instead, the unifying principle was that the courts were trying to protect the parties’ reasonable expectations and basis of the bargain when unexpected developments, such as unforeseen legislation creating a new kind of patent term extension, appeared. To this end, with few exceptions (such as the antitrust zeal of the early twentieth century), the Supreme Court was clear that emancipation/exhaustion was a default implied license for use (and later, resale) by purchasers of patented goods, but that could be contracted around by express mutually-assented conditions. At the same time, the courts were vigilant against “gotcha” tactics of some patentees and purchasers alike, and many of the cases are best understood as courts policing these abuses.
In the end, courts of the nineteenth century were grappling with an explosion of innovative patent commercialization models similar to today’s experimentation with IP-based transactions. But the response then was not to straightjacket these new models into a single mandatory transaction type. And the Supreme Court should resist that temptation in deciding Lexmark now. To decide that exhaustion is a mandatory rule precluding the use of expressly conditional sales that are the mutually assented basis of the parties’ bargain would be historically and doctrinally inaccurate. Equally important, it would cut off many economically and socially useful IP-goods transactions, especially in the modern globalized value/supply chain production of technology-based goods such as computers, smartphones, and televisions.
 Bloomer v. McQuewan, 55 U.S (14 How.) 539, 549 (1853).
 See, e.g., Lexmark International, Inc. v. Impression Products, Inc., 2014-1617, 2014-1619 Slip Op. (Fed. Cir. 2016) (describing the transactions at the heart of Bloomer as patent licenses and not sales of goods).
 John Duffy and Richard Hynes, Statutory Domain and the Commercial Law of Intellectual Property, 102 Va. L. Rev. 1 (2016).
 Christopher Beauchamp, The First Patent Litigation Explosion, 125 Yale L.J. 848 (2015).
 Adam Mossoff, Commercializing Property Rights in Inventions: Lessons for Modern Patent Theory from Classic Patent Doctrine, in Competition Policy and Patent Law Under Uncertainty: Regulating Innovation (eds. Geoffrey Manne and Joshua Wright, Cambridge Univ. Press 2011); Adam Mossoff, Exclusion and Exclusive Use in Patent Law, 22 Harvard. J.L. Tech. 321 (2009); Adam Mossoff, A Simple Conveyance Rule for Complex Innovation 118 Tulsa L. Rev. 101, 107-10 (2009).
 Sean M. O’Connor, Origins of Patent Exhaustion in Jacksonian Politics, Patent Farming, and the Basis of the Bargain available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2920738.
 Adams v. Burke, 84 U.S. 453 (1873).
 Keeler v. Standard Folding Bed Co., 157 U.S. 659 (1895).
 In the paper, I expand on Judge Taranto’s and Professors Duffy and Hynes’ arguments that Justice Breyer’s citation to Lord Coke’s 1628 Institutes in Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013), is not dispositive to show a common law basis for exhaustion.
 See Brief of 44 Law, Business and Economics Professors, Impression Products, Inc. v. Lexmark International, Inc., available at https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2923826; Sean M. O’Connor, IP Transactions as Facilitators of the Globalized Innovation Economy 212-27 in Rochelle Dreyfuss et al., Working Within the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society (Oxford Univ. Press 2010).
Someone made a vid of MM.
Some genuine scholarship. Rare indeed in the legal world. A much needed anodyne to the low standards of the legal professoriat in general. Thank you, Mr. O’Connor.
The SCOTUS has been unwilling to find exhaustion in the GMO seeds cases, suggesting that they still understand the underlying economic rationale.
Simon Elliott,? You do know that patent exhaustion only covers use and resale. It does not cover making copies or reconstructing.
You do realize that the “in excess” is nothing but your own fantasy, right?
Your problem Ned is that ONE seed makes (as in the natural USE of planting that one seed) more than the one seed.
You attempt some type of “in aggregate” treatment when the “logic” you want to use applies automatically on a PER SEED basis.
…oh, and let’s not forget the part of the analysis that looks at the nexus to the invention and the (slightly) inconvenient fact that the very USE of the seed with the ONLY nexus is the use (the natural use) of planting the seed.
Anon, I do not have a problem. I only report the holding of the case which looked to Bowman’s intent, which was inferred from the fact that he intended to sell the excess, retaining enough for next year’s replanting and administering Roundup in order to keep the product pure.
What you “report” is not the holding.
Your “version” IS a problem – for the simple and direct reason provided.
anon, as always, you only remonstrate and do not demonstrate.
Anon, many others have pointed out that your primary mode of speech is to say that you are right and that others are wrong without anything more. It is virtually impossible to have a decent conversation with you because of this.
Ned – you are the ONLY one to have ever used those words.
It is not because of me that conversations do not happen.
Utter fiction, anon. I am personally among the “many others” mentioned by Mr. Heller, and I recall yet other posters responding to you similarly.
Not with those words Dobu.
But, now I come to look at it, I see that, in the passage containing the above observation, Justice Breyer analyzed the situation exactly as I was planning to describe it here, and this analysis seems reflected in Justice Kagan’s opinion of the Court.
The first generation of seeds is that which Monsanto or its agents sold to Bowman. The patent right in the first generation would have been exhausted in this sale, but there was a license.
Bowman plants the seeds. The plants sprout and bring forth new seeds: the second generation. This second generation would infringe Monsanto’s patent were it not for the fact that Monsanto licensed Bowman to produce this second generation, provided that he sold the seeds to a grain elevator or analogous commodity purchaser. The sale to the grain elevator by Bowman and other farmers would have exhausted the patent right in the second generation of seeds.
generation by the authorized sale of seeds to the grain elevator.
But if the second generation of seeds are planted and flourish, they bring forth a third generation of seeds. The seeds of this third generation and subsequent generations infringe Monsanto’s patent. Bowman had no license from Monsanto or anyone else to produce these new seeds.
This analysis is consistent with the presumption that SCOTUS does indeed regard rights in the patent law to be exhausted after an authorized sale. The authorized sale of the second generation to the grain elevator exhausted Monsanto’s rights under patent law to those seeds.
I suspect SCOTUS might have enjoyed discussing this case.
Distant, very good summary of what the Supreme Court held.
No Ned, that is just not an appropriate use of that legal term.
No doubt the rule should be different between bona fide sales and bona fide licenses, but we should define clearly what are the aspects that make a thing a sale and what makes a thing a license because otherwise one can avoid the law by changing the words.
A sale is a transfer of possession of a chattel in exchange for full compensation.
A conditional sale is a transfer possession of a chattel in exchange for a payment plan. If the transferee does not pay according to plan, repossession may occur.
A license is a transfer of possession of a chattel in exchange for partial compensation plus some requirement that possession return to the license or pass on to another party at a date certain, or on certain conditions such as nonpayment of further consideration.
The Lexmark arrangement is very much like a license, but there is no for requirement that the chattel be returned to Lexmark upon failure of complying with the imposed conditions.
The bottom line is that I think patent law ought to follow fundamental common law with respect to whether a thing is a sale or a license. I think that is what the Supreme Court had in mind in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 568 U.S., 185 L. Ed. 2d 392 (2013) when it referred to the fundamental law that the sale of the chattel dispossesses the owner of all right, title and interest so that he can no longer control use or resale of the things sold.
O’Connor: To decide that exhaustion is a mandatory rule precluding the use of expressly conditional sales that are the mutually assented basis of the parties’ bargain would be historically and doctrinally inaccurate.
Is that the rule that the Court is being asked to make? It seems that some narrower rule could be fashioned to at least prohibit the use of “shrink-wrap” licenses as means of restricting the re-sale of patented items that enter the stream of commerce.
Equally important, it would cut off many economically and socially useful IP-goods transactions, especially in the modern globalized value/supply chain production of technology-based goods such as computers, smartphones, and televisions.
How about providing us with just three real world examples where “decid[ing] that exhaustion is a mandatory rule precluding the use of expressly conditional sales that are the mutually assented basis of the parties’ bargain” would result in “cut[ting] off … socially useful IP-goods transactions.” Just three.
To be clear, I’m not looking for a simple recitation of three types of goods (“computers, smartphones, televisions”). Rather, I’d like to see how making patent exhaustion a “mandatory” result of the sale of a patented item necessarily “cuts off” something that ordinary people (e.g., consumers) care about.
Government and the law are for everyone’s benefit, not just what falls within your notion of “ordinary people” e.g. consumers.
This message brought to you by The Truly Important People Around Whom the World Turns.
We didn’t forget you, o wealthy entitled class! Please continue whining about shrink wrap licenses so the CEO can buy that third vacation home that he so truly deserves.
Yay more class w@rf@re meme!
Because it’s so uncivil to bring this stuff up, especially when there’s no evidence that the rich are getting richer, and no evidence that one of the two major political parties is 100% devoted to pushing things further in that direction, and no evidence that they habitually resort to r@ ce baiting and l i e s to get poor workers to sign up for their disgusting policies.
“Civility” is CLEARLY not the point, Malcolm.
Maybe you should focus your whining about “focus” onto your bff “Anon2”.
Why don’t YOU lead by example and focus (especially as YOU are by FAR the very worst offender)?
Paul Ryan: [I]nsurance can’t work if healthy must pay more to subsidize the sick.
Try to believe it, folks. This dissembling fraud is the alleged intellectual highlight of the Repubs.
Yay more non-patent law rants!
Anon, notice how MM flips reality? The commercial reality is that patents help the little guy and the start-ups against the big boys. MM, thinks it only benefits the rich. What a dupe, drinking that google koolaid.
He has NEVER squared his own class w@rf@re meme with the FACT that innovation through software is easily the most accessible form of innovation to the NON-wealthy.
You”re a very serious person!
Also, the most accessible form of innovation is not eligible for patenting. But you knew that already because I explained it to you ten zillion times.
What you consider “squaring” is clearly not even close to a whisper of a ghost enough.
A zillion times zero remains zero.
patents help the little guy and the start-ups against the big boys …. MM, thinks it only benefits the rich.
Is Intellectual Ventures a “little guy”?
Technically that was never the basis for “insurance”, nor is it today. Today we have big daddy robber gubmit subsidizing the insurance costs of the sick, not simply “the healthy”.
Face it MM, you’re more on board with a single payer system, as I have been in the past. Or I’m on board with a system like Japan’s. Buuuuut, that seems only a remote possibility in the US. I’ve heard a few hypothesis as to why this is, lately black pigeon speaks produced a new video with a new hypothesis (or new to me) as to why the US will never have single payer healthcare. Maybe google it and see if you agree with his hypothesis.
Of course I am. That’s been true for my entire adult life.
It doesn’t change the fact that Ryan is either c l u e less or he’s reciting a script for cl ue less people.
The Republicans number one goal — always — is to make rich people richer. If they can simultaneously stick it to poor people and make their other “enemies” (e.g., hippies, brown people) suffer, then even better.
That’s why the Repub make-believe efforts to “improve” Obamacare are so absurd and transparently worthless. You can’t “improve” it without expanding coverage and/or reducing costs for ordinary people (i.e., nearly everybody who isn’t in the top tier). But that’s not going to happen without higher taxes on the rich, the super rich, and the extraordinarily (you know: those people who have been getting richer and richer for years while everyone else gets poorer).
It’d be funnier to watch if people’s lives weren’t at stake, of course.
Nah, he’s just stating a fact. A fact you already apparently know, but which some people don’t yet get. They literally think it’s sick v. healthy people. Lol it literally isn’t in any robber gubmit scheme. It’s rich v those not buying it (either because can’t afford it or choose not to afford it). This is a fact, and it’s ok for Ryan to point it out.
Also known as letting people keep what they, or their corp produces. Also known as a part of liberty.
Oh bullsht you mean LET their enemies suffer. Not “make”. There’s a difference, and it is a rather large one. Letting their enemies suffer is liberty. Making their enemies suffer would be pretty bad.
Well, I and many democrats disagree with you.
There’s nothing factual about Ryan’s proposition. He’s describing insurance. Are you saying that insurance doesn’t work?
And that’s what’s known as responding with an obvious l i e sprinkled with some ridiculous flag waving. Friendly reminder: you aren’t in your echo chamber and you aren’t talking to some nimr0d who was born yesterday. And an even bigger news flash: we live in a society governed by the people, for the people. Expecting people who get rich in this country to pay higher taxes has nothing at all to do with “liberty”. It has to do with fairness.
Oh but wait! You probably believe that all the rich people just work a million or a billion times harder than the poor people. Or they’re just a million or a billion times smarter. Right? Yes, you’re a real deep thinker. Full of fresh insights.
Letting their enemies suffer is liberty.
You gotta love it when the truth leaks out of the l0 w life’s mouth.
Sure there is. What he said is entirely factually correct.
^That is factually true. The reason why is many fold and also involves the very definition of “insurance”. If you start “skewing” “insurance” to where the “healthy” (actually just people not using the insurance often, not necessarily healthy) are just subsidizing the “unhealthy” (actually just people using the insurance) then it is no longer even really “insurance” it’s a healthcare subsidy scheme (also known as a “cuckening”). Further, if you jack the prices too high on the “healthy” eventually the whole subsidy scheme becomes no longer worth their while, so they’d just drop coverage (remember, they’re healthy).
Just as a for instance, my own uncle. Pretty healthy, pretty well off, but not super well off, only wants insurance for disasters, but could probably get away with just dropping coverage for 2 or so years until he hits medicare. Same for his wife. Their plans are so expensive right now (just for catastrophic coverage mind you is all they want, though they’re forced to be covered and pay for coverage for themselves for “pregnancy” “birth control” etc. etc. lefty handouts mandated for everyone, even 50+ years old people and males) that they’re considering just dropping it as there is little point in having it.
If you think differently then you haven’t met many irl healthy insured people, whose rates went through the ceiling, outside your do gooder bubble.
MM thinks that the thing that creates the absurd wealth in Merica is “a lie”. I loled.
Yeah, not just for your muh victims. And everyone else is living pretty dam well compared to 99%+ of humans throughout history in material terms. Sure, their society is sick at the moment because of your buddies, but we can work on that.
Muh “fairness”! Lol, nobody ever ensured you that life, gubmit, women, or especially the white cis hetero patriarchal CONSTITUTION, that made all this money you want to toss about, was FAIR re re. If you want fairness from your gubmit you need to literally have a revolution, throw down the white cis hetero patriarchal constitution and make your own fcking nation (which will inevitably sux balls because you want to put sht in that leads directly to that and leave sht out that might stave it off).
Of course not re re. They do specific things in a system that is setup to maximize them dollas and which just so happens to make an abundance of dollas for you to spend and want to spend more of.
“Letting their enemies suffer is liberty.
Leaks out? If you don’t understand how you not stopping on your morning drive to work to help everyone that had something go wrong with their car and be stopped on the side of the road helps you actually go to work and write patent apps then you’re du mber than a pile of rocks. That’s a small taste of liberty to let your fellow man “suffer” so that you might benefit, but what you’re talking about is that writ large.
What’s the matter MM? You enjoy the liberty to not cuck yourself to stop for everyone on the side of the road but want to insist that the white cis hetero patriarchy cuck itself to literally every person in the nation for healthcare?
MM, 6, is the VA systems an example of what you want for everyone else?
I don’t know much about the VA system except that it is horribly managed at present due to administrative incompetence and regulatory nonsense. I personally think that a japanese style system would be best but I think it’s impossible here.
Of course, 6. But the problem with only one provider is that one is trapped.
I have the same issue with lack of choice of schools.
Booo hooo hooo hoooo hoooo hoooooo!
Rich people like you are always free to pay as much as you want if you think the public school system isn’t good enough for your super awesome kid.
But that’s no excuse to flush the public school system down the t0 ilet.
What a selfish @sshole you are, Ned, in addition to being an diaper-filling adult.
Are you sleeping better nowadays, by the way? Not wetting the bed as much worrying about terrah?
MM, I always sent my kid to public school until college, where she then went to the best school in the country on my dime. Your assumptions about people are full prejudice.
Further, I never said flush anything. We need to provide choice to all parents. How we do that is a good discussion. If we build schools at public expense, people cannot be given public money to avoid sending their kids to those public schools so that the public school system has no students. This makes no sense and represents a conundrum.
At a minimum I would think that we should allow parents to send their kids to any public school they want to. I believe Minnesota has already enacted just such a program in response to public pressure.
Also note that higher education is subsidized by the federal government regardless of whether a student chooses to go to a public college or university, or not. Do you seriously want to cut off public aid to poor students who do not choose to attend a public university?
The goal is to employer parents and students so that they can avoid bad teachers and bad schools.
It’s single payer, not single provider.
See that’s the basic critique from the left. That people on the right are self ish ar ses that are “bad people”. Of course, they’re the ones making nigh all the money MM wants to throw around, but meh, never mind all that.
MM, the Republicans number 1 goal is to get government out of people’s way. The Republicans represent the Jeffersonian ideal that the best government is the least government.
It is one thing to provide financial assistance for people to buy insurance. It is quite another thing to provide people the choice of only one insurer at a premium they cannot afford. It is quite another thing as well to provide a medical service for all, like the Veterans Administration, that is so poorly run and badly manage that effectively one is denied health coverage entirely.
It is the Democrats choice always to choose bad government over the private sector on the theory that the private sector is up to no good even if it provides better services to the people. One would think that the primary motivation of the Democrats is not to provide good services the people but to provide power to the Democrats.
Now where do we see that before? Animal Farm by George Orwell?
Oh, I don’t doubt that it’s new to you.
So you agree or disagree with his hypothesis?
I don’t have to smell your swamp gas to know that it stinks.
You told me the conclusion which is ridiculous on its face.
Translation: why think when Malcolm can merely sniff?
“So you agree or disagree with his hypothesis?
Technically it was Paul Krugmen’s hypothesis (a lefty himself). So it can’t smell that badly of gas.
So come on, do you agree or disagree with the hypothesis?
I’m not sure what the conclusion is that you’re mentioning. Do you mean the conclusion which is “we will never ever have single payer in the US”?
Very interesting exegesis, but futile.
The formalistic roots of the exhaustion doctrine may indeed not have sprung from the common law rule regarding the free alienability of goods, but the overwhelming intuitive power and policy desirability of that doctrine means that it’s the defacto driver, and it will remain so. This case will be another 8-0 or (9-0) rejection of the CAFC and their drive to carve special law for patents.
Mr. Snyder – don’t be so sure of yourself.
As noted, even if the tie to alienability of property holds fast (which, by the way, my earlier comment does not speak to any agreement with authors indicating otherwise), you STILL have the current “patents are not property” thrust to deal with.
It depends on how we are using history. Often courts are not looking for a “true” origin story, but instead a nice story that supports the chosen outcome.
…hence the abundance of propaganda that drives to paint (recreate) “history” in that best light that serves the desired Ends.
Hence too, the reason why Orwell’s 1984 (as well as Animal Farm) are such powerful books.
NO. 1 reason why unis must be purged.
Lol – the presence of the radical left embedded in the lack-of-meritocracy-and-pursue-that-which-the-powers-that-be-want in academia is a well known fact.
It is why Universities suffer from some of the most blatant double-standards when it comes to Free Speech (only “approved speech” is deemed “noble” enough to be free, anything “mean” simply cannot be tolerated…).
Because there’s such a shortage of h@te-spewing c@vemen out there. We need to train more of them! At the college level.
Cry me a river, you p@thetic nose wipers.
This is the mind of the lefty run amok.
As he himself spews – more than any other single person on this blog.
True brilliance shines so brightly regardless of how we feel about it and despite any initial whim to agree or to disagree. I am smiling and I am speechless.. but my little commentary here means nothing…it’s all right there in the guest post… SO well reasoned and SO well written.
It is good to see somebody else (besides me) noting that the “patents are not property” in vogue desired Ends carries with it a rather large fallout.

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