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The Impact of the Patent Exhaustion and Implied License Doctrines on License Negotiations
Nothing should be left to chance when drafting patent licenses. Indeed, the parties on both sides of the transaction have a keen interest in eliminating ambiguities. This is particularly true with respect to the scope of the license grant. The licensor must be reasonably assured that it has not inadvertently given away more than what was bargained for. On the other side, the licensee must be reasonably assured that it may use the patent as it intended without being sued for infringement.
Beyond the language of the grant, a key consideration for both parties is the impact of the patent exhaustion and implied license doctrines. Both doctrines operate similarly. In essence, they limit the licensor's right to claim infringement against downstream users of its patent or sellers of devices that embody the patent. Although these doctrines are often applied with indistinguishable results, the requirements for each are different. Moreover, these doctrines also differ in scope.
Patent exhaustion results from an authorized, unconditional sale or license of a patented device. Subsequent sales and uses cannot infringe the patent covering the device. If the device had only been licensed for use in a particular product, however, the licensor would have a cause of action for any subsequent sale or use of the device apart from the product. An implied license arises when the licensor sells or licenses articles that have no reasonable, non-infringing uses, other than practicing the patent, and the circumstances plainly indicate that the grant of a license should be inferred. Significantly, it should be recognized that the scope of the implied license doctrine is somewhat broader than what is permissible under the patent exhaustion doctrine because the licensee would also have the right to make the patented article.
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