Supreme Court of the United States to Hear Oral Arguments in Patent Exhaustion Case

On March 21, 2017, the Supreme Court of the United States will hear oral arguments for the case of Impression Products, Inc. v. Lexmark International, Inc. The Court will decide: (i) whether the patent exhaustion doctrine applies in instances where a patented article is sold by the patent holder subject to a lawful and clearly communicated post-sale restriction; and (ii) whether the foreign sale of a U.S. patented article, authorized by the patent holder, exhausts the patent holder’s U.S. patent rights in that article.

Background

Lexmark makes and sells single-use and unlimited-use toner cartridges for its printers. Lexmark sells the single-use toner cartridges pursuant to a sales agreement that prohibits the reuse and resale of the single-use cartridges by the purchaser after the toner has run out. The cartridges at issue in this case are the single-use cartridges sold by Lexmark in the U.S. and the single-use and unlimited-use cartridges sold by Lexmark outside the U.S. These cartridges, once spent, were acquired by remanufacturers who refurbished the spent cartridges and then sold them to resellers, including Impression. Impression then resold the refurbished Lexmark cartridges in the U.S. in competition with new and refurbished cartridges sold by Lexmark.

Lexmark sued Impression in the U.S. District Court for the Southern District of Ohio for patent infringement alleging that Impression’s sale of the refurbished Lexmark cartridges in the U.S. infringed Lexmark’s U.S. patents. Impression argued that the first authorized sale by a patent holder of a patented article, anywhere in the world, exhausts the patent holder’s right in that article, even when the patented article is sold subject to a lawful and clearly communicated post-sale restriction. Thus, according to Impression, the first authorized sale of a patented article gives the purchaser, or any subsequent purchaser, the right to use or sell the purchased article without restriction.

The Decision of the District Court

The District Court held that post-sale restrictions do not prevent exhaustion of U.S. patent rights and, thus, granted Impression’s motion to dismiss Lexmark’s infringement claim involving the domestically sold single-use cartridges. With respect to the cartridges Lexmark sold outside the U.S., the District Court held that foreign sales of U.S. patented articles do not exhaust U.S. patent rights. The District Court then denied Impression’s motion to dismiss Lexmark’s infringement claim involving the foreign sold cartridges. Lexmark and Impression both filed appeals before the U.S. Court of Appeals for the Federal Circuit.

The Decision of the U.S. Court of Appeals for the Federal Circuit

With respect to the domestically sold single-use cartridges, the U.S. Court of Appeals reaffirmed its holding in Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that the patent exhaustion doctrine does not apply to sales that are subject to single-use and/or no-resale restrictions that are lawful and clearly communicated to the purchaser. Thus, Impression’s sale of the domestically sold single-use cartridges in the U.S. infringed Lexmark’s patents.

With respect to the foreign sold cartridges, the U.S. Court of Appeals reaffirmed its holding in Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), that “a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority.” Thus, Impression’s importation and sale of the foreign sold cartridges infringed Lexmark’s patents.

On March 21, 2016, Impression filed a certiorari petition in the Supreme Court of the United States, and on December 2, 2016, the Supreme Court granted certiorari.

The Supreme Court

1.  Post-Sale Restrictions

In deciding this case, the Supreme Court will determine whether Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) overruled Mallinckrodt, and, thus, whether a patent holder may invoke patent law to enforce post-sale restrictions. In its petition for certiorari, Impression argues that Quanta overruled Mallinckrodt when the Supreme Court explained that “[t]he authorized sale of an article that substantially embodies the patent holder’s rights and prevents the patent holder from invoking patent law to control postsale use of the article.” 553 U.S. at 638. Impression also argues that, while a patent holder may grant restrictive licenses, it may not make restrictive sales. A patent holder, according to Impression, may retain rights by placing restrictions on the scope of the license grant, but not retain rights by sale. Lexmark, on the other hand, argues that Quanta did not overrule Mallinckrodt because Quanta did not involve a patent holder’s sale that was subject to a single-use/no-resale restriction. Instead, Lexmark argues, Quanta involved sales of patented articles by a licensee pursuant to a license agreement that did not require the licensee to sell the patented articles subject to any post-sale restrictions.

2.  International Exhaustion

The Supreme Court will also determine whether Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013) overruled Jazz Photo, and, thus, whether a foreign sale of a patented article exhausts the patent holder’s U.S. patent rights in that article. In Kirtsaeng, the Supreme Court held that foreign sales of copyrighted items exhaust the copyright holder’s rights in that item. In its petition for certiorari, Impression argues that the Supreme Court should extend the principles of Kirtsaeng to the doctrine of patent exhaustion. Lexmark, on the other hand, argues that Kirtsaeng did not resolve the question regarding foreign sold articles because Kirtsaeng was simply an interpretation of § 109(a) of the Copyright Act and the Patent Act does not have a similar provision. In addition, Lexmark argues that Kirtsaeng has no bearing on the foreign exhaustion question presented by the Patent Act because there are significant differences between the Copyright Act and the Patent Act. For instance, the Patent Act prohibits the sale or importation of a patented article without the authority of the patent holder, while § 109(a) of the Copyright Act provides that owners of copies of copyrighted works lawfully made under the Copyright Act do not need the authority of the copyright holder to sell or import such copies.

The Author

Nancy L. Urizar, Ph.D.

Nancy L. Urizar, Ph.D. is an associate in Womble Carlyle’s Intellectual Property Transactions Group. She advises clients on a variety of intellectual property matters, including in connection with the acquisition, development, licensing and sale of intellectual property in the biotechnology, biologics, pharmaceutical, life sciences and agricultural biology industries. - See more at: http://www.wcsr.com/Professionals/Lawyer-Bios/Urizar-PhD-Nancy-L#sthash.rTGpoted.dpuf

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Discuss this

There are currently 2 Comments comments.

  1. Predictor March 19, 2017 1:34 pm

    The Court will rule consistent with the Duffy/Hynes brief: http://www.scotusblog.com/wp-content/uploads/2017/02/15-1189_amicus_np_prof_duffy.pdf

  2. step back March 21, 2017 10:41 am

    Oh good. Another day to hear slippery weasel words from them who don’t like inventors too much.

    My prediction: the “exclusive rights” mentioned in Article 1, section 8, clause 8 of the US Constitution will not be mentioned.