Exhaustion applied to patented method where the patentee gave away the "inventive" component used to perform the method for free

Fed Cir reverses the grant of a preliminary injunction because the defendant established a patent exhaustion defense as a matter of law. The patent-in-suit was directed to a method for measuring blood glucose levels using an electrochemical meter and a test strip, each of which is used to carry out various steps of the method. The patentee distributed the meters to be used with the method either for free or a significant discount and sold the test strips, while the defendant sold competing test strips that can be used with the patentee's meter.--more-->

LifeScan Scotland, Ltd. v. Shasta Techs., LLC, __ F.3d __ (Fed. Cir. Nov. 4, 2013) (DYK, Prost, Reyna (dissenting)) (N.D. Cal.: Davila) (3 of 5 stars)

The Fed Cir held that the patentee's transfer of the meters exhausted its rights to the patented method. As an initial matter, the Fed Cir rejected the argument that there could be no exhaustion because the meters had reasonable non-infringing uses, reasoning that (i) there was no suggestion the meters are actually put to a non-infringing use, (ii) they are intended to be used in an infringing manner, and (iii) it was irrelevant whether the strips could be redesigned for use in a non-infringing manner because this had not actually been done. Slip op. at 12-13. In addition, the meter embodied the essential features of the patented method (triggering exhaustion under Quanta) because the meter "control[s] and carr[ies] out the inventive comparison function of the method claims." Explaining that "[w]hat is 'inventive' about patent claims in the patent exhaustion context is what distinguishes them from the prior art ," id. at 14, the Fed Cir found that "the meter alone . . . performs [the] key inventive steps of the claimed method" because, among other things, the examiner's reasons for allowance had identified these steps as distinguishing the prior art, id. at 17, and the PTO had repeatedly rejected separate apparatus claims that were directed solely to the test strips. It was irrelevant whether the test strips were "standard" parts because "Quanta does not suggest that only standard parts can be viewed as noninventive." Id. at 20.

The Fed Cir also determined that exhaustion applied even to those meters given away for free by the patentee where there is "an authorized and unconditional transfer of title." Id. at 22-23. The patentee's transfer was unconditional despite a notice on the packaging for the meters requiring customers to use the meters only with the patentee's test strips because such notices are irrelevant unless the purchaser makes an "express contractual undertaking," the transfer is conditional, and the patentee did not argue the notice was a binding contract. Id. at 25-26.

In dissent, Judge Reyna argued that the majority erred in concluding that the meters, rather than the test strips, substantially embody the patented method. According to Judge Reyna, "the inventive contributions of the components to the method, as opposed to the inventiveness of the components themselves, determine their essentialness." Dissent at 4. Judge Reyna asserted that the specialized test strips which have two working electrodes capable of measuring an electric current and differ from other prior art strips were the inventive contribution to the method, whereas the meter could be replaced by a patient, a pencil, a pad of paper, and an ammeter. Id. at 6. Judge Reyna also argued the majority erred "by requiring that the 'essential, or inventive, features' of a method be contained in a separately-patentable component by a product patent." Id.