DYK, Circuit Judge.
Defendants Shasta Technologies, LLC; Conductive Technologies, Inc.; Instacare Corp.; and Pharmatech Solutions, Inc. (collectively, "Shasta") appeal from a decision of the United States District Court for the Northern District of California granting a preliminary injunction in favor of Plaintiffs LifeScan Scotland, Ltd. and LifeScan, Inc. ("LifeScan"). The injunction prohibited Shasta from making, using, or selling its blood glucose test strips. The district court found that the making, using, or selling of Shasta's strips likely indirectly infringes LifeScan's U.S. Patent No. 7,250,105 ("the `105 patent"). Because we agree that Shasta has established that it has a patent exhaustion defense, we reverse.
This case concerns blood glucose monitoring systems, which are used by individuals with diabetes to assist them in maintaining healthy blood glucose levels. Such systems typically consist of an electrochemical meter and disposable test strips. To use the system, the user first inserts a test strip into the meter, then uses a lancet to draw a small drop of blood and places the drop on the test strip. The strip contains one or more electrodes, which may be "working electrodes" or "reference electrodes," and which connect to the meter during operation. Each working electrode is coated with an enzyme, such as glucose oxidase, and a mediator, such as ferricyanide. The enzyme reacts with glucose in the blood sample, releasing electrons. The
Blood glucose meters and disposable test strips of this general design first became available in the 1980s. The `105 patent claims to improve upon earlier systems. It claims a method of comparing the measurements taken by two separate working electrodes. If the readings of the two working electrodes differ significantly, this indicates problems such as inadequate sample volume or manufacturing defects, and the readings are to be discarded. A reference electrode on the strip serves as a common reference for both working electrodes.
LifeScan manufactures such a system, which it calls the "OneTouch Ultra" blood glucose monitoring system. According to LifeScan, its OneTouch Ultra system uses the technology described in the `105 patent. Claim 1, the only independent claim in the `105 patent, reads:
`105 patent col. 6 l. 52 to col 8 l. 4. In LifeScan's OneTouch Ultra system, the
LifeScan sells 40% of its meters at below cost prices. It distributes the remaining 60% of its OneTouch meters through health care providers, who in turn give the meters to diabetic individuals for free. LifeScan distributes its meters in this way "in the expectation and intent that customers will use its OneTouch Ultra meters with [its] OneTouch Ultra test strips, from which [it] derive[s] a profit." JA 319. Shasta does not sell blood glucose meters, but competes with LifeScan in the market for test strips. Shasta's "GenStrip" test strips are designed to work with LifeScan's meters.
On September 9, 2011, LifeScan filed suit against Shasta. In its amended complaint, it alleged that Shasta's manufacture and distribution of GenStrips would indirectly infringe the `105 patent.
The district court granted LifeScan's motion for a preliminary injunction. With respect to LifeScan's likelihood of success on the merits, the court first addressed the issue of patent exhaustion. It began by concluding that LifeScan was likely to establish that its patent was not exhausted with respect to the 60% of meters that it distributes for free. It reasoned that patent exhaustion applies only to a "sale" where the patentee has received "consideration" in exchange for the patented product. It concluded that because LifeScan "receive[s] no remuneration at the moment [it] part[s] with [its] patented invention," LifeScan could likely show that patent exhaustion is inapplicable to the meters distributed for free. JA 9. The court also concluded that patent exhaustion would not apply to LifeScan's sale of the remaining meters because "the `105 patent is a method patent that requires both a meter and a test strip for an individual to practice it." JA 10. Although the court acknowledged that, under Quanta, a method claim is exhausted by the sale of a product that "`substantially embodies'" the invention, JA 11 (quoting Quanta, 553 U.S. at 633, 128 S.Ct. 2109), it concluded that LifeScan's meters "likely do not embody the inventive feature of the `105 patent." JA 14. The district court also rejected Shasta's other noninfringement and invalidity arguments. Finally, the district court concluded that the remaining preliminary injunction factors favored LifeScan.
A preliminary injunction is "an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) (citing Mazurek v. Armstrong, 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997) (per curiam)). "A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Id. at 20; see also Titan Tire Corp. v. Case New Holland, Inc., 566 F.3d 1372, 1375-76 (Fed.Cir.2009). If the accused infringer "raises a substantial question concerning either infringement or validity," then the patentee has not established that it is likely to succeed on the merits, and a preliminary injunction is not appropriate. See Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1350-51 (Fed.Cir.2001); Oakley, Inc. v. Sunglass Hut Int'l, 316 F.3d 1331, 1340 (Fed.Cir.2003). Because we conclude that Shasta has established a patent exhaustion defense as a matter of law, we reverse the grant of a preliminary injunction without reaching other issues in this case.
LifeScan's primary argument is that the distribution of its meters, whether by sale or gift, does not trigger exhaustion because its meters do not substantially embody the claims of the `105 patent. Because the `105 patent is a method patent, the parties agree that this issue is governed by the Supreme Court's decision in Quanta.
Before Quanta, the Supreme Court had repeatedly held, in addressing device patents, that the sale of a patented device exhausted the patent-holder's right to exclude, and that an infringement suit would not lie with respect to the subsequent sale or use of the device. In Adams v. Burke, for example, the accused infringer argued that the sale of patented coffin lids exhausted the patentee's rights in the lids throughout the United States even though the assignee from whom the accused infringer purchased the lids was only authorized to sell the lids in a limited geographical area. 84 U.S. (17 Wall.) 453, 21 L.Ed. 700 (1873). The Court explained that "the sale by a person who has the full right to make, sell, and use such a machine carries with it the right to the use of that machine to the full extent to which it can be used." Id. at 455. The Supreme Court applied the patent exhaustion doctrine in many other cases involving product patents. See, e.g., Keeler v. Standard Folding Bed Co., 157 U.S. 659, 15 S.Ct. 738, 39 L.Ed. 848 (1895); Bloomer v. Millinger, 68 U.S. (1 Wall.) 340, 17 L.Ed. 581 (1864).
The Court applied the exhaustion doctrine to method as well as product patents in United States v. Univis Lens Co., an antitrust case. 316 U.S. 241, 62 S.Ct. 1088, 86 L.Ed. 1408 (1942). The patentholder operated an eyeglass lens business. Id. at 243-45, 62 S.Ct. 1088. The patent-holder's licensee sold "lens blanks" to wholesalers and finishing retailers, who
The Court held that once the lens blanks were sold by a licensed manufacturer, the patent-holder's rights in them were exhausted. Id. at 249-52, 62 S.Ct. 1088. The Court reasoned that "[a]n incident to the purchase of any article, whether patented or unpatented, is the right to use and sell it," and that "the authorized sale of an article which is capable of use only in practicing the patent is a relinquishment of the patent monopoly with respect to the article sold." Id. at 249, 62 S.Ct. 1088. Thus, the Court held that the sale of an article which "embodies essential features" of a patented invention exhausted the patent-holder's rights in that article. Id. at 250-52, 62 S.Ct. 1088. The patent-holder conceded that "each [lens] blank ... embodies essential features of the patented" invention. Id. at 249, 62 S.Ct. 1088. The Court viewed the method patents as presenting the same question as the device patents, holding that the sale of the blanks exhausted the method patents as well. See id. at 246-49, 62 S.Ct. 1088; see also Quanta, 553 U.S. at 629, 128 S.Ct. 2109 ("Univis held that the sale of optical lens blanks that partially practiced a patent exhausted the method patents that were not completely practiced until the blanks were ground into lenses.").
Quanta confirmed that the exhaustion doctrine applies to method patents and clarified the applicable test. 553 U.S. at 628-35, 128 S.Ct. 2109. Quanta involved several patents containing method claims directed to functions performed by computer processors and chipsets in conjunction with other computer components, such as memory and buses. Id. at 621-23, 128 S.Ct. 2109. LGE, the patent-holder, licensed Intel to manufacture and sell processors and chipsets embodying the patented technology. Id. at 623, 631, 128 S.Ct. 2109. Intel, in turn, sold its processors and chipsets to computer manufacturers such as Quanta Computer, who combined the processors and chipsets with unpatented components to create finished computer systems that practiced the method patents. Id. at 624, 128 S.Ct. 2109. A separate agreement between LGE and Intel required Intel to instruct purchasers of those processors and chipsets that Intel's license to make and sell the processors and chipsets "d[id] not extend ... to any product [the purchasers] ma[d]e by combining an Intel product with any non-Intel product." Id. at 623-24, 128 S.Ct. 2109 (quotation marks omitted). Nevertheless, Quanta Computer manufactured computers in which Intel processors and chipsets were combined with non-Intel parts. Id. at 624, 128 S.Ct. 2109. LGE contended that Quanta's combination of the Intel processors and chipsets with non-Intel memory and buses infringed the method claims of LGE's patents. Id.
The Court next addressed "the extent to which a product must embody a patent in order to trigger exhaustion." Id. at 630, 128 S.Ct. 2109. It concluded that the issue was governed by Univis. Id. at 631, 128 S.Ct. 2109. As discussed above, the Supreme Court's finding of exhaustion in Univis was based on the patentee's concession that its lens blanks "embodie[d] essential features" of the patented invention. Univis, 316 U.S. at 250-51, 62 S.Ct. 1088. The Court in Quanta thus held that the critical issue, whether a method or product patent is involved, is whether the product "substantially embodies the patent"—i.e., whether the additional steps needed to complete the invention from the product are themselves "inventive" or "noninventive." 553 U.S. at 633-34, 128 S.Ct. 2109. Applying that test to the case before it, the Supreme Court found that the authorized sale of Intel's processors and chipsets exhausted LGE's patent rights. Id. at 631-34, 128 S.Ct. 2109. It explained that the processors and chipsets had no reasonable noninfringing use because they "cannot function until ... connected to buses and memory" and because "the only apparent object of Intel's sales to Quanta was to permit Quanta to incorporate the Intel [processors and chipsets] into computers that would practice the patents." Id. at 632, 128 S.Ct. 2109. The Court further held that Intel's products substantially embodied the patents because "[e]verything inventive about each patent [was] embodied in the Intel [processors and chipsets]" and "because the only additional step necessary to practice the patent[s was] the application of common processes or the addition of standard parts." Id. at 633, 128 S.Ct. 2109.
The facts relevant to the patent exhaustion issue here are undisputed. Shasta argues that under Quanta and other Supreme Court cases, the transfer of the meters to health care providers and users exhausts LifeScan's patent rights. LifeScan disagrees. It first contends that Quanta is inapplicable because its meters have reasonable noninfringing uses. Relying on language from Quanta noting that the Intel processors and chipsets "had no reasonable noninfringing use," 553 U.S. at 638, 128 S.Ct. 2109, LifeScan argues that the sale of a component does not result in exhaustion where the component has reasonable noninfringing uses. LifeScan's theory appears to be that if the meters had a reasonable noninfringing use, then the transfer of the meters would not necessarily imply that the recipient was authorized
Even if a showing of reasonable noninfringing uses of a product could alone be sufficient to avoid exhaustion here, we would find no merit in LifeScan's argument. LifeScan bases this argument on expert testimony that Shasta could have designed new strips that would work with LifeScan's meter in a noninfringing way. But the question is not whether Shasta could design a noninfringing use for LifeScan's meters, it is whether the individual users (the alleged direct infringers) have a noninfringing use for the meters. Here, there is no suggestion that the users can put LifeScan's meters to noninfringing uses.
In any event, alternative uses are relevant to the exhaustion inquiry under Quanta only if they are both "reasonable and intended" by the patentee or its authorized licensee. Quanta, 553 U.S. at 631, 128 S.Ct. 2109 (emphasis added); see also Univis, 316 U.S. at 249, 62 S.Ct. 1088 (noting that "the only object of the sale is to enable [purchasers] to grind and polish [the lens blanks] for use as a lens by the prospective wearer" (emphasis added)). LifeScan admits that it distributes its meters "in the expectation and intent that customers will use its OneTouch Ultra meters with [its] OneTouch Ultra test strips," JA 319 (emphasis added), and that such use practices the `105 patent. Thus, even if LifeScan's proposed alternative uses for its meters were reasonably available to users, they were plainly not intended, and are therefore not relevant to the issue of patent exhaustion.
LifeScan next argues that exhaustion is inapplicable because the meters do not embody the essential features of the `105 patent. In Quanta, the Supreme Court emphasized that "[e]verything inventive about each patent [was] embodied in the Intel [processors and chipsets]" because they "control[led]" and "carr[ied] out" the functions described in the patents. Quanta, 553 U.S. at 633-34, 128 S.Ct. 2109. Similarly, the question here is whether the meters "control" and "carry out" the inventive functions described in the method claims of the `105 patent. See id.
As originally filed, the application that led to the `105 patent claimed two separate inventions—the comparing method performed by the meter and the configuration of electrodes on the test strips. Thus, the specification describes a "method" in which "the measuring device compares the current generated by two working sensor parts and gives an error indication if they are too dissimilar," `105 patent col. 2 ll. 27-31, 33, and separately describes the originally-claimed arrangement of electrodes on the test strip so that the "two working sensor parts are arranged one downstream of the other," see id. col. 3 ll. 43-44. However, while the claims directed to the comparing method were allowed, the claims directed to the test strips themselves were rejected. The question is what the inventive features of the method claims were. What is "inventive" about patent claims in the patent exhaustion context is what distinguishes them from the prior art. See Univis, 316 U.S. at 248-49, 62 S.Ct. 1088.
Contrary to the dissent, a biosensor with multiple electrodes was known in the prior art, as LifeScan's own expert admitted. JA 1459. See also U.S. Patent No.
JA 1849. The examiner thus found that the "measuring," "comparing," and "giving
There is also no dispute that in LifeScan's blood glucose testing system, it is the meter, not the strips, which performs the "measuring," "comparing," and "giving an indication of an error" steps. LifeScan concedes in its brief that its meters "determine[] the blood glucose level in the sample by measuring the electrical current produced." Appellee's Br. at 6. Similarly, LifeScan stated to the district court that "[t]he separate electrical currents measured at each working sensor are compared by the meter." JA 69 (emphasis added). Finally, LifeScan's expert testified that it is the meter that "will display an error indicating that the strip is defective." JA 1484. Because it is the meter alone that performs these key inventive steps of the claimed method, the meter substantially embodies the method claims of the `105 patent. See Quanta, 553 U.S. at 633-34, 128 S.Ct. 2109.
LifeScan also appears to argue that its meter does not embody its patented methods because its strips themselves are inventive and should have been found separately patentable. LifeScan bases this argument on expert testimony asserting that the patent examiners erred in repeatedly rejecting its attempts to patent its strips, and that the strips would indeed have been separately patentable. But the question here is not whether the strips would have been separately patentable or whether the United States Patent and Trademark Office erroneously denied a patent on the strips.
To be sure, if a patent had actually issued on the strips, the patentability of the strips could be relevant to exhaustion. That principle was announced in Morgan Envelope Co. v. Albany Perforated Wrapping Paper Co., 152 U.S. 425, 14 S.Ct. 627, 38 L.Ed. 500 (1894). There, unlike here, a patent had actually issued on a subsidiary element (toilet paper rolls) of a patented combination. Id. at 427, 430, 14 S.Ct. 627. The patentee had obtained patents on a particular type of roll of toilet paper and on the combination of those toilet paper rolls with a fixture on which the roll was mounted. Id. at 427, 430-31, 14 S.Ct. 627. After concluding that the rolls themselves were not patentable over the prior art, see id. at 427-30, 14 S.Ct. 627, the Court considered whether the sale of the fixture exhausted the patent rights in the combination. See id. at 431-32, 14 S.Ct. 627. The accused infringer apparently conceded
Id. (emphasis added). The Court explained that, for example,
Id. Morgan Envelope therefore confirms that if one item in the patented combination is either unpatented or if the patent on it is invalid, and the inventive concept resides in a second item, then the sale of the second item exhausts a product patent in the combination. See id. at 432-33, 435, 14 S.Ct. 627. The same principle is equally applicable to method claims, Quanta, 553 U.S. at 628-29, 128 S.Ct. 2109, as is confirmed by our recent decision in Keurig, No. 13-1072, 732 F.3d at 1373 (Fed. Cir. Oct. 17, 2013), where we held that a method of using a coffee brewer in combination with disposable cartridges was exhausted by the sale of the brewer.
However, LifeScan argues that exhaustion does not apply because the strips here are not "standard" parts. Although the Supreme Court in Quanta referred to the other computer components that were combined with Intel's processors and chipsets as "standard parts," 553 U.S. at 633, 128 S.Ct. 2109, Quanta does not suggest that only standard parts can be viewed as noninventive. Rather, the Court focused on the fact that "[e]verything inventive about each patent [was] embodied in the Intel [processors and chipsets]." Id. (emphasis added). Moreover, the Court's reference to "standard parts" did not imply that those parts were configured identically in the prior art, but rather refers to the fact that standard parts could be easily adapted to work with the Intel processors and chipsets. Indeed, it was undisputed in Quanta that the computer manufacturers specifically designed the remainder of their computer systems for compatibility with Intel's processors and chipsets according to Intel's specifications.
Rejecting a claim of exhaustion in this case would be particularly problematic because LifeScan would be permitted to eliminate competition in the sale of the strips even though the strips do not embody the claimed invention and are themselves not patentable. Allowing LifeScan to control sale of the strips would be akin to allowing a tying arrangement whereby the purchasers of the meters could be barred from using the meters with competing strips. See Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 517, 37 S.Ct. 416, 61 L.Ed. 871 (1917) (holding unlawful a patentee's attempt to "under color of its patent ... derive its profit ... from the unpatented supplies with which [the patented product] is used"); Carbice Corp. of Am. v. Am. Patents Dev. Corp., 283 U.S. 27, 33, 51 S.Ct. 334, 75 L.Ed. 819 (1931) ("Control over the supply of ... unpatented material is beyond the scope of the patentee's monopoly....").
In both the tying and exhaustion cases, the Supreme Court has expressed particular concern with extension of the patent monopoly to items that must be renewed periodically and that are not themselves patentable. Carbice, 283 U.S. at 31, 51 S.Ct. 334 ("The limited monopoly to make, use, and vend an article may not be expanded by limitations as to materials and supplies necessary to the operation of it." (quotation marks omitted)); Morgan Envelope, 152 U.S. at 433, 14 S.Ct. 627 (finding no indirect infringement "where the element made [and sold] by the alleged infringer ... must be renewed periodically, whenever the device [sold by the patentee] is put to use").
The basic principle underlying the Supreme Court's exhaustion cases is that the authorized transfer of ownership in a product embodying a patent carries with it the right to engage in that product's contemplated use. See Quanta, 553 U.S. at 631, 128 S.Ct. 2109 (noting that the intended use of the Intel processors and chipsets was to be combined and used with other computer components so as to practice the patent); Univis, 316 U.S. at 249, 62 S.Ct. 1088 ("[T]he only object of the sale is to enable the [purchaser] to grind and polish [the lens blank] for use as a lens by the prospective wearer."); Adams, 84 U.S. at 455, 84 U.S. 453 ("The true ground on which [the Supreme Court's early exhaustion cases] rest is that the sale by a person who has the full right to make, sell, and use such a machine carries with it the right to the use of that machine to the full extent to which it can be used...."). Here, barring the use of the meter with strips manufactured by the accused infringer would bar the use of the meters for their contemplated function and extend the patent monopoly improperly as we recently held in Keurig, No. 13-1072, 732 F.3d at
LifeScan's final argument is that even if its meters substantially embody the asserted claims, patent exhaustion is nevertheless inapplicable to the 60% of its meters that are not sold but instead distributed for free. LifeScan asserts that it received no "reward" for distributing them (because they were distributed without charge), and that the district court therefore properly found that patent exhaustion did not apply. We are therefore asked to decide, as a matter of first impression, whether patent exhaustion applies to a product distributed for free. We conclude that, in the case of an authorized and unconditional transfer of title, the absence of consideration is no barrier to the application of patent exhaustion principles.
Although the Supreme Court has often discussed exhaustion in terms of a "sale" and a "purchaser," see, e.g., Bowman v. Monsanto Co., ___ U.S. ___, 133 S.Ct. 1761, 1766, 185 L.Ed.2d 931 (2013); Adams, 84 U.S. at 456, 84 U.S. 453, the Court has never confined the application of patent exhaustion to that context. The Court explained the rationale underlying the doctrine of patent exhaustion in Bloomer v. McQuewan, 55 U.S. (14 How.) 539, 14 L.Ed. 532 (1853). See also Quanta, 553 U.S. at 625, 128 S.Ct. 2109. McQuewan involved the effect of a patent term extension on patent licensees holding licenses to use the patented planning machine during the original patent term. 55 U.S. (14 How.) at 547-48. The Court held that "the purchaser of the ... machine for the purpose of using it in the ordinary pursuits of life" was entitled to continue using the machine during the extended term. Id. at 549. The Court explained that
Id. at 549-50 (emphases added). In other words, the patentee's transfer of the right to use the machines "exhaust[ed]" his rights as to those machines. See Univis, 316 U.S. at 250, 62 S.Ct. 1088 (citing McQuewan, 55 U.S. (14 How.) at 549-50).
Thus, despite frequent references to "sales" and "purchasers," the Court has more fundamentally described exhaustion as occurring when the patented product "passes to the hands" of a transferee and when he "legally acquires a title" to it. Millinger, 68 U.S. (1 Wall.) at 351 ("legally acquires a title"); Chaffee v. Boston Belting Co., 63 U.S. (22 How.) 217, 223, 16 L.Ed. 240 (1859) ("passes to the hands," "legally acquires a title"); McQuewan, 55 U.S. (14 How.) at 549-50 ("passes to the hands"). Similarly, the Court has stated that exhaustion can occur by a transfer "from any other person ... authorized [by the patentee] to convey it." Millinger, 68 U.S. (1 Wall.) at 351 (emphasis added); Chaffee, 63 U.S. (22 How.) at 223 (same); see Black's Law Dictionary 273 (1st ed. 1891) (defining "convey" to mean "[t]o pass or transmit the title to property from one to another"). So too, in Univis, the Court stated that the patentee's "monopoly remains so long as he retains the ownership of the patented article." 316 U.S. at 250, 62 S.Ct. 1088 (emphasis added). Each of these formulations is broad enough to include a transfer of title that does not amount to a sale. A "sale" limitation would indeed be inconsistent with the Supreme Court's decision in McQuewan, where the particular machines at issue had never been sold, but had instead been manufactured by the accused infringer
LifeScan relies on language in Supreme Court exhaustion decisions mentioning the receipt of "consideration" or "reward" by the patentee as supporting exhaustion. See, e.g., Univis, 316 U.S. at 251, 62 S.Ct. 1088 ("[T]he patentee has received his reward for the use of the invention by the sale of the article...."); Adams, 84 U.S. (17 Wall.) at 456 ("[W]hen the patentee ... sells a machine ... whose sole value is in its use, he receives the consideration for its use and he parts with the right to control that use."). But none of the cases cited by LifeScan involved any suggestion that exhaustion could be avoided by showing the absence or inadequacy of the patentee's reward in a transfer by gift.
At bottom, a patentee has a choice as to how to secure its reward. A patentee may "demand[]" a particular price in exchange for an "article and the invention which it embodies." See Univis, 316 U.S. at 251, 62 S.Ct. 1088; see also McQuewan, 55 U.S. (14 How.) at 552. Alternately, a patentee may choose to give that article away for free in the hope of obtaining a future benefit, as LifeScan did here. But a patentee cannot evade patent exhaustion principles by choosing to give the article away rather than charging a particular price for it. Where a patentee unconditionally parts with ownership of an article, it cannot later complain that the approach that it chose results in an inadequate reward and that therefore ordinary principles of patent exhaustion should not apply.
Additionally, while not "controlling" regarding issues of patent law, see Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 346, 28 S.Ct. 722, 52 L.Ed. 1086 (1908) (quotation marks omitted), copyright cases further reinforce our conclusion that patent exhaustion applies to gifts.
Id. (quoting 1 E. Coke, Institutes of the Laws of England § 360, p. 223 (1628)) (omissions and alterations in original) (emphases added). Thus, the policy underlying the first sale doctrine draws no distinction between gifts and sales. The same policy undergirds the doctrine of patent exhaustion. See Straus v. Victor Talking Mach. Co., 243 U.S. 490, 500-01, 37 S.Ct. 412, 61 L.Ed. 866 (1917) (explaining that a patentee's attempt "to place restraints upon [a patented product's] further alienation [was] such as have been hateful to the law from Lord Coke's day to ours").
The Ninth Circuit specifically addressed the application of copyright's first sale doctrine to gifts in UMG Recordings, Inc. v. Augusto, 628 F.3d 1175 (9th Cir.2011). In that case, UMG owned a copyright in the content of promotional CDs. Id. at 1177. It distributed these promotional CDs for free to individuals such as music critics and radio programmers. Id. When Augusto obtained and sold the CDs, UMG brought suit against him for copyright infringement, arguing that his sales constituted a violation of its exclusive rights to the content of the CDs. See id. at 1178; see also 17 U.S.C. § 106(3). The Ninth Circuit disagreed. It held that UMG's free distribution of the CDs exhausted its rights under copyright law. Augusto, 628 F.3d at 1183. The court reasoned that "[n]otwithstanding its distinctive name, the [first sale] doctrine applies not only when a copy is first sold, but when a copy is given away or title is otherwise transferred without the accouterments of a sale." Id. at 1179. The court explained that "[o]nce the copyright owner places a copyrighted item in the stream of commerce ..., he has exhausted his exclusive statutory right to control its distribution." Id. (quotation marks omitted).
The common policies underlying patent exhaustion and the first sale doctrine would be significantly undermined by the rule LifeScan advocates in this case. Absent a valid contractual restriction, restraints upon the downstream use or sale of a patented product "offend against the ordinary and usual freedom of traffic in
In summary, we hold 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. We further conclude that LifeScan's OneTouch Ultra meters substantially embody the methods claimed in the `105 patent and that their distribution therefore exhausts LifeScan's patent rights. We therefore reverse the district court's grant of a preliminary injunction and remand for further proceedings consistent with this opinion.
Costs to Shasta.
REYNA, Circuit Judge, dissenting.
The majority holds that LifeScan's sale (or promotional giveaway) of its unpatented blood glucose meter
The Supreme Court has held that the sale of a product triggers exhaustion when its only reasonable and intended use is to practice the patent and it substantially embodies the essential features of the patented invention. Quanta, 553 U.S. at 631, 128 S.Ct. 2109 (quoting United States v. Univis Lens Co., 316 U.S. 241, 249-51, 62 S.Ct. 1088, 86 L.Ed. 1408 (1942)). There is no real dispute in this case that the only reasonable and intended use of LifeScan's blood glucose meter is to practice the patent-in-suit. See Maj. Op. at 1368-69. Therefore, this case turns on the question of whether LifeScan's meters or its test strips substantially embody the essential features of the patent. I conclude that the test strips, and not the meters, embody those essential features.
The majority apparently misapprehends the Court's guidance in Quanta, which causes it to incorrectly conclude that the meters, and not the test strips, embody the essential features of LifeScan's patented method. In Quanta, the Supreme Court explained that a product embodies the essential features of a method patent when the product contains or is involved in the inventive, as opposed to the standard, processes of the patented method. Quanta, 553 U.S. at 633, 128 S.Ct. 2109 ("[T]he grinding process [in Univis] was not central to the patents. That standard process was not included in detail in any of the patents and was not referred to at all in two of the patents."). The Court did not clearly demarcate a line between inventive and standard processes, but its analysis of the facts of that case is informative. In particular, the microprocessor and chipset, which "constitute[d] a material part of the patented invention and all but completely practice[d] the patent," substantially embodied the inventive processes of the method patent at issue because "the only step necessary to practice the patent [wa]s the application of common processes or the addition of standard parts." Id. (emphasis added). The addition of those standard components, memory and buses, was common and noninventive, and doing so required no creative or inventive decision on the part of the accused infringer. Id. at 633-34, 128 S.Ct. 2109. The Court emphasized that it is the nature of the steps that is the relevant characteristic, rather than the patentability of the components themselves. Id. at 635, 128 S.Ct. 2109 ("While each ... microprocessor and chipset practices thousands of individual patents, including some [patents] not at issue in this case, the exhaustion analysis is not altered by the fact that more than one patent is practiced by the same product."). The Court's analysis makes clear that the inventive contributions of the components to the method, as opposed to the inventiveness of the components themselves, determine their essentialness. The majority's apparent misunderstanding of the Court's guidance in Quanta causes it to err in two separate respects.
First, the majority relies on Quanta to elevate the blood glucose meter over the
Prior art blood glucose meters relied on a test strip with only two electrodes—one reference and one working. U.S. Patent No. 7,250,105 col. 1 ll. 27-29 (filed May 7, 2003) ("the `105 patent"). When the enzyme coating the working electrode reacted with glucose in the blood sample, it would release electrons that would result in an electrical current, which could be measured relative to the reference electrode. In contrast, the test strip utilized by the patented method in this case has three electrodes, two of which are working and capable of measuring an electrical current. This distinction is crucial. When the working electrode in a prior art meter would become severed because of a manufacturing defect or was insufficiently covered with blood due to an operator error, the patient would have no way of knowing that the reading was erroneous. See id. col. 2 ll. 27-38. Once LifeScan developed its patented method that used two working electrodes, the meter could measure two separate blood glucose readings. Id. As a result, a difference in the readings would indicate an error condition—either insufficient blood covering one of the electrodes or a defective electrode—and the patient could be alerted accordingly. But for the specialized test strips required by LifeScan's patented method, the blood glucose meter alone could not perform the "comparing" and "giving an indication of an error" steps viewed by the majority as essential to the patented method.
In contrast, the blood glucose meter cannot be fairly viewed as embodying the essential features of LifeScan's patented method. The steps performed by the meter, "measuring," "comparing," and "giving an indication of an error," are only made possible by the unique configuration of the three electrode test strip, as explained above. A diabetic patient with a LifeScan test strip, a pencil, a pad of paper, and an ammeter (a device used to measure electric current) could "measure an electric current at each working sensor part," "compare the electric current from each working sensor parts to establish a difference parameter," and "give an indication of an error if said difference parameter is greater than a predetermined threshold," all without the assistance of a blood glucose meter. See Gottschalk v. Benson, 409 U.S. 63, 65, 93 S.Ct. 253, 34 L.Ed.2d 273
Second, the majority misinterprets Quanta by requiring that the "essential, or inventive, features" of a method patent be contained in a separately-patentable component covered by a product patent. Because LifeScan abandoned its patent applications covering its test strip, the majority concludes that the strip cannot embody the essential features of LifeScan's method patent. This reasoning is inconsistent with the Supreme Court's guidance in Quanta. In that case, the Court focused on the inventiveness of the steps in the claimed method, rather than the patentability of the underlying components themselves. Quanta, 553 U.S. at 635, 128 S.Ct. 2109. The Court's analysis, as opposed to the majority's reinterpretation of it, is fully consistent with the statute. Section 100(b) of the Patent Act explicitly provides that an entity like LifeScan can obtain a patent for its method that "includes a new use of a known ... machine." 35 U.S.C. § 100(b). Accordingly, the majority was incorrect to place any significance on the patentability of LifeScan's test strip. What matters is whether the test strip embodies the steps that are essential to the patented method. As noted above, LifeScan's test strips are essential to the patented method.
The majority relies on this court's recent decision in Keurig, Inc., v. Sturm Foods, Inc., No. 13-1072, 732 F.3d 1370, 2013 WL 5645192 (Fed.Cir.2013), which held that the sale of a coffee brewer exhausts the patentee's rights in a method covering the use of the brewer with a disposable cartridge. But that case is distinguishable from this case. Unlike this case where the inventiveness of the method lies in the test strip, every step of the claimed method in Keurig is performed by the brewer with the cartridge merely serving as a passive participant. Id. at 2-3, 732 F.3d at 1372-74. Tellingly, the panel in Keurig focused on whether the brewers had substantial noninfringing uses (which is not at issue here) rather than whether it embodied the essential features of the patented method (which is at issue here). Furthermore, both the brewer and the cartridge are separately patented (by apparatus patents), yet the majority in this case does not explain the effect this has on which component embodies the essential features of the method patent.
Assuming that the patentability of the test strips in this case was relevant to exhaustion and determined whether that component could embody the essential features of a patented method, since LifeScan's blood glucose meter is not patented, it too would not exhaust the method patent. In brief, while the majority devotes significant attention to the patentability of the test strip, it fails to demonstrate that LifeScan's meter is separately patentable. The evidence suggests that it is not. See
Applying exhaustion to a case such as this one is especially inappropriate because the essential features of the patented method are embodied in test strips that are immediately consumed during performance of the method even though LifeScan has received little to nothing in return for its blood glucose meters. Despite that, the majority concludes that patent exhaustion applies to the meters that LifeScan sells at below cost without test strips and that cannot practice the patented method right out of the box, see supra note 3, as well as the promotional meters that LifeScan distributes for free as part of a Starter Kit. The majority reasons that LifeScan has "received [its] reward" for its patented method even on the meters it gives away for free because it retained the "hope of obtaining a future benefit" on those meters. Maj. Op. at 1375 (citing Univis, 316 U.S. at 251, 62 S.Ct. 1088). What benefit that is remains a mystery. Once a patient's use of the meter consumes the ten free strips included in LifeScan's Starter Kit,
"The declared purpose of the patent law is to promote the progress of science and the useful arts by granting to the inventor a limited monopoly, the exercise of which will enable him to secure the financial rewards for his invention." Univis, 316 U.S. at 250, 62 S.Ct. 1088 (citing U.S. Const. art. I, § 8, cl. 8). A patent system premised on granting the patentee a "hope of receiving a future benefit" is one where
Although the contexts are different, the Supreme Court's reasoning in its recent decision in Bowman does not support the majority's conclusion that exhaustion applies to method patents the practice of which consume its essential component.
The majority's holding in this case will unquestionably cause LifeScan's patented method to plummet in value and result in its exclusive rights over the method lasting only one transaction. Similar to Bowman, after patients consume the ten test strips in the Starter Kit, or none, they will be able to continue practicing LifeScan's patented method using generic test strips supplied by LifeScan's competitors. Yet the mismatch between invention and reward in this case is even starker than it was in Bowman. While Monsanto received a reward for the first set of seeds it sold, LifeScan receives no reward whatsoever on the Starter Kit. Additionally, LifeScan will be deprived of its exclusive rights in all of the subsequent performances of its patented method after the giveaway sample test strips are consumed. Because LifeScan's test strips embody the essential features of its patented method, the majority erred by finding exhaustion applied once the meter is sold (or given away). Accordingly, I respectfully dissent.