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The Patent Exhaustion Doctrine Is A Defense, Not A Cause Of Action Providing Jurisdiction

Client Alert | 1 min read | 09.24.08

In ExcelStor Technology, Inc. v. Papst Licensing GmbH & Co., KG (No. 2008-1140; Sept. 16. 2008), ExcelStor sued Papst in federal court on breach of contract and fraud claims. In an attempt to avoid being sent to the state courts, ExcelStor amended its complaint to add claims which included citations to federal patent law, including a claim that Papst has violated the "Patent/Exhaustion/First Sale doctrine" by collecting two royalties from the sale of the same patented computer component (ExcelStor had alleged Papst was receiving royalty payments from both ExcelStor and from one of ExcelStor's customers under a separate license agreement). The district court determined that the mere citation to federal patent laws did not cause ExcelStor's claims to "arise under the patent laws," and thus dismissed the complaint for lack of subject matter jurisdiction.

The Federal Circuit affirms the dismissal, noting that ExcelStor's complaint "fundamentally misunderstands the nature of the patent exhaustion doctrine." The Court reviews the two requirements for federal patent jurisdiction, i.e., that: (i) a claim must be based on a federal patent law which creates a cause of action, or (ii) the plaintiff's right to relief must necessarily depend on resolution of a substantial question of patent law. Citing caselaw for the well-established notion that patent exhaustion is not a cause of action, but a defense to infringement which prohibits patent holders from selling an article and then "invoking patent law to control postsale use of the article," the Court states that ExcelStor's claim failed to meet the jurisdiction tests because (i) there is no federal law creating a cause of action for collection of multiple royalties, and (ii) the patent exhaustion defense does not create a right for relief for ExcelStor against Papst. Noting that ExcelStor may have state law contract or fraud claims if collection of two royalties violated the terms of any license agreements, the Federal Circuit panel rejects ExcelStor's attempt to stay in a federal court.

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Client Alert | 6 min read | 03.26.24

California Office of Health Care Affordability Notice Requirement for Material Change Transactions Closing on or After April 1, 2024

Starting next week, on April 1st, health care entities in California closing “material change transactions” will be required to notify California’s new Office of Health Care Affordability (“OHCA”) and potentially undergo an extensive review process prior to closing. The new review process will impact a broad range of providers, payers, delivery systems, and pharmacy benefit managers with either a current California footprint or a plan to expand into the California market. While health care service plans in California are already subject to an extensive transaction approval process by the Department of Managed Health Care, other health care entities in California have not been required to file notices of transactions historically, and so the notice requirement will have a significant impact on how health care entities need to structure and close deals in California, and the timing on which closing is permitted to occur....