Approximately one-sixth of all active US patents, including the ones in this case, are smartphone-related.

By: Samuel Henderson
Valparaiso University Law School
Patent Translator and J.D. Candidate, 2016

On February 10th, the Federal Circuit issued its opinion in Helferich Patent Licensing v. New York Times. The Court reversed a 2013 ruling from the Northern District of Illinois that had used the doctrine of patent exhaustion to throw out this controversial smartphone patent infringement suit.

The patents in question, which cover methods of sending text alerts that contain a hyperlink to additional content, will live to fight another day as the case now returns to the Northern District.

The core question in the case boils down to this: if I have separate patents on sending and receiving a certain kind of text message, and I give you a license for receiving those messages, can I still sue the person who sends a message to you?

The district court said no, but the Federal Circuit said yes.

The defendants in the case, led by the New York Times, are a number of prominent national companies that have SMS notification services or apps that send users links to breaking news and updates.

The plaintiff was Helferich Patent Licensing of Chicago. Nearly all makers of cell phones in the United States have purchased licenses from it.

The Federal Circuit’s Judge Richard Taranto wrote for the three-judge panel. (Unlike most federal cases in our region, patent cases go to the Federal Circuit on appeal, rather than the Seventh Circuit.)

The case turned on the question of patent exhaustion. Under the exhaustion doctrine, having once licensed a use of the invention in a product, the patentee can’t sue a subsequent purchaser of that product for infringing the patent. So, as both parties agreed, Helferich couldn’t sue the people using Helferich-licensed smart phones to receive text messages.

But the actual situation in this case was a bit more complex. One set of claims in the Helferich patents (the “handset claims”) covers cell phones that are designed to receive text messages that contain URLs and convert them into links. Another set (the “content claims”) covers the preparation and transmission of text messages that contain the appropriate URLs. Helferich licensed the handset claims to the handset makers, but did not license the content claims.

Despite that distinction, the trial court had ruled that Helferich’s content claims described an invention that was necessary for the devices covered by the handset claims to function properly, and therefore Helferich could not sue for infringement. Helferich had exhausted its rights, the trial court ruled, by licensing the handset claims.

Reversing the trial court, Judge Taranto wrote that not only were the content claims a distinct invention, but patent exhaustion could not apply because—unlike all previous cases in which the courts had found exhaustion—it was not the buyers or users of the handsets who were accused of infringing the content claims. Rather, the defendants were separate third parties who weren’t even using the handsets themselves.

The defendants had argued that the content claims all “required” a handset (in order for the message to be received), but the New York Times could send out text alerts even if nobody on its staff had a handset.

Although patent law is mostly a creature of statute, the doctrine of patent exhaustion is entirely judge-made. As a result, the court was able to indulge in a bit more historical inquiry than usual, reviewing more than 150 years of precedent on the exhaustion doctrine.

In particular, Judge Taranto drew an analogy to a noted 19th century case, Aiken v. Manchester Print Works, that involved two related patents, one on a knitting machine and one on a needle for that machine. In that case, the court held that selling a license to the machine did not exhaust the patent on the needle. The customer could repair the needle that came with the machine, but making a new one would be infringement. Although only a trial court case, Aiken was later cited approvingly by the Supreme Court.

This case, as Judge Taranto noted, was even less friendly to the defendants than Aiken: “[H]ere, it is not even the owner of X but someone else who is using Y, to the indirect benefit of X’s owner.” Without an unprecedented expansion of the exhaustion doctrine, an indirect benefit to the user of one invention could not possibly exhaust the plaintiff’s claims against a different user of a different invention.

This case is a significant win for patent owners. In 2013, the district court decision in this case provoked considerable consternation because it seemed to indicate that patentees could not license different claims separately – that the courts might read a license of one set of claims as barring suits on any related claims, even from entirely different patents against different infringers. The Federal Circuit’s decision restores certainty on that score.

But for Helferich itself, even if the case survives the likely Supreme Court review, the victory may prove Pyrrhic. After the Supreme Court lowered the boom on software patents last year in Alice v. CLS Bank, it is difficult to see how the content claims can survive a proper review for subject-matter eligibility.

And in fact, the New York Times has reportedly filed for reexamination of six of the seven patents at issue in this case.

Thus, the ultimate fate of the Helferich patents will likely be decided not in the Supreme Court or the district court, but in the humble halls of the Patent and Trademark Office.

You can view the docket and selected briefs from Helferich v. New York Times here.