Posts Tagged: "patent exhaustion"

It is that time once again when we look back on the previous year in preparation to close the final chapter of 2017 in order move fresh into the year ahead. 2017 was a busy year in the patent world, although change was not as cataclysmic as it had been in past years, such as 2012 when the PTAB and post grant challenges began, in 2013 when AIA first to file rules went into effect, or in 2014 when the Supreme Court decided Alice v. CLS Bank. It was, nevertheless, still an interesting year… To come up with the list below I’ve reviewed all of our patent articles, and have come up with these top 10 patent stories for 2017. They appear in chronological order as they happened throughout the year.

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.

Even at ground level, where American courts in San Diego and San Jose are now being called on to apply the law laid out in prior court decisions to the particular facts of the smartphone chip market, the multipronged attack on Qualcomm’s patent licensing practices offers an unusually rich platter of meaty issues to feast upon for those who advise patent licensors and licensees. Leaving aside the implications for the smartphone industry and the market for cellular baseband processors that Qualcomm now dominates, the new precedents that will be set in court—if the parties don’t settle or a Republican-controlled FTC doesn’t withdraw its case—will have broad and deep implications for patent owners and users—much as the US v. Microsoft case has had since it was decided almost two decades ago.

Like Lexmark, many technology companies rely on aftermarket revenue streams to fund ongoing investments in research and development needed to remain competitive in hotly contested technology markets. This model is prevalent in the software industry, where customers pay ongoing fees for software support, and in other industries in which manufacturers that sell durable goods offer aftermarket maintenance or service contracts… Without post-sale patent rights, Lexmark and others will need to alter their razors-and-razor-blades business models or adopt different strategies to safeguard the aftermarket revenue upon which they rely to remain competitive in fast-paced technology markets. Contract rights provide one avenue to protect aftermarket revenues, but companies that take this approach should proceed with caution to avoid antitrust liability.

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.

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.

A well-known patent monetization firm jumps back into the brokered patent market in 2016’s fourth quarter. A federal judge in New York allows arguments over whether American movie star Marilyn Monroe has become too generic for any trademark rights to continue. Sony files a patent infringement lawsuit over set-top boxes. Forever 21 files a declaratory judgment action calling Adidas a trademark bully. Cher wins a copyright dismissal over claims her 2013 album cover was infringing. The Supreme Court gears up to hear oral arguments in a case that examines the limits of the patent exhaustion doctrine. Plus a very busy week on Capitol Hill.

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.

In a painfully long decision that at one point analyzed a 1628 statement of Lord Coke as relating to British common-law principles and what light that might shed on modern day patent exhaustion, the Federal Circuit held that when a patentee sells a patented article under otherwise-proper restrictions on resale and reuse communicated to the buyer at the time of sale, the patentee does not confer authority on the buyer to engage in the prohibited resale or reuse. The patentee does not exhaust its rights to charge the buyer who engages in those acts—or downstream buyers having knowledge of the restrictions—with patent infringement. The Federal Circuit also held that a foreign sale of a U.S. patented article, when made by or with the approval of the U.S. patentee, does not exhaust the patentee’s U.S. patent rights in the article sold, even when no reservation of rights accompanies the sale. Loss of U.S. patent rights based on a foreign sale remains a matter of express or implied license.