The Damaging Myth of Patent Exhaustion
67 Pages Posted: 29 Jan 2021
Date Written: December 9, 2020
Patent exhaustion enjoys a reputation as a well-established doctrine of “over 160 years” with a further “impeccable historic pedigree” reaching back to Lord Coke’s seventeenth century property writings. The doctrine allows purchasers of patented goods to use those items according to common expectations without obtaining a further license. Its impact is both widespread and hotly debated in our technology-based economy where innovative product distribution models are constantly introduced. But the doctrine’s historical reputation is not well deserved. In fact, the modern account of the doctrine’s origin is both thin and demonstrably wrong—it is based on selective quotes from Coke’s annotation of a real property treatise and Chief Justice Taney’s dicta from a mid-nineteenth century opinion, both of which are taken out of context and do not support any sweeping rule of exhaustion.
The Supreme Court’s recent embrace of that modern account is not merely bad history; it also misses the serious implications that the revisionist history could have for central contract and property law mechanisms, including conditions precedent and subsequent. Either patentees have powerful work-arounds for a purported bright line exhaustion rule through the contractual clauses that maintain reversionary interests, or the common law of property and contract have suffered serious collateral damage in service of a historical myth. This Article introduces extensive original research on the history both of the rule against restraints on alienation of property and of “patent exhaustion” to argue that—contrary to the dominant modern account—certain restrictions on the use of purchased (patented) goods based on conditional transfers of property title have been carefully preserved by courts.
This is a revised version of 'Origins of Patent Exhaustion: Jacksonian Politics, ‘Patent Farming,’ and the Basis of the Bargain' found at https://ssrn.com/abstract=2920738.
Keywords: patent exhaustion, patent, antitrust, monopoly, licensing, legal history, transactions, franchising, contracts, property
JEL Classification: K11, K12, K21,
Suggested Citation: Suggested Citation