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Supreme Court to Look at Patent Exhaustion

On December 2, the U.S. Supreme Court granted a writ of certiorari in the case of Impression Products Inc. v. Lexmark International Inc.
December 12, 2016
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By Eric Rakestraw

On December 2, the U.S. Supreme Court granted a writ of certiorari in the case of Impression Products Inc. v. Lexmark International Inc.

The case could have a significant impact on the doctrine of patent exhaustion, which generally provides that a patent owner's exclusive right to use or sell a product becomes “exhausted” upon an authorized sale of that product. The doctrine of patent exhaustion is similar to the first sale doctrine found in copyright law, where certain rights over a copyrighted item are extinguished once the item is sold.

The Supreme Court will consider two issues on appeal. The first is whether foreign sales of a product exhaust a patent owner's right to sue for infringement of a U.S. patent if that product is later imported into the United States. The second issue addresses whether patent owners can restrict the rights of purchasers to resell their patented products.

Facts
Lexmark manufactures printers and toner cartridges, which it sells both in the U.S. and internationally. Lexmark offers toner cartridges under two classifications: (1) regular cartridges, which are sold at full price and carry no restriction on use, and (2) discounted "single-use" cartridges, which purchasers must agree to return to Lexmark after the toner runs out.

Impression Products, the defendant, purchased used Lexmark cartridges from both the United States and abroad, refilled the cartridges with toner, and resold them in the United States. Lexmark brought a patent infringement action against Impression Products, arguing that its patent rights were infringed by: (1) Impression Products' importation and resale of Lexmark cartridges that were originally sold abroad, and (2) Impression Products' resale of single-use cartridges that were originally sold in the United States.

Impression Products did not dispute that it infringed the patents, but argued that Lexmark's patent rights had been exhausted with respect to each group of cartridges.

In February of 2016, the en banc Federal Circuit found in favor of Lexmark on both issues. Lexmark International Inc. v. Impression Products Inc., 816 F.3d 721 (Fed. Cir. 2016). Impression Products filed a petition for a writ of certiorari, which has now been granted by the Supreme Court.

Patent Exhaustion for Foreign Sales
With respect to the first issue, Impression Products has argued that the patent exhaustion doctrine should apply to foreign sales in the same way that it applies to sales within the United States. For support, Impression Products drew an analogy to the Supreme Court's decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), which held that foreign sales exhaust copyrights.

In an amicus brief filed in October, the U.S. government took a position in support of the "presumptive exhaustion" of patent rights following a foreign sale. Under the government's proposed rule, foreign sales would be presumed to exhaust U.S. patent rights, but a patent owner would have the ability to “reserve his U.S. rights as part of a foreign sale if he does so expressly.”

Patent Exhaustion and Post-Sale Restrictions
As for the second issue, Impression Products argued that any sale by the patent owner—even where the contract accompanying the sale includes restrictions on the use or resale of the patented product—is an “authorized sale” that exhausts any patent rights over the items sold.

In its brief, the government agreed with Impression Products' position, and argued that any restrictions imposed after an authorized sale would be enforceable only as a matter of contract law, and not as patent infringement.

Impact on Patent Practice
Patent owners who wish to prevent patented articles sold abroad from being imported into the U.S. should consider making an express declaration at the time of the sale (e.g., a declaration that the sales do not exhaust their U.S. patent rights as to those products). Although this declaration is unnecessary under the current Federal Circuit decision, it would be sufficient to maintain U.S. patent rights if the Supreme Court decides to adopt the position advocated by the U.S. government.

Patent owners who wish to place restrictions on the post-sale use of their patented products should consider structuring those agreements as a matter of state contract law, rather than relying on patent infringement as a way of enforcing restrictions on post-sale activity. Alternatively, patent owners concerned about post-sale activities might consider leasing or licensing the use of their patented articles, rather than making outright sales in which title passes to the purchaser.

The case is Impression Products Inc. v. Lexmark International Inc., case number 15-1189. A decision is expected by June 2017.

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