“[P]atent 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.”
Background / Facts: The patent at issue here is directed to a blood glucose meter, which is used by individuals with diabetes to assist them in maintaining healthy blood glucose levels. As part of its business model, the patentee distributes a large portion of its meters for free through health care providers, who in turn give the meters to diabetic individuals. The patentee distributes its meters in this way “in the expectation and intent that customers will use its … meters with … [its special] test strips, from which [it] derive[s] a profit.” The accused infringer does not sell blood glucose meters, but competes with the patentee in the market for test strips, including those designed to work with the patentee’s meters. Although the original application attempted to claim the special testing strips directly, all such claims were rejected and ultimately abandoned before issuance. The patentee therefore relies on a theory of indirect infringement based on the competing sale of the special test strips and the consumer’s ultimate use of those strips with its meters in an infringing manner, for which the patentee asserts that it has not been duly compensated on account of the meters having been given away for free.
Issue(s): Whether patent exhaustion applies to a product distributed for free.
Holding(s): Yes. The court ultimately concluded, as a matter of first impression, 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.” In reviewing the relevant precedent, the court noted that “despite frequent references to ‘sales’ and ‘purchasers,’ the [Supreme] 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.” The court made special recognition of the fact that “[t]he common policies underlying patent exhaustion and the first sale doctrine would be significantly undermined by the rule [the patentee] advocates in this case,” which would sanction “a tying arrangement whereby the purchasers of the meters could be barred from using the meters with competing strips.” In short, any lack of compensation derived from the free distribution of the patentee’s meters was purely voluntary. “[A] patentee may choose to give that article away for free in the hope of obtaining a future benefit, as [as the patentee] 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.”