Posts Tagged: "exhaustion"

Licensing a product instead of selling it may also be a tool for avoiding international patent exhaustion. It is common to distribute software via license, and this might avoid international exhaustion, although it will not work for all products. For example, licensing a drug makes little sense. However, re-importation of a drug would be regulated by the FDA, and the conditions and chain of control of drugs might mitigate some of the international exhaustion issues there. As such, many companies are evaluating the extent of the decision on international exhaustion and how it affects their industries. Since companies have thousands of contracts already in place and the parties will have to reevaluate their positions going forward, this is causing mass confusion and restructuring of contracts and relationships.

Bob Stoll: ”And it is the international exhaustion holding that is particularly troubling. Sales abroad act independently from the US patent system and there is no impact from the US patent system on those sales. Yet in this decision, the Supreme Court says that the foreign sale now diminishes patent rights in the US. All sorts of goods, including life-saving pharmaceuticals, are sold at lower prices in poor nations. This decision will encourage powerful foreign groups to gather products up and send them back to the US to get the higher prices. Or, companies will not be able to lower prices and sell their products in those countries. Both the poor in distant lands and the innovators in the US will suffer.”

The Supreme Court determined that when a patent owner sells a product the sale exhausted patent rights in the item being sold regardless of any restrictions the patentee attempts to impose on the location of the sale. In other words, a sale of a patented product exhausts all rights — both domestic and international… Notably, the Supreme Court rejected the Government’s international exhaustion compromise, which would have been to recognize that a foreign sale exhausts patent rights unless those rights are expressly reserved. The Supreme Court found this to be nothing more than public policy, focusing on the expectations between buyer and seller rather than on the transfer of patent rights as required by the patent exhaustion doctrine.

On Tuesday, March 21st, the U.S. Supreme Court heard oral arguments in Impression Products, Inc. v. Lexmark International, Inc. The case surrounding the sale and resale of printer ink cartridges will require the Supreme Court to decide whether U.S. law surrounding patent exhaustion allows post-sale restrictions and if sales of a patented article outside of the U.S. exhausts the U.S. patent rights in that article… Arguing on behalf of petitioner Impression Products was Andrew Pincus who led off by noting that the first sale doctrine, in which an initial authorized sale of a patented item terminates all patent rights to that item, was a principle that goes all the way back to the 15th century… Appearing next in oral arguments was deputy U.S. solicitor general Malcolm L. Stewart supporting reversal in part and vacatur in part… Following Stewart was Constantine Trela, arguing on behalf of respondent Lexmark International. Trela agreed with the government in a limited sense in that the Federal Circuit properly looked to the statute to find origins and limits on the exhaustion doctrine.

The Federal Circuit took the case en banc to review the applicability of the patent exhaustion doctrine under Mallinckrodt and Jazz Photo, in view of the Supreme Court’s decisions in Quanta and Kirtsaeng. The Federal Circuit affirmed the holdings in Mallinckrodt and Jazz Photo, and distinguished them from the Supreme Court’s decisions. In Quanta, the Supreme Court was reviewing whether a patentee’s rights in a product were exhausted by a licensee’s sale of a product.