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Sale to Corporate Affiliate Sufficient to Exhaust Patent Rights

On November 19, 2015, District Judge Denise Cote granted plaintiffs Canon Inc.’s and Canon U.S.A., Inc.’s (“Canon USA”) motion for summary judgment, holding that (i) because Canon Inc. was retroactively licensed under the asserted patents for certain products (“Océ printers”), it could similarly grant a retroactive sublicense for use of this technology to its corporate subsidiary Canon USA; and (ii) Canon USA’s sale of the Océ printers to its corporate affiliate Canon Solutions America, Inc. (“CSA”) exhausted the defendants’ patent rights, rendering CSA’s offer to sell the Océ printers a non-infringing act.

The dispute stems from a license agreement (“Agreement”) entered between Tesseron Ltd. (“Tesseron”) and Canon Inc. in January 2006, which granted Canon Inc. a “fully paid-up, non-exclusive license . . . to sell . . . import . . . and/or otherwise dispose of” products covered by Tesseron’s patents.  This agreement was retroactive and included the right to sublicense to any of Canon Inc.’s current or future affiliates, but expressly carved out any future affiliate who was a “major competitor” of Tesseron as of the effective date of the Agreement (December 31, 2005).  One of these “major competitors” was Océ North America Inc., which would later be acquired by Canon Inc. and restructured into CSA in 2013.

In 2013, CSA began selling Océ printers that were alleged to be covered by the patents previously licensed by Tesseron.  Consequently, in January 2014, Industrial Print Technologies L.L.C. (“IPT”), the then-owner of the patents, sued Canon USA and Canon Inc. for patent infringement.  IPT reasoned that the license to Canon Inc. did not extend to the sale of Océ printers by CSA.  Canon Inc. moved for summary judgment, arguing (i) that Canon USA had a right to sell Océ printers to CSA because Canon Inc. granted Canon USA a license to do so retroactive to December 31, 2005; and (ii) that according to the doctrine of patent exhaustion, any infringement case against CSA was precluded by Canon USA’s first sale of the products to CSA.  The defendants opposed the motion, arguing (i) that the sublicense, being retroactive, was invalid as a matter of patent law; and (ii) that the exhaustion doctrine did not apply to the offers for sale made by CSA that occurred before Canon USA actually sold the products to CSA.

The court agreed with Canon Inc. and Canon USA.  In doing so, the Court rejected the defendants’ argument that retroactive licenses were invalid.  While the Court agreed that retroactive licenses may be invalid in situations where a patent has co-owners, the Court distinguished the present case as an example of a retroactive license where there was a sole patent owner (Tesseron) and a licensee (Canon Inc.).  In this case, since the original license between Tesseron and Canon Inc. was retroactive, there was the nothing to limit Canon Inc’s sublicensing to Canon USA on similar terms.

On whether CSA’s pre-purchase “offers for sale” infringed, the Court held that since CSA’s offers for sale were concerning printers purchased from the licensed entity Canon USA, the  offers for sale were offers to sell “non-infringing printers” (emphasis in original), where defendant’s patent rights had already been exhausted.  The offers for sale were therefore not acts of infringement.

Case: Canon Inc., et al. v. Tesseron Ltd., et al., No. 14-CV-5462 (DLC), 2015 BL 380978 (S.D.N.Y. Nov. 19, 2015)

-By Ryan Mott and Lewis Popovski