Global woes? Featured

9:30am EDT February 26, 2004
Any time goods are purchased outside the United States, the purchaser should ensure that they can be lawfully imported, sold, offered for sale, made and/or used in the United States.

If proper precautions are not taken, and even if the seller of the foreign goods is the U.S. patent owner or licensee, that same seller can sue the purchaser and/or its downstream customers for patent infringement in the United States.

Law known as the "first sale doctrine" or "patent exhaustion doctrine" prevents a U.S. patent owner or licensee from selling goods in the United States and later bringing a patent infringement suit for use of those same goods. For example, when a consumer buys a car from Ford, it is probable that Ford owns many patents on the car.

The first sale doctrine prevents Ford from suing the consumer or any subsequent owners of the car for patent infringement.

In 2001, the Federal Circuit Court of Appeals (the appellate court that hears all appeals of patent cases) determined that the first sale doctrine does not apply to goods purchased outside the United States.

"United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent," reads the court's ruling in Jazz Photo Corp. v. International Trade Comm'n, 264 F.3d 1094, 1105.

Simply stated, for goods purchased outside the United States from an entity with the U.S. patent rights, the same entity may sue the purchaser or its downstream customers for patent infringement in the United States when the goods are imported, sold, offered for sale, made and/or used in the United States.

For this reason, when purchasing foreign goods from an entity with U.S. patent rights covering the goods, the purchaser should obtain contractual rights that expressly permit the purchaser and its downstream customers to import, sell, offer to sell, make, and/or use the goods in the United States.

With these contractual rights, the seller will not be able to sue the purchaser or its downstream customers for patent infringement in the United States. Without such contractual rights, the purchaser and/or its downstream customers may still be able to rely on the seller's conduct (e.g., the seller verbally consented to use of the goods in the United States or knew of such use for a long period of time and did not dispute it) to avoid liability for patent infringement.

Unfortunately for the purchaser, relying on the seller's conduct (rather than on a contract) to avoid infringement can result in substantial litigation, and possibly even a trial, both of which are expensive and time-consuming for the purchaser.

Even though a particular entity has the patent rights to make and sell goods in a particular foreign country, that entity may not have the corresponding rights in the United States. In this situation, obtaining contractual rights permitting the import, sale, offer for sale, manufacture and/or use of the goods in the United States is meaningless, as the seller of the goods does not have the right to grant such rights.

If the foreign seller does not have the U.S. patent rights, the purchaser should either (1) contact the entity that has the U.S. patent rights to (a) purchase the goods from that entity or (b) obtain a license to import, sell, offer to sell, make and/or use the goods from the foreign seller or (2) purchase and/or make different goods.

Regardless of the foreign seller's patent position, additional U.S. patents may exist which cover the goods being considered. As discussed in a previous article, "Patent due diligence can lower odds of costly lawsuits" (http://www.boselaw.com/articles/carter03.pdf), the purchaser should conduct general patent due diligence on these goods.

Trevor Carter (tcarter@boselaw.com) is a partner in the Intellectual Property Group of Bose McKinney & Evans LLP, focusing on patent litigation, patent prosecution and counseling clients on patent matters. Reach him at (317) 684-5282.