The surprising interaction of open source and patent exhaustion
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Lindberg, Van
When people think of the interaction between patents and open source, the most frequent questions have to do with the existence and scope of patent licenses, either express or implied. However, patent exhaustion may end up being far more impactful than licenses. This discussion will present the results of some recent analysis of the caselaw and discuss some of the unexpected implications of recent patent exhaustion cases. A patent gives its owner the right to exclude others from making, using, and selling the claimed invention. In contrast, FOSS licenses grant broad rights to modify, compile, distribute, and use software. Absent explicit treatment in the license, the patent-related right to exclude and the open-source-granted right to use are at least apparently in tension. One of the ways in which this tension is addressed is through the doctrine of patent exhaustion. An analog to copyright's "first sale" doctrine, any authorized sale of a patented object by a patent owner or a licensee exhausts all patent rights in the product sold, which prohibits a patent owner from enforcing post-sale restrictions through patent infringement suits. It is uncontroversial to say that patent exhaustion applies to FOSS. A patent holder that "sells" a software product, or sells a physical product with with FOSS software embedded, will clearly be subject to patent exhaustion as applied to any downstream customers of the patent holder. But that is not the end of the analysis. What does it mean to "sell" a "product" sufficiently to invoke patent exhaustion? How does that correspond to the normal ways in which organizations typically interact with FOSS? This presentation will quickly go through the essential holdings from five cases, and then present an argument regarding how the holdings of these cases interact with typical FOSS practices in a far more extensive fashion than people may have previously considered. Cases: * Quanta Computer, Inc. v. LG Electronics, Inc. * Impression Products v. Lexmark International * Lifescan Scotland, Ltd. v. Shasta Technologies * Cascades Computer Innovation, LLC v. Samsung Electronics Co. * Intel Corp. v. ULSI System Technology, Inc.
 Howdy everyone. I'm going to start with the obligatory disclaimers. I'm a lawyer. I'm not your lawyer. And this is going to be mostly focused on US law, in fact, entirely focused on US law. And I'm not commenting about anything else. So with all of that out of the way, I want to talk about patent exhaustion. Now, a lot of times when people are talking about the interaction of patents and free software, they really look at licensing. They say, does this particular license have a patent grant? Or is there an implied patent license associated with open source? This has been the subject of almost all of the discussion. And surprisingly, exhaustion, while it has occasionally been mentioned, isn't really the focus of any analysis. I was going through in helping collect all of the primary materials. And I realized that the Supreme Court of the United States has recently had a number of very important decisions regarding patent exhaustion. And I decided to look at these and see, in what way did they interact with free software? And I was surprised. I've been doing this for a very long time. And I was surprised. And so I bet you will be too. Now, one thing, occasionally, people who are motivated to say so will say something like, excuse me, can you explain what patent exhaustion means? I'll get to that in a second. So what? People will say. People will say that patent exhaustion doesn't really exist. This is a quote from an article that was published a little earlier, late last year. I've bolded the quote, permitting one software to be distributed under an OSS license that conveys no patent rights, involves neither the selling of a product nor the licensing of patent, does not implicate patent exhaustion. With all due respect, this is a pile of crap. I'm going to go through, and I'm going to hit you with lots and lots of case law. In each case, I'm going to be quoting the quotes that you will see are all from the appropriate cases. But now I'm going to say, for those who are not intimately familiar with patent law, what's the difference between a patent license and patent exhaustion? And we're going to get into this because there are some distinctions that are going to become important a little later. But you can think of patent in patent law, a patent says that there are rights that people have to make something, to use something, to sell something, to import, whatever. A patent says the patent holder is the only person who is allowed to do take those certain actions. Those are the reserved rights under patent law. It is a transfer. When you give someone a license, you are giving them permission, or at least partial permission, to take one of those actions, and you're promising you won't sue them because of it. Now, the difference is patent exhaustion happens as soon as you take advantage of one of those reserved rights under patent law. As soon as you sell something, as soon as you pass it on, as soon as you make a product, as soon as you put something into the stream of commerce, there's a doctrine that says you're only allowed to profit once from your patent. And so when you've put it into the stream of commerce, your patent is quote unquote exhausted, and you can't sue anybody who's downstream of the authorized, licensed creator, or seller, or distributor for patents. For example, many of you have phones, or computers, or whatever. Can you imagine if you bought those, and then let's say that people came to you and said, hey, you know what, you also need to license my patents or else I'm going to sue you? And you would say, well, that's bullocks. And you would be right, because as soon as you paid them, or even as soon as someone was paid upstream of you, they received their reward, and they're not allowed to try and sue every single person all the way down the line to the end of user. They can only take out, they can only extract a payment once in the entire chain of commerce. Clear as mud, probably not. But I want to talk about this. The thing is that patent exhaustion is not a license. A license is a transfer of rights. It is actually relatively narrow. It is based upon the reserved rights under patent law. Exhaustion takes place any place that you put something in an authorized way into the stream of commerce. So if you learn one thing today, the most important thing is patent exhaustion is not patent licensing. They're completely different. And in some ways, patent exhaustion is much bigger. So what are we going to be talking about? We're going to be talking about some particular cases. These are the cases that I'm going to have quotes from. I will summarize just briefly what each one of these was about. Quantum computer versus LG electronics. There was somebody who was licensed to create software, to put together, I think it was LG, had licensed Intel. You can use our patents, but you can't use them with any non-Intel chips. Quantum went ahead and built a computer with Intel and non-Intel chips. They got sued. The Supreme Court said, you know what? Even though you told them you only gave them this license for Intel versus non-Intel chips, you know what? Patent exhaustion, you can't try and, you're already licensed Intel. Quantum got it from Intel. You can only apply it once. Exhaustion. Impression products versus Lexmark. This was one that just came down recently. This was an interesting one. First of all, it took place overseas, at least in part. So it was about the territoriality of patent law. The second one is, you know that Lexmark, they sell those printers, and they really, really want you to buy their expensive ink. And so they had this idea that we're going to sell you a one-time only ink cartridge that, if you don't return it to us, you're committing patent infringement. And so some people bought it and refilled it and sold it, and they got sued. The Supreme Court said, nope, patent exhaustion. Life Scan Scotland. This is an interesting one. Has nothing to do with technology, well, someone to do with technology, but it was about blood draws and things like that. What's interesting about this one is they were arguing about the meaning of sale. This has been talked about in terms of the sale of a patented product. In this one, they were giving things away. The court said, nope, it doesn't matter how you could put it in the stream of commerce, exhaustion. Cascades computer innovation. This was the only one that's actually directly related to free software. Cascades had licensed Google for certain uses of their patents in the Dalvik virtual machine. Cascades then went and sued some people who took the Android open source project and built their operating systems with it. The court said, nope, exhaustion. And finally, Intel. This was about the ability to have made. And there is a trick on this one that I'll leave till later. So I'm going to hit you with a bunch of principles. Number one, what's the most important thing to learn? Exhaustion is not licensing. This is what I was talking about in terms of everybody has these inherent rights to do these things. We have the right to make you sell. Those are natural rights in our system. The only reason that those are restricted is all is because we have this artificial limitation based upon the patent. But in this case, any time you take one of those actions and put it in the stream of commerce, it is you have exhausted your rights. It is a limitation on the scope of the patent grant. It is completely gone, as it says. There's no more exclusionary right left to enforce. What's the next principle? Well, why is patent exhaustion not licensing? And this is, I think, a very key element when you're thinking about free software. Licenses are about rights. Exhaustion is about goods. Now, you may think, hey, free software, I'm getting a license. I'm getting rights. But when you are given those rights in association with the source code, you're with a good. Because those rights are attached to a good, that's why exhaustion starts to apply. So again, licenses are rights. Exhaustion has to do with goods. Now, I'm going to take for a moment the perspective of some very large patent holders. And they say, they don't like this. And they're going to say, well, what are some things we could do to get around this? Because that's what lawyers are paid for. Let's get around this. This is inconvenient. So what if we said, I am not going to say, you're not allowed to give it to somebody else without telling them that you're infringing on my rights? Well, the Supreme Court said, no, it doesn't matter. It doesn't matter even if you tell them, hey, I've got patents on this and I'm still going to come after you. As long as you have made a sale, you've exhausted the patent rights. And they said, well, what if I particularly, like I gave them notice. I said, really, really, you can't do this. Well, wait, no, sorry, wrong one. OK, what if they said, well, this is good. My patent is on a method. For those who don't know, there are patents to different types of things, methods, systems, compositions, and matter. What if they said, my thing is a method, even though I gave you a good, the method is really when your end user runs the software that my patent is in force. No, again, that doesn't work. Supreme Court said, if the thing that you're doing encompasses and performs the method, it's all basically the same thing. And when you're thinking in the context of free software, the only time patents are really going to apply is when the software does the patented thing. Or else, why are we talking about it at all? Well, what if we said something like, I am going to write my patent claims so that you need to put it on a computer, and I'm only giving you the source code? I didn't give you all the stuff. You can't do the method. You don't have the system. I sell my patent rights. Supreme Court says, this is the notice one. Sorry. I don't have my thing, so I don't remember exactly which order. I'm going to go ahead. OK, well, we'll do it in the order that I put it. This is the one where in the Intel agreement, Intel had to pass forward this notice that said, we still have patent rights. Supreme Court said, nope, you're still exhausted. This is the court made a particularly strong opinion about this. There have been people who have tried to do this in the context of FOS. In particular, there was a Xerox PARC license, which they took the BSD license, and they said, this is the copyright element of this license. By the way, there is no patent license granted associated with this. Those who wish to grant a patent grant list your name at the bottom. You can find this out there. Even if you explicitly say, I am not giving you a patent grant, but you still put something in the stream of commerce, well, hey, it's still exhausted. Now, this gets to this LifeScan Scotland case. What if they said it's free software? And you can see from the quote that I put up earlier, they said, what? You think that this would apply to free software? I mean, there's no sale going on here. Well, in LifeScan Scotland, the court was particularly unimpressed by this argument. He said, you can give something away, and that's exhaust in that exhaust your patent. What you're basically doing is saying, even though we've talked in general about sale, what we're really talking about is entering the stream of commerce. That means you put it into someone's hands in an authorized fashion. At that point, it's exhausted. And what's more, if you have the right to choose what sort of reward you get for giving it to somebody. And if the reward you want is $0, you can't come back and say, we didn't charge enough. And so we want to be able to enforce our, we want to sue you for more money. And in fact, if you think about Jacobson v. Katzer, there said, there is an economic benefit associated with getting your name out and having people use your code. And so the courts have recognized an economic benefit. That's the quid pro quo that people receive for them receiving your code. You've been paid if you choose to release something under open source software. You can't say it's not a sale. It's a no exhaustion. This is the one where, this is the Cascades case where it applied to Google and the Android Open Source project. Now, it wasn't that Google in particular was selling these things. They were simply, they made something free software. And other people were taking it and building on it and doing the things that they would with free software. They tried to say, well, they had a little piece in their license agreement that says, Google, you can only use this for Google products. And Cascades tried to argue, look, this is a Samsung product. This is an LG product. These are other people's products. It's outside the scope of the license. Courts said, no. Remember, as soon as you put something in the stream of commerce, it's exhausted. It's gone. So it doesn't matter that Android and the Android Open Source project, it came from an authorized producer. Therefore, the fact that they chose not to charge money for it, well, it doesn't matter. They got it from an authorized person. They can do what they want. The patent is exhausted. This is the one that I was getting to about this idea of, what if I didn't include all the, if I said, you need a computer? Or you need to do this in the context of a computer system or a network or something like that? Well, the court has come up against people trying to make that argument before. And again, they were unimpressed. Because they said, really, you're selling these chips. This was in the context of these computer chips that were meant to be combined with other chips. They said, the only use for these chips is to connect them together and put them in a computer. So you can't say, well, that last non-inventive little piece of putting it in a computer is really what is keeping this patent from being exhausted. They said, no, as long as the thing that you are putting out there substantially embodies these patent claims, it is exhausted, even if the contemplated effort requires you to put it in a system or put it on a computer or do any of those other things. This was interesting, as they said. Well, what if there's some other way in which you could use this? And the court said, that's a good point. If you have something that is truly dual use, then it is possible that it can be put out there without exhausting the patent. But in this case, the thing that you were giving was had no real other use. And again, if you think about it in the context of free software, if you've got some sort of piece of it that where they say, this embodies these claims, well, then it's not about the use of the software as the whole. It is those specific lines that they're saying, this does our thing. And if these lines don't really have any particular other reason other than to embody this algorithm, well, then that is exhausting. What if they said, oh, jeez, I'm running out of arguments here. What if we, I don't know, what if we told them they had to disable it? Court said, no. Oops. Sorry, I got very excited about this. The court said, no, you can't disable it because disabled code has no use. Therefore, you can't say that you've sold them something useful except that it only is not infringing if you disable all the pieces that give it that use. So this is really starting to look pretty all-encompassing. Now here is the kicker. This is the one where I said, there's a twist. This was an interesting case in which Hewlett-Packard was given a license to make. They were given a license to be a foundry for some certain chips. They were able to manufacture at them and sell them to other people. Another company that did not have a license to the IP. So Intel gave them HP this license. Some other company, ULSI, said, hey, we've designed this chip that does the same thing as Intel's chip. Can you manufacture it for us? HP was like, sure. They took the design, they manufactured, sold it back. And they gave it to them. Intel students said, ULSI is not an authorized person to have designed this thing. They are not a patent licensee. Exhaustion doesn't apply to them because we have never, ever, in our life talked with ULSI. The court said, it doesn't matter. Because it passed through the hands of a company that was authorized under a patent license. Now, when you think about this, what does this mean? Oh, by the way, what if we did it outside the country? Yeah, it's still exhausted. So what if we, the court also said, there's this idea of, you only can allow it under contract, which means that, in theory, you could have a contract that would have some result of people who did certain things. But in the context of a free software license, you've given them the contract. It's a free software license. And it says, you can do anything that you want. So I've only got about five minutes left. But I want to talk about a scenario. Imagine that we had, this isn't true. This is all made up. But I'm going to use some real names just so that you can, so it's a little more concrete. Imagine that Qualcomm made a chip that happened to embody a patent that was owned by AT&T. Now, it wasn't that AT&T and Qualcomm had a deal. It was just they happened to have invented or used the same thing. That happens all the time. Somebody decides, well, that somebody realizes that this chip is embedded in all these phones. And so they happen to go to an AT&T store. And they don't want the phones to join in, to go with AT&T service. They want to crack them open and take these chips, the Qualcomm chips. So they crack them open. They open it up. And they go to a festival. They come to Fosn. They set up an alternative thing. And it turns out that they can make a business out of creating a competitor to AT&T because they took these chips. AT&T finds their patent and sues. Who wins? Well, the person says, your patents are exhausted. AT&T says, look, we didn't license you. Said, I bought it at an AT&T store. Well, Qualcomm didn't have a license. Doesn't matter. I got it from you. Turns out the analysis is no different if it is a piece of software that passes through someone's hands. Now, let me give one big caveat to all of this. Courts are frequently going to try and avoid surprising outcomes. And like I said, this is where it got surprising to me. So it could be that a court says, I'm going to pair this back, and I'm not really good. Even though I see your point, I'm not going to allow this. But we have in the free software community this idea of having mirrors and distributions. And these days, we've got distributed source control where everyone is throwing around copies of the source code willy-nilly. Turns out that, for example, if someone has mirrored a copy of a Linux distribution with its thousands and thousands of patents by this analysis, it passed through their hands, and they became an authorized distributor of it under all of their patents. Makes it so that someone like Microsoft, who just bought GitHub, turns out, it's a very good idea to have a patent code distribution that has passed through Samsung's hands and Intel's hands and AT&T's hands and everybody's. Even incidentally, we can do an end-way merge on all of these, because it's all the same code. We're just figuratively merging all these patent rights and creating a public fact that all this code is exhausted with regard to everybody with whom it has passed through. So I have a question. You talk about exhaustion, which is... Let me give you a microphone. You don't need a microphone, but give me one anyway. So exhaustion, as you described it, and that was my understanding, is based on goods, as in the physical objects. Is there authority for this proposition that exhaustion can apply due to electronic distribution? Software isn't good. And if you want, for example, one of the cases was about Android, exhaustion in Android. And it wasn't included in a phone or in some kind of physical object? It was specifically the Dalvik virtual machine. Right, and it was just downloaded. It wasn't... That is correct. It bodied in a physical thing. That's correct. That was Cascade's computer innovation versus Samsung, I think? In the back. Sorry, I'm still a bit confused about the concept of exhaustion. So does it mean that if you have a patent and you license it to me, does that mean I have the right to use your code and distribute it with a copy left license? Depends on... It means that if I have a patent and I license it to you, then you can distribute it to your neighbor and I can't sue your neighbor. I can't sue you because I've given you a license and I can't sue your neighbor because the patent is exhausted. So when... Does this apply to design patents in the US? I've not done the analysis with regard to design. There's a person way in the back who's had his hand up for a little while. I saw your question, Philippe. We'll get back to you. So there's one case you didn't address here that I think you need to if you're going to do this analysis, which is the Bowman Monsanto self-replicating seed cases. I think that's very relevant to the problem of once the article has been distributed and exhausted, there's a subsequent replication. I agree. That one causes problems with chains of distribution, I think, at least as far as people are... So that is a great point. And here's why I think it's inapposite. The reason why is because that was in particular about a self-replicating item. But in this case, you have to look at the context of what exact... That could create a problem in other contexts. But particularly in the free software context, the software has been passed on with an explicit right to make and to distribute and to pass on the rights for others to make and distribute. That sounds like a license argument. It is a license argument. It means that the first part... It means that the party who receives it under the open source license, the scope of their license included the right to make. The Monsanto said, we may have given you a license to use, but we didn't give you a license to make. Therefore, the self-replication, you can't do. In this case... I think that's one if you're going to present this... To add? Yeah. OK, one last question. So, hypothetical example. Say I have a patent for a video codec. And someone in my company redistributes some piece of software with FFMPEG, which happens to have an implementation of this codec. And just makes the code available like that. That would exhaust my patent 21, which has received FFMPEG? If someone who is an authorized licensee of FFMPEG passes it on with rights for other people to... Under the... If an authorized licensee of the patent passes it on with the rights that are accompanied with every open source right license, I would say that, yes, that gets exhausted. So, for example, by the way, for H2.65 and ABC, if you can find a copy of FFMPEG under DPL from Samsung, they're members of two of the patent pools. OK. I was just going to say, find somebody who is a member of MPEGLA that happens to redistribute Linux or something. Fantastic. Thank you, man. Thank you.
 Howdy everyone.  I'm going to start with the obligatory disclaimers.  I'm a lawyer.  I'm not your lawyer.  And this is going to be mostly focused on US law, in fact,  entirely focused on US law.  And I'm not commenting about anything else.  So with all of that out of the way,  I want to talk about patent exhaustion.  Now, a lot of times when people are  talking about the interaction of patents and free software,  they really look at licensing.  They say, does this particular license have a patent grant?  Or is there an implied patent license  associated with open source?  This has been the subject of almost all of the discussion.  And surprisingly, exhaustion, while it has occasionally  been mentioned, isn't really the focus of any analysis.  I was going through in helping collect  all of the primary materials.  And I realized that the Supreme Court of the United States  has recently had a number of very important decisions  regarding patent exhaustion.  And I decided to look at these and see, in what way did they  interact with free software?  And I was surprised.  I've been doing this for a very long time.  And I was surprised.  And so I bet you will be too.  Now, one thing, occasionally, people  who are motivated to say so will say something like,  excuse me, can you explain what patent exhaustion means?  I'll get to that in a second.  So what?  People will say.  People will say that patent exhaustion doesn't really exist.  This is a quote from an article that  was published a little earlier, late last year.  I've bolded the quote, permitting  one software to be distributed under an OSS license  that conveys no patent rights, involves  neither the selling of a product nor the licensing of patent,  does not implicate patent exhaustion.  With all due respect, this is a pile of crap.  I'm going to go through, and I'm going to hit you  with lots and lots of case law.  In each case, I'm going to be quoting the quotes that you  will see are all from the appropriate cases.  But now I'm going to say, for those who  are not intimately familiar with patent law,  what's the difference between a patent license  and patent exhaustion?  And we're going to get into this because there  are some distinctions that are going  to become important a little later.  But you can think of patent in patent law,  a patent says that there are rights  that people have to make something, to use something,  to sell something, to import, whatever.  A patent says the patent holder is the only person who  is allowed to do take those certain actions.  Those are the reserved rights under patent law.  It is a transfer.  When you give someone a license, you  are giving them permission, or at least partial permission,  to take one of those actions, and you're promising you won't  sue them because of it.  Now, the difference is patent exhaustion  happens as soon as you take advantage of one of those  reserved rights under patent law.  As soon as you sell something, as soon as you pass it on,  as soon as you make a product, as soon as you put something  into the stream of commerce, there's  a doctrine that says you're only allowed to profit once  from your patent.  And so when you've put it into the stream of commerce,  your patent is quote unquote exhausted,  and you can't sue anybody who's downstream  of the authorized, licensed creator, or seller,  or distributor for patents.  For example, many of you have phones, or computers, or whatever.  Can you imagine if you bought those,  and then let's say that people came to you and said, hey,  you know what, you also need to license my patents  or else I'm going to sue you?  And you would say, well, that's bullocks.  And you would be right, because as soon as you paid them,  or even as soon as someone was paid upstream of you,  they received their reward, and they're not allowed to try  and sue every single person all the way down the line  to the end of user.  They can only take out, they can only extract a payment once  in the entire chain of commerce.  Clear as mud, probably not.  But I want to talk about this.  The thing is that patent exhaustion is not a license.  A license is a transfer of rights.  It is actually relatively narrow.  It is based upon the reserved rights under patent law.  Exhaustion takes place any place that you put something  in an authorized way into the stream of commerce.  So if you learn one thing today, the most important thing  is patent exhaustion is not patent licensing.  They're completely different.  And in some ways, patent exhaustion is much bigger.  So what are we going to be talking about?  We're going to be talking about some particular cases.  These are the cases that I'm going to have quotes from.  I will summarize just briefly what  each one of these was about.  Quantum computer versus LG electronics.  There was somebody who was licensed to create software,  to put together, I think it was LG, had licensed Intel.  You can use our patents, but you can't use them  with any non-Intel chips.  Quantum went ahead and built a computer with Intel  and non-Intel chips.  They got sued.  The Supreme Court said, you know what?  Even though you told them you only gave them  this license for Intel versus non-Intel chips, you know what?  Patent exhaustion, you can't try and, you're already licensed  Intel.  Quantum got it from Intel.  You can only apply it once.  Exhaustion.  Impression products versus Lexmark.  This was one that just came down recently.  This was an interesting one.  First of all, it took place overseas, at least in part.  So it was about the territoriality of patent law.  The second one is, you know that Lexmark,  they sell those printers, and they really, really  want you to buy their expensive ink.  And so they had this idea that we're  going to sell you a one-time only ink cartridge that,  if you don't return it to us, you're committing patent  infringement.  And so some people bought it and refilled it and sold it,  and they got sued.  The Supreme Court said, nope, patent exhaustion.  Life Scan Scotland.  This is an interesting one.  Has nothing to do with technology,  well, someone to do with technology,  but it was about blood draws and things like that.  What's interesting about this one is they were arguing  about the meaning of sale.  This has been talked about in terms  of the sale of a patented product.  In this one, they were giving things away.  The court said, nope, it doesn't matter how you could put it  in the stream of commerce, exhaustion.  Cascades computer innovation.  This was the only one that's actually directly  related to free software.  Cascades had licensed Google for certain uses  of their patents in the Dalvik virtual machine.  Cascades then went and sued some people  who took the Android open source project  and built their operating systems with it.  The court said, nope, exhaustion.  And finally, Intel.  This was about the ability to have made.  And there is a trick on this one that I'll leave till later.  So I'm going to hit you with a bunch of principles.  Number one, what's the most important thing to learn?  Exhaustion is not licensing.  This is what I was talking about in terms of everybody  has these inherent rights to do these things.  We have the right to make you sell.  Those are natural rights in our system.  The only reason that those are restricted is all  is because we have this artificial limitation based  upon the patent.  But in this case, any time you take one of those actions  and put it in the stream of commerce,  it is you have exhausted your rights.  It is a limitation on the scope of the patent grant.  It is completely gone, as it says.  There's no more exclusionary right left to enforce.  What's the next principle?  Well, why is patent exhaustion not licensing?  And this is, I think, a very key element  when you're thinking about free software.  Licenses are about rights.  Exhaustion is about goods.  Now, you may think, hey, free software,  I'm getting a license.  I'm getting rights.  But when you are given those rights in association  with the source code, you're with a good.  Because those rights are attached to a good,  that's why exhaustion starts to apply.  So again, licenses are rights.  Exhaustion has to do with goods.  Now, I'm going to take for a moment  the perspective of some very large patent holders.  And they say, they don't like this.  And they're going to say, well, what are some things we could  do to get around this?  Because that's what lawyers are paid for.  Let's get around this.  This is inconvenient.  So what if we said, I am not going to say,  you're not allowed to give it to somebody else  without telling them that you're infringing on my rights?  Well, the Supreme Court said, no, it doesn't matter.  It doesn't matter even if you tell them, hey,  I've got patents on this and I'm still  going to come after you.  As long as you have made a sale, you've exhausted the patent  rights.  And they said, well, what if I particularly,  like I gave them notice.  I said, really, really, you can't do this.  Well, wait, no, sorry, wrong one.  OK, what if they said, well, this is good.  My patent is on a method.  For those who don't know, there are patents  to different types of things, methods, systems,  compositions, and matter.  What if they said, my thing is a method,  even though I gave you a good, the method  is really when your end user runs the software  that my patent is in force.  No, again, that doesn't work.  Supreme Court said, if the thing that you're doing  encompasses and performs the method,  it's all basically the same thing.  And when you're thinking in the context of free software,  the only time patents are really going to apply  is when the software does the patented thing.  Or else, why are we talking about it at all?  Well, what if we said something like,  I am going to write my patent claims  so that you need to put it on a computer,  and I'm only giving you the source code?  I didn't give you all the stuff.  You can't do the method.  You don't have the system.  I sell my patent rights.  Supreme Court says, this is the notice one.  Sorry.  I don't have my thing, so I don't remember  exactly which order.  I'm going to go ahead.  OK, well, we'll do it in the order that I put it.  This is the one where in the Intel agreement,  Intel had to pass forward this notice that said,  we still have patent rights.  Supreme Court said, nope, you're still exhausted.  This is the court made a particularly strong opinion  about this.  There have been people who have tried to do this  in the context of FOS.  In particular, there was a Xerox PARC license,  which they took the BSD license, and they said,  this is the copyright element of this license.  By the way, there is no patent license granted associated  with this.  Those who wish to grant a patent grant  list your name at the bottom.  You can find this out there.  Even if you explicitly say, I am not giving you a patent grant,  but you still put something in the stream of commerce,  well, hey, it's still exhausted.  Now, this gets to this LifeScan Scotland case.  What if they said it's free software?  And you can see from the quote that I put up earlier,  they said, what?  You think that this would apply to free software?  I mean, there's no sale going on here.  Well, in LifeScan Scotland, the court  was particularly unimpressed by this argument.  He said, you can give something away,  and that's exhaust in that exhaust your patent.  What you're basically doing is saying,  even though we've talked in general about sale,  what we're really talking about is entering the stream  of commerce.  That means you put it into someone's hands  in an authorized fashion.  At that point, it's exhausted.  And what's more, if you have the right  to choose what sort of reward you  get for giving it to somebody.  And if the reward you want is $0,  you can't come back and say, we didn't charge enough.  And so we want to be able to enforce our,  we want to sue you for more money.  And in fact, if you think about Jacobson v. Katzer,  there said, there is an economic benefit associated  with getting your name out and having people use your code.  And so the courts have recognized an economic benefit.  That's the quid pro quo that people receive for them  receiving your code.  You've been paid if you choose to release something  under open source software.  You can't say it's not a sale.  It's a no exhaustion.  This is the one where, this is the Cascades case  where it applied to Google and the Android Open Source  project.  Now, it wasn't that Google in particular  was selling these things.  They were simply, they made something free software.  And other people were taking it and building on it  and doing the things that they would with free software.  They tried to say, well, they had a little piece  in their license agreement that says, Google,  you can only use this for Google products.  And Cascades tried to argue, look,  this is a Samsung product.  This is an LG product.  These are other people's products.  It's outside the scope of the license.  Courts said, no.  Remember, as soon as you put something  in the stream of commerce, it's exhausted.  It's gone.  So it doesn't matter that Android and the Android Open Source  project, it came from an authorized producer.  Therefore, the fact that they chose not to charge money for it,  well, it doesn't matter.  They got it from an authorized person.  They can do what they want.  The patent is exhausted.  This is the one that I was getting to about this idea of,  what if I didn't include all the, if I said,  you need a computer?  Or you need to do this in the context of a computer system  or a network or something like that?  Well, the court has come up against people  trying to make that argument before.  And again, they were unimpressed.  Because they said, really, you're selling these chips.  This was in the context of these computer chips  that were meant to be combined with other chips.  They said, the only use for these chips  is to connect them together and put them in a computer.  So you can't say, well, that last non-inventive little piece  of putting it in a computer is really what  is keeping this patent from being exhausted.  They said, no, as long as the thing that you are putting out  there substantially embodies these patent claims,  it is exhausted, even if the contemplated effort requires  you to put it in a system or put it on a computer  or do any of those other things.  This was interesting, as they said.  Well, what if there's some other way in which you could use this?  And the court said, that's a good point.  If you have something that is truly dual use,  then it is possible that it can be put out there  without exhausting the patent.  But in this case, the thing that you were giving  was had no real other use.  And again, if you think about it in the context of free software,  if you've got some sort of piece of it  that where they say, this embodies these claims,  well, then it's not about the use of the software as the whole.  It is those specific lines that they're saying,  this does our thing.  And if these lines don't really have any particular other reason  other than to embody this algorithm,  well, then that is exhausting.  What if they said, oh, jeez, I'm running out of arguments here.  What if we, I don't know, what if we told them  they had to disable it?  Court said, no.  Oops.  Sorry, I got very excited about this.  The court said, no, you can't disable it  because disabled code has no use.  Therefore, you can't say that you've  sold them something useful except that it only is not  infringing if you disable all the pieces that give it that use.  So this is really starting to look pretty all-encompassing.  Now here is the kicker.  This is the one where I said, there's a twist.  This was an interesting case in which Hewlett-Packard  was given a license to make.  They were given a license to be a foundry  for some certain chips.  They were able to manufacture at them  and sell them to other people.  Another company that did not have a license to the IP.  So Intel gave them HP this license.  Some other company, ULSI, said, hey, we've designed this chip  that does the same thing as Intel's chip.  Can you manufacture it for us?  HP was like, sure.  They took the design, they manufactured, sold it back.  And they gave it to them.  Intel students said, ULSI is not an authorized person  to have designed this thing.  They are not a patent licensee.  Exhaustion doesn't apply to them because we have never, ever,  in our life talked with ULSI.  The court said, it doesn't matter.  Because it passed through the hands of a company  that was authorized under a patent license.  Now, when you think about this, what does this mean?  Oh, by the way, what if we did it outside the country?  Yeah, it's still exhausted.  So what if we, the court also said, there's this idea of,  you only can allow it under contract, which means that,  in theory, you could have a contract that  would have some result of people who did certain things.  But in the context of a free software license,  you've given them the contract.  It's a free software license.  And it says, you can do anything that you want.  So I've only got about five minutes left.  But I want to talk about a scenario.  Imagine that we had, this isn't true.  This is all made up.  But I'm going to use some real names just so that you can,  so it's a little more concrete.  Imagine that Qualcomm made a chip that happened to embody  a patent that was owned by AT&T.  Now, it wasn't that AT&T and Qualcomm had a deal.  It was just they happened to have invented or used the same  thing.  That happens all the time.  Somebody decides, well, that somebody realizes that this chip  is embedded in all these phones.  And so they happen to go to an AT&T store.  And they don't want the phones to join in,  to go with AT&T service.  They want to crack them open and take these chips,  the Qualcomm chips.  So they crack them open.  They open it up.  And they go to a festival.  They come to Fosn.  They set up an alternative thing.  And it turns out that they can make a business out  of creating a competitor to AT&T because they took these chips.  AT&T finds their patent and sues.  Who wins?  Well, the person says, your patents are exhausted.  AT&T says, look, we didn't license you.  Said, I bought it at an AT&T store.  Well, Qualcomm didn't have a license.  Doesn't matter.  I got it from you.  Turns out the analysis is no different if it is a piece of  software that passes through someone's hands.  Now, let me give one big caveat to all of this.  Courts are frequently going to try and avoid surprising  outcomes.  And like I said, this is where it got surprising to me.  So it could be that a court says, I'm going to pair this  back, and I'm not really good.  Even though I see your point, I'm not going to allow this.  But we have in the free software community this idea of  having mirrors and distributions.  And these days, we've got distributed source control  where everyone is throwing around copies of the source  code willy-nilly.  Turns out that, for example, if someone has mirrored a copy  of a Linux distribution with its thousands and thousands of  patents by this analysis, it passed through their hands,  and they became an authorized distributor of it under all of  their patents.  Makes it so that someone like Microsoft, who just bought  GitHub, turns out, it's a very good idea to have a  patent code distribution that has passed through Samsung's  hands and Intel's hands and AT&T's hands and everybody's.  Even incidentally, we can do an end-way merge on all of  these, because it's all the same code.  We're just figuratively merging all these patent rights and  creating a public fact that all this code is exhausted with  regard to everybody with whom it has passed through.  So I have a question.  You talk about exhaustion, which is...  Let me give you a microphone.  You don't need a microphone, but give me one anyway.  So exhaustion, as you described it, and that was my  understanding, is based on goods, as in the physical  objects.  Is there authority for this proposition that exhaustion can  apply due to electronic distribution?  Software isn't good.  And if you want, for example, one of the cases was about  Android, exhaustion in Android.  And it wasn't included in a phone or in some kind of  physical object?  It was specifically the Dalvik virtual machine.  Right, and it was just downloaded.  It wasn't...  That is correct.  It bodied in a physical thing.  That's correct.  That was Cascade's computer innovation versus Samsung, I  think?  In the back.  Sorry, I'm still a bit confused about the concept of  exhaustion.  So does it mean that if you have a patent and you license  it to me, does that mean I have the right to use your code  and distribute it with a copy left license?  Depends on...  It means that if I have a patent and I license it to you,  then you can distribute it to your neighbor and I can't  sue your neighbor.  I can't sue you because I've given you a license and I  can't sue your neighbor because the patent is exhausted.  So when...  Does this apply to design patents in the US?  I've not done the analysis with regard to design.  There's a person way in the back who's had his hand up for  a little while.  I saw your question, Philippe.  We'll get back to you.  So there's one case you didn't address here that I think  you need to if you're going to do this analysis, which is  the Bowman Monsanto self-replicating seed cases.  I think that's very relevant to the problem of once the  article has been distributed and exhausted, there's a  subsequent replication.  I agree.  That one causes problems with chains of distribution, I think,  at least as far as people are...  So that is a great point.  And here's why I think it's inapposite.  The reason why is because that was in particular about a  self-replicating item.  But in this case, you have to look at the context of what  exact...  That could create a problem in other contexts.  But particularly in the free software context, the software  has been passed on with an explicit right to make and to  distribute and to pass on the rights for others to make and  distribute.  That sounds like a license argument.  It is a license argument.  It means that the first part...  It means that the party who receives it under the open  source license, the scope of their license included the  right to make.  The Monsanto said, we may have given you a license to use,  but we didn't give you a license to make.  Therefore, the self-replication, you can't do.  In this case...  I think that's one if you're going to present this...  To add?  Yeah.  OK, one last question.  So, hypothetical example.  Say I have a patent for a video codec.  And someone in my company redistributes some piece of  software with FFMPEG, which happens to have an  implementation of this codec.  And just makes the code available like that.  That would exhaust my patent 21, which has received FFMPEG?  If someone who is an authorized licensee of FFMPEG passes it  on with rights for other people to...  Under the...  If an authorized licensee of the patent passes it on with  the rights that are accompanied with every open source  right license, I would say that, yes, that gets exhausted.  So, for example, by the way, for H2.65 and ABC, if you can  find a copy of FFMPEG under DPL from Samsung, they're  members of two of the patent pools.  OK.  I was just going to say, find somebody who is a member of  MPEGLA that happens to redistribute Linux or something.  Fantastic.  Thank you, man.  Thank you.
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