US patent exhaustion: yesterday, today, and maybe tomorrow

In the USA, the doctrine of patent exhaustion cuts off a patent owner's rights to enjoin, control, or extract royalties from a patented product after an authorized, unconditional sale of that product. While the basic policy of preventing a patent owner from repeatedly extracting compensation for the same product seems straightforward, the law developed by the courts over the past two centuries in response to efforts by patent owners to preserve and control their rights is more complex. Court decisions illustrate efforts to circumvent the exhaustion doctrine and control the downstream use of a patented article by imposing use conditions in a patent licence and by creating arrangements that licence patented products at various levels in the supply chain. Recent decisions of the Federal Circuit have led to a perception that many such conditions and arrangements are enforceable. The review covers when the exhaustion doctrine applies, when use conditions and other licensing arrangements are enforceable, the interplay of exhaustion and implied licences, and the impact of patent, contract, and antitrust law on exhaustion. The case law provides patent owners guidance in structuring licence agreements in a way that does not unintentionally exhaust their patent rights, particularly in industries having a multi-level product supply chain. The upcoming decision of the Supreme Court will provide further guidance.