Patent Exhaustion and Federalism: A Historical Note

This essay, written as a response to John F. Duffy and Richard Hynes, Statutory Domain and the Commercial Law of Intellectual Property, 102 VA. L. REV. 1 (2016), argues that the patent exhaustion (first sale) doctrine developed as a creature of federalism, intended to divide the line between the law of patents, which by that time had become exclusively federal, and the law of patented things, which were governed by the states. Late nineteenth and early twentieth century courts were explicit on the point, in decisions stretching from the 1850s well into the twentieth century.By the second half of the nineteenth century it was clear that federal supremacy controlled patent law, including patent infringement suits. The problem with the post-sale licensing restrictions that the patent exhaustion doctrine precluded is that enforcement of such restrictions via patent infringement suits would have applied federal supremacy so as to protect a set of practices (resale price maintenance, tying, and exclusive dealing) that state antitrust laws were just beginning to engage and often condemn. For example, if a tying or RPM restriction could be enforced via a patent infringement suit, the result would have been to preempt inconsistent state law declaring such practices anticompetitive. That was precisely the outcome that the Supreme Court reached in its Henry v. A.B. Dick decision in 1912, and that provoked Congress’ almost immediate reaction in passage of the Clayton Act