Repair vs. Reconstruction

Patent exhaustion (the 'first sale doctrine') is a fundamental limit on patent rights: THE PRINCIPLE: once a patent owner (or its authorized licensee) makes an authorized sale of a patented article, the patent owner's rights in THAT SPECIFIC ARTICLE are exhausted; the buyer receives the article free of any further patent restriction; the buyer can use, resell, repair, modify, or give away the article without patent infringement; STATUTORY AND COMMON LAW BASIS: exhaustion is a common law principle confirmed and refined by Supreme Court decisions; 35 U.S.C. § 271(a) implicitly supports exhaustion; WHAT EXHAUSTION COVERS: the right to USE the patented article: the buyer can use the article for any purpose; the right to SELL the article: the buyer can resell the article as a second-hand sale; WHAT EXHAUSTION DOES NOT COVER: making a NEW patented article (reconstruction); practicing a patented method with the article on unlicensed third parties (in some circumstances); IMPRESSION PRODUCTS v. LEXMARK INTERNATIONAL (S.Ct. 2017): Lexmark sold toner cartridges (patented) with restrictions: 'single-use/no-resale' label + discounted price; Lexmark sued Impression Products for collecting and refurbishing the cartridges; HOLDING: (1) an AUTHORIZED SALE exhausts the patent even if the sale comes with a contractual restriction; the patent restriction is exhausted, though the contract restriction may still be enforceable as a matter of contract law; (2) exhaustion applies to INTERNATIONAL sales — an authorized sale abroad exhausts US patent rights in the sold item; Lexmark could not use US patents to block importation of cartridges originally sold abroad by Lexmark; QUANTA COMPUTER v. LG ELECTRONICS (S.Ct. 2008): authorized sale of a component that substantially embodies a patented combination can exhaust the patent; LG could not enforce its patents against Quanta's customers after Intel (licensed) sold chips that substantially embodied the patented combination.

The repair-reconstruction distinction determines when replacing a component requires a new license: THE CORE QUESTION: when a component of a patented combination wears out and is replaced, is the user making a permissible repair (restoring an existing licensed item) or an impermissible reconstruction (making a new patented article that requires a new license)? LEADING CASE — ARO MANUFACTURING v. CONVERTIBLE TOP REPLACEMENT CO. (S.Ct. 1961): the Aro case remains the foundational repair-reconstruction case; Convertible top fabric: the convertible top combination was patented; the fabric wore out quickly; Aro supplied replacement fabric; HOLDING: Aro was NOT infringing; replacing a worn-out, unpatented component of a patented combination is REPAIR, not reconstruction; reconstruction requires making a 'new article'; FACTORS COURTS CONSIDER: (1) THE PATENTED ARTICLE AS A WHOLE: is the original combination article spent/destroyed, or merely repaired? if the original combination still exists as an article and a single unpatented element is replaced, that is repair; if the original article has been entirely consumed or essentially rebuilt, it may be reconstruction; (2) IMPORTANCE OF THE REPLACED ELEMENT: is the replaced element a key, central, or inventive component, or a minor/peripheral one? replacing a central inventive element is more likely to be reconstruction; (3) LIFE EXPECTANCY OF THE COMPONENT vs. THE WHOLE: if the replaced component was designed to wear out faster than the whole (a consumable component), replacement tends toward repair; (4) COST OF THE COMPONENT vs. THE WHOLE: small fraction = repair; large fraction = reconstruction; (5) HOW THE PATENT CLAIMS THE ARTICLE: does the claim focus on the replaced component specifically?

The aftermarket and right-to-repair context has become a major practical arena for these doctrines: MANUFACTURER STRATEGIES: (1) CONDITIONAL SALE RESTRICTIONS: sell a patented product with a contractual restriction ('single-use only'; 'no resale'; 'authorized repair center only'); POST-Impression Products: the patent exhaustion cannot be limited by the sale restriction; however, the CONTRACT restriction (not the patent) may still be enforceable — but breach of contract is a different remedy than patent infringement; (2) CLAIMING THE REPLACEMENT PART: if the replacement part itself is patented, a third party making the replacement part commits patent infringement independent of exhaustion; example: a patented blade design for a cartridge → Lexmark or Gillette can sue the third party making blades for patent infringement; (3) CLAIMING THE COMBINATION PROCESS: if the method of using the replacement part (re-installing a consumable) is a patented method, the user may face method infringement (though exhaustion increasingly covers this); (4) SOFTWARE/DRM APPROACHES: tie software control to prevent third-party components from working; involve Digital Millennium Copyright Act (DMCA) rather than patent law; (5) DIGITAL PATENT CLAIMS: connected devices — a patented communication protocol between device and replacement part; THE RIGHT TO REPAIR MOVEMENT: growing consumer and legislative push for right to repair; some states have enacted right-to-repair statutes; FTC has taken interest in anti-competitive repair restrictions; automotive industry: 2014 Memorandum of Understanding gives independent repair shops access to diagnostic tools; limitations on patent law as a repair barrier are increasingly enforced by courts citing exhaustion; WHEN CONDITIONAL SALES WORK (post-Impression Products): contractual restrictions survive as contract claims (breach of contract; not patent infringement); they can deter buyers (breach of contract risk); but cannot support patent infringement suits against downstream users.

Exhaustion's application to method patents and component sales is more complex: METHOD PATENT EXHAUSTION — QUANTA COMPUTERS v. LG ELECTRONICS (S.Ct. 2008): LG licensed Intel to make and sell chips implementing LG's patented combination inventions; the license did NOT authorize Intel's customers to use the chips in LG's patented combinations; LG sued Quanta (Intel's customer) for infringement; HOLDING: when Intel's authorized sale of chips substantially embodied LG's patents (the chips inherently practiced the method when used as designed), the exhaustion doctrine precluded LG from suing Intel's customers; SUBSTANTIAL EMBODIMENT TEST: a product 'substantially embodies' a patent if: it embodies the essential features of the claimed invention; and the only reasonable and intended use of the product practices the patent; the product is not a 'mere component' but rather the patented invention itself minus standard implementation steps; CONDITIONAL LICENSE IMPACT: LG tried to argue that Intel's license was conditional (did not authorize downstream use); Quanta: the condition ran between LG and Intel (license scope limitation) but did not restore LG's patent rights against downstream purchasers — the authorized sale by Intel exhausted the patent; APPLICATION TO SOFTWARE-ENABLED DEVICES: if a software-enabled device is sold with an authorized license to the software, downstream use may be exhausted even if the method claimed in a software patent is practiced; IMPLICATIONS FOR COMPONENT MANUFACTURERS: if a component manufacturer's product substantially embodies the patented combination or method, an authorized sale of that component (by a patentee or licensee) can exhaust the patent for downstream users; this limits double-licensing strategies where the component is sold once and then royalties are sought from product assemblers and end users.

Companies in the repair, refurbishment, and aftermarket parts industries should understand how exhaustion protects (and limits) their activities: PROTECTED ACTIVITIES: RESALE: authorized first-sale articles can be resold without patent infringement; secondary market in patented goods is permissible; REPAIR: replacing worn-out unpatented components of patented combinations is permissible repair; NOT PROTECTED: RECONSTRUCTION: making a new patented article from scratch requires a license even if it's from components; completely rebuilding a spent patented article is reconstruction; MAKING PATENTED REPLACEMENT PARTS: the replacement part itself may be separately patented; making/selling patented replacement parts infringes the part patent (not the exhaustion issue — exhaustion covers the original article, not the right to make new patented components); RISK ASSESSMENT FOR AFTERMARKET BUSINESSES: identify whether the original product sale was authorized (authorized licensee sale = exhaustion; unauthorized sale = no exhaustion); identify which patents cover the product vs. which cover the component you are supplying; determine if your activities are repair (one component in an intact combination) or reconstruction (rebuilding the whole); analyze whether the manufacturer's replacement part is separately patented; BUSINESS PRACTICES: buy-back and refurbishment programs can operate under exhaustion; clearly document that original products were sold with patent owner's authorization; avoid contractual restrictions on refurbishment in supply chain contracts; 3D PRINTING AFTERMARKET: 3D printing replacement parts is increasingly feasible; if the replacement part is patented, 3D printing it is infringement; if only the combination is patented, and the replacement part is unpatented, 3D printing for repair may be permissible (Aro); RIGHT-TO-REPAIR LAWS: state right-to-repair laws (Massachusetts; California in progress; others) limit manufacturer ability to restrict repair even beyond patent exhaustion.