Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

Free Product Distribution or Discounted Component Distribution Likely Does Not Exhaust Patent Rights

OneTouch Ultra2 is being used by a diabetic pa...

OneTouch Ultra2 is being used by a diabetic patient. (Photo credit: Wikipedia)

In LifeScan, Inc. v. Shasta Technologies, LLC, 2013 U.S. Dist. LEXIS 38677 (N.D. Cal. Mar. 19, 2013), Judge Davila granted plaintiff’s motion for a preliminary injunction to address claims of patent infringement, and addressed whether patent exhaustion doctrine applies to free distribution of product or to discounted distribution of only one component of a product.

I previously covered patent exhaustion doctrine here.  In a nutshell, the patent monopoly is exhausted after a patentee sells the patented invention in whole, or under certain circumstances, in part. (A license to use technology in a certain field of use, however, generally does not trigger the exhaustion doctrine, also known as the first sale doctrine.)

In LifeScan, the plaintiff markets and sells the “OneTouch Ultra System,” a glucose monitoring system. The system is composed of both a meter and disposable test strips. A patent covering “DoubleSure Technology” specifies a method designed to improve the reliability and accuracy of glucose measurements. The technology uses a self-testing strip design using multiple sensors.

Defendants made strips for use in the OneTouch Ultra System (thus prompting the patent suit), and argued that LifeScan’s patent rights were exhausted for two reasons. The court rejected each argument.

First, LifeScan has doctors distribute free OneTouch Ultra kits, comprised of meters and test strips, to diabetic patients. The court held – at least at the preliminary injunction stage – that LifeScan could likely show that this free distribution did not exhaust its patent rights. LifeScan receives no remuneration at the moment it parts with the patented invention. The fact that LifeScan distributes the kits in consideration of patients’ anticipated future repeat purchases of disposable test strips was not enough. According to the court, the common theme running through prior case law – which did not squarely address the issue before the court – was that there must be consideration at the time of the authorized sale in order for the patent exhaustion doctrine to attach.

Second, LifeScan sells OneTouch Ultra meters alone at a reduced price. But this practice too, the court held, likely does not trigger patent exhaustion, because the patent at issue is a method patent that requires both a meter and a test strip for an individual to practice it. “As such, the sale of the meter by itself does not necessarily convey the entire invention of the . . . patent to the purchaser, casting the applicability of exhaustion into doubt.”

The decision reaches the appropriate result – patent rights should not be lost merely because of a novel distribution system, one that is likely pro-competitive because it fosters dissemination of new technology.

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Comments

  1. In the copyright context, compare the 9th Circuit’s UMG v. Augusto ruling

  2. the Federal Circuit strongly disagreed with you….and LifeScan didn’t ask for an en banc reconsideration, nor did it petition the Supremes for cert

    • Howard Ullman says:

      It’s true that the Federal Circuit (734 F.3d 1361) (Nov. 4, 2013) held that “patent exhaustion principles apply equally to all authorized transfers of title in property, regardless of whether the particular transfer at issue constituted a gift or a sale.” Judge Reyna dissented on slightly different grounds.

      Whether the Federal Circuit is actually right is a different question. The Supreme Court hasn’t been terribly well-disposed to the Circuit’s decisions this Term.

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