Consider these recent court decisions when drafting patent licenses

The U.S. Court of Appeals for the Federal Circuit and the U.S. District Court for the Central District of California recently issued two decisions that patent owners should consider when licensing their patents to others.

In the Federal Circuit decision, Corebrace LLC v. Star Seismic LLC, the Court considered whether a license to “make” a patented invention inherently includes the right to have the invention made by a third party contract manufacturer.  License agreements are typically interpreted under state law, but the Court found no precedent in the jurisdiction (Utah) governing the contract.  So, the court looked at its own precedent, along with that of state courts in California, and determined that

a “have made” right is implicit in a right to make, use and sell, absent express contrary intent.

In the C.D. California decision, Ronald A. Katz Technology Licensing v. Earthlink, the defendant (Earthlink) had purchased interactive voice response services from a third party (West).  The services were covered by a patent, and West was a licensee of the patent holder (Katz).  Katz sued Earthlink for patent infringement, arguing that Earthlink was not a licensee, and that West’s license did not cover West’s customers.  Earthlink argued that the doctrine of patent exhaustion applied, and that when West received the license, Katz’s rights were exhausted. 

The court agreed with Earthlink and held that the doctrine of patent exhaustion applies to services:

once a patented service is lawfully sold, . . . the patentee should [not] be able to prevent the purchaser from enjoying the use of the service.

However, the court denied Earthlink’s motion for summary judgment, noting that an issue remained as to whether West’s service “embodied the essential features” of the patented invention (thus triggering exhaustion), or whether Earthlink provided some of the essential features itself.

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