Patent Case Law

Arizona Cartridge Remanufacturers Association Inc. v. Lexmark International Inc., 421 F.3d 981 (9th Cir. 2005), the Ninth Circuit Court of Appeals upheld a District Court decision that found that the contract terms on the packaging of a printer cartridge are sufficiently clear to act as a "box-wrap" license, such that when the user opens the box he or she is accepting the terms and forming a contract. Because the printer cartridge is patented, Lexmark can impose post-sale conditions on purchasers such as prohibitions preventing refilling of the cartridge.

The Ninth Circuit ruled that an End User License Agreement on a physical box can be binding on consumers who signal their
acceptance of the license agreement by opening the box.

Consumers generally refill their own cartridges either themselves or through third-parties. Lexmark produced "Prebate" ink
cartridges with a purchase contract that states that in exchange for purchasing the ink cartridge at a lower price, the consumer
agrees to not tamper with the cartridge and return it to Lexmark for refurbishing and repackaging.

Arizona Cartridge Remanufacturers Association Inc. (ACRA) brought a suit that Lexmark's claims that its restrction was
enforceable was deceptive.

Lexmark later renamed the Prebate cartridges to Lexmark Return Program Cartridges. But, does the ruling applies only to
Lexmark's "Prebate" ink cartridges, or does it prohibit refilling of all cartridges, or purchasing of refilled cartridges.

The court agreed with the district court that ACRA has not offered evidence that Lexmark's advertisements constitute
deceptive or unfair business practices.

The ruling explicitly addresses patent licensing: "It found that the company could legally enforce the post-sale restriction under a
Federal Circuit decision allowing patent holders to limit the use of their products after sale...citing Mallinckrodt, Inc. v.
Medipart, Inc., 976 F.2d 700, 708 (Fed. Cir. 1992)).".

The ruling does generally accept the theory that EULAs are binding on consumers who "indicate their agreement" by
performing a physical action, as long as that contract was available to consumers before purchase: "Lexmark has presented
sufficient unrebutted evidence to show that it has a facially valid contract with the consumers who buy and open its cartridges.
Specifically, the language on the outside of the cartridge package specifies the terms under which a consumer may use the
purchased item. The consumer can read the terms and conditions on the box before deciding whether to accept them or
whether to opt for the non-Prebate cartridges that are sold without any restrictions.

The district court found that the ultimate purchasers of the cartridge, the consumers, had notice of the restrictions on use and
had a chance to reject the condition before opening the clearly marked cartridge container."

Bauer & Cie. v. O'Donnell, 229 U.S. 1 (1913) - licensing terms on patented works - the United States Supreme Court ruled that patents could not be used to control resale prices.

Bauer & Cie sold Sanatogen, a patented water soluble albuminoid with a notice on each bag stating:

Notice to the Retailer:
This size package of Sanatogen is licensed by us for sale and use at a price not less than one dollar ($1). Any sale in violation of this condition, or use when so sold, will constitute an infringement of our patent No. 601,995, under which Sanatogen is manufactured, and all persons so selling or using packages or contents will be liable to injunction and damages.
A purchase is an acceptance of this condition. All rights revert to the undersigned in the event of violation.

O'Donnell purchased Sanatogen at wholesale and sold the Sanatogen for amounts less than one dollar.

The court upheld that "[t]he right to make, use, and sell an invented article is not derived from the patent law. This right existed before and without the passage of the law, and was always the right of an inventor. The act secured to the inventor the exclusive right to make, use, and vend the thing patented, and consequently to prevent others from exercising like privileges without the consent of the patentee."

The court agreed that, as with copyright law, restrictions in patent are derived from statute. They go on to differentiate copyright from patent: "the principal difference in the enactments lies in the presence of the word use in the patent statute and its absence in the copyright law. An inventor has not only the exclusive right to make and vend his invention or discovery, but he has the like right to use it; and when a case comes fairly within the grant of the right to use, that use should be protected by all means properly within the scope of the statute."

The court found "it is a perversion of terms to call the transaction in any sense a license to use the invention. The jobber from whom the appellee purchased had previously bought, at a price which must be deemed to have been satisfactory, the packages of Sanatogen afterwards sold to the appellee. The patentee had no interest in the proceeds of the subsequent sales, no right to any royalty thereon, or to participation in the profits thereof. The packages were sold with as full and complete title as any article could have when sold in the open market, excepting only the attempt to limit the sale or use when sold for not less than $1. In other words, the title transferred was full and complete, with an attempt to reserve the right to fix the price at which subsequent sales could be made... to call the sale a license to use is a mere play upon words."

Jazz Photo Corp v International Trade Commission, 59 USPQ 2d 1907 (Fed Cir August 21 2001), Fuji Photo Film asserted that the user of a single-use camera was not allowed to remove the film, process it, replace the battery, or package it in a new cardboard container, based on labelling on the camera warning the purchaser that the camera should not be opened. The ITC held that these steps amounted to reconstructing the camera and infringement of the patents. The decision was reversed by the Federal Circuit on the grounds that the labelling was not an enforceable restriction on the use of the camera, that "no licence limitations may be implied from the circumstances of sale" (59 USPQ 2d at 1917), and that the challenged activities merely repaired the camera and extended its useful life.

Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), the federal court found that the doctrine of exhaustion
was only a unilaterally disclaimable "implied license", despite more than a century of precedent to the contrary.

Quanta v. LG Electronics. LG Electronics licensed patents to Intel for use in microprocessors, with the condition that Intel
notify buyers of those microprocessors that such buyers did not receive a patent license for the use of the Intel
microprocessors together with non-Intel components. LG Electronics sued Quanta for violation of the patents, while Quanta
argues that the first sale doctrine applies. The Electronic Frontier Foundation filed an amicus brief in the case, arguing that
Mallinckrodt and later cases based on it have inappropriately expanded the scope of patents by judicial fiat, and that sellers
should use contract law if they want to impose conditions on a sale: EFF Supports Consumer Right To Repair, Resell Patented
Goods (2007-11-13).