United States: The En Banc Federal Circuit Holds That Patent Rights Are Not Exhausted By Prior Restricted Sales Or By Foreign Sales

On February 12, 2016, in a 10-2 decision, the en banc Federal Circuit ruled on two major issues related to patent exhaustion, a doctrine allowing purchasers of goods embodying patented inventions in authorized sales to make certain uses, including resales, that would otherwise give rise to patent infringement. Lexmark Int’l, Inc. v. Impression Prods., Inc., No. 2014-1617 (Fed. Cir. Feb. 12, 2016) (en banc). The majority opinion 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” and thus “does not exhaust its § 271 rights to charge the buyer who engages in those acts—or downstream buyers having knowledge of the restrictions—with infringement.” The court 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.”

Lexmark embraces a very strong view of patent rights and a narrow view of the scope of exhaustion. It affirms that patent holders have wide latitude to segment and control distribution in the market channels for products covered by patents. This latitude is particularly wide with respect to limiting the import into the United States of patented goods sold in authorized sales in foreign markets even where restrictions on resale were not proven to have been communicated to foreign buyers. Even so, the court left open the possibility that foreign sales, under the right circumstances, may incorporate an implied license to import and use the product within the United States.

The majority opinion, written by Judge Taranto, and the dissenting opinion, written by Judge Dyk and joined by Judge Hughes, totals approximately 130 page and underscores the significance of the issues at stake. Suffice it to say that a detailed summary and complete analysis are beyond the scope of this short note. Whether one agrees with it or not, the majority opinion is a tour de force in its analysis and dissection of relevant precedent. Although it’s likely that Supreme Court review will be sought, it’s not entirely clear whether the Court will disturb the Federal Circuit’s rulings. So, stay tuned for further developments.

Restricted Sales in the U.S. Do Not Exhaust Patent Rights

When the Federal Circuit sua sponte granted en banc review, one of the two issues it addressed was whether the court should overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), which held that a restricted, lawful sale of a patented article does not give rise to patent exhaustion. Now, the full court has reaffirmed that holding. The majority methodically addressed each argument raised by the opponents of Mallinckrodt.

First, the court disposed of the Mallinckrodt issue as it had been framed. The United States, as amicus, posited that the issue turned on the distinction between an authorized sale by a patent owner versus an authorized sale by a licensee. The government had argued that patent rights are exhausted if the sale is by the patent owner, but not exhausted if the sale is by a licensee.

Rejecting the government’s argument, the court held that a “sale made under a clearly communicated, otherwise-lawful restriction as to post-sale use or resale does not confer on the buyer and a subsequent purchaser the ‘authority’ to engage in the use or resale that the restriction precludes.” Slip op. at 25. As the court explained, the Supreme Court had held that “a patentee can preserve its patent rights by authorizing a manufacturing licensee to make and sell a patented article under an otherwise-proper restriction, including a restriction on the buyer’s post-purchase use,” relying on General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175, op. on rehearing at 305 U.S. 124 (1938). And the Federal Circuit concluded that neither the statutory framework (35 U.S.C. §§ 154 and 271) nor any policy arguments provided any basis for making a distinction between patentee sales versus licensee sales. In fact, as the Federal Circuit majority noted, under the government’s theory, “[n]on-practicing entities would have greater power to maintain their patent rights than practicing entities.” Slip op. at 42.

The Federal Circuit also rejected the argument that Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) effectively overturned Mallinckrodt. The court concluded that:

Quanta did not involve the issue presented here. The facts defining the issues for decision, and the issues decided, were at least two steps removed from the present case. There were no patentee sales, and there were no restrictions on the sales made by the licensee. . . . . The two main issues decided by the Court in Quanta have no bearing on the issue of restricted sales by a patentee. The Court decided that exhaustion applies to method claims. . . . And the Court decided ‘the extent to which a product must embody a patent in order to trigger exhaustion.’ . . . . Only the third issue addressed by the Court in Quanta concerns restrictions on sales—though not patentees’ sales—and the Court’s discussion of that issue does not undermine Mallinckrodt’s ruling that a patentee can preserve its patent rights through restrictions on its sales.

Slip. op. at 29–30. Moreover, in the Federal Circuit’s view, “[i]nferring disapproval of Mallinckrodt by the Supreme Court in Quanta is unwarranted” because the Court said nothing about Mallinckrodt or its successor case B. Braun Medical even though, in Quanta, “the government prominently featured an argument that Mallinckrodt was incorrect and should be repudiated.” Slip. op. at 30.

These observations set the stage for the core of the court’s analysis. Quanta had formulated the exhaustion doctrine as follows: “The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008); see also Bowman v. Monsanto Co., 133 S. Ct. 1761, 1764 (2013) (“Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article.”). What does “authorized sale” mean? Those who maintained that Mallinckrodt should be limited, if not overturned, argued that a sale by a patentee was, by the mere act of the sale, authorized and so triggered exhaustion, permitting resales even in the face of a restriction unilaterally imposed by the patentee and known to the purchaser. The argument distinguished licenses, for there the licensor patentee would contractually define the ambit of authorization in the scope of the license, making sales outside of scope unauthorized.

The Federal Circuit firmly rejected this argument, concluding “that a patentee may preserve its § 271 rights when itself selling a patented article, through clearly communicated, otherwise-lawful restrictions, as it may do when contracting out the manufacturing and sale.” Slip op. at 38. Parsing Quanta, Bowman, and other Supreme Court articulations of the exhaustion doctrine, the majority found that such precedents did not require the interpretation advanced by the government or Impressions. In fact, the majority maintained that its conclusion “follows naturally from the statute.” Under the controlling language of “without authority,” reasoning that “a clear denial of authority leaves a buyer without the denied authority.” Id. at 38. While, in the court’s view, “[t]he exhaustion rule for unrestricted sales readily fits the language of § 271(a),” (emphasis in original), “it is quite a different matter to treat a sale as conferring on the buyer the very authority that is being denied through clearly communicated restrictions.” Id. at 38. Further, according to the majority the “essential tradeoff of the patent system—to provide a market-based reward in exchange for disclosure—is equally applicable whether the patentee sells or licenses another to make and sell.” Id. at 42. In addition, the majority warned that the “proposed distinction would also introduce practical problems. Where would the line be drawn along the spectrum from original patentees to assignees (e.g., regional assignees) to exclusive licensees (exclusivity being possible as to some but not all of the § 154 rights) to nonexclusive licensees?” Id. at 43.

Finally, the majority rejected any contention that antitrust law or “Lord Coke’s description of English general personal-property judge-made law” mandates a contrary conclusion. Similarly, the court considered the pragmatic “real-world consequences” and concluded that there was “no basis for predicting the extreme, lop-sided impacts the Court found plausible” in the copyright context of Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013). Rather, the court recognized the benefits of the sales restrictions here, in which Lexmark had “a plausible legitimate interest in not having strangers modify its products and introduce them into the market with the quality of modifications (including ink refills) not subject to Lexmark’s control: lower quality of remanufactured cartridges could harm Lexmark’s reputation.” Slip op. at 56–57. Though this almost sounds like a goodwill protection basis for enforcing restrictions to trigger infringement liability, the Federal Circuit maintained that reputational and similar “interests are hardly unrelated to the interests protected by the patent law—the interests both of those who benefit from inventions and of those who make risky investments to arrive at and commercialize inventions, trademark or goodwill” Slip op. at 57. Since Impression had not “claimed that the restrictions at issue violate antitrust, patent-misuse, or similar constraints” that would invalidate the restrictions, those restrictions could be given effect.>1

In dissent, Judge Dyk “agree[d] with the government that Mallinckrodt was wrong when decided, and in any event cannot be reconciled with the Supreme Court’s recent decision” in Quanta. Dissenting op. at 2. He also noted that “[p]ost-sale restrictions were enforceable only as a matter of state contract law.” Id. at 5. Reviewing the same Supreme Court precedent as that majority, as well as additional cases, Judge Dyk concluded that “The rule articulated in the Supreme Court’s cases is consistent with the common law rule against restraints on the use or alienation of chattels.” Id. at 12.

A Foreign Sale, Even Without Restrictions, Does Not Exhaust U.S. Patent Rights

The second issue addressed by the en banc court was whether a foreign sale, made without any communication of a reservation of U.S. patent rights, triggers patent exhaustion, and whether to overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), in view of the copyright case Kirtsaeng. The court held no:

[W]e adhere to the holding of Jazz Photo . . . 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. Jazz Photo’s no exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold . . . . We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng . . . , in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.

Slip op. at 8-9.

More importantly, the court recognized the market-based reasons for rejecting a foreign-exhaustion rule. “The statute gives patentees the reward available from American markets,” the court explained, and “[a] patentee cannot reasonably be treated as receiving that reward from sales in foreign markets.” Slip op. at 71. The court recognized that “American markets differ substantially from markets in other countries,” due in part to disparities in wealth and policies on market regulation and patent protection. Id. at 73-76. “For those reasons, a foreign sale, standing alone, is not reasonably viewed as providing the U.S. patentee the reward guaranteed by U.S. patent law.” Id. at 76.

Continuing its analysis, the majority turned to Supreme Court and appellate precedent. Only one case, Boesch v. Graff, 133 U.S. 697 (1890), directly addressed the question and held that U.S. patent rights are not exhausted by a foreign sale. The Federal Circuit recognized that the ruling did not “preclude an accused infringer from establishing that the U.S. patentee actually gave it a license, expressly or by implication.” Slip op. at 78–79.

Additionally, the fact that “Congress did act in three specific instances formally to guarantee a U.S. patentee the right to retain its U.S. rights despite selling abroad” was further evidence that U.S. rights are not exhausted by a foreign sale. Slip op. at 82. The majority cited Congress’ decisions in passing TRIPS, the related international agreement, and the more recent Trans Pacific Partnership. Id.

The majority also detailed the likely real-world consequences of maintaining the rule in Jazz Photo. The court observed that “[o]verturning Jazz Photo would plausibly cause significant disruption of existing practices adopted under the contrary law established by Jazz Photo and decades of prior case law.” Slip op. at 94.

All that said, the majority emphasized that, even under the Jazz Photo rule, the lack of exhaustion does not preclude the possibility that foreign sales establish a license, either express or implied. See slip op. at 85–92. Citing numerous appellate court decisions, the majority’s analysis explained past cases undertook “some assessment of the particular circumstances and language of foreign sales to determine if the U.S. patentee gave permission for importation.” Id. at 92.2

Again, Judge Dyk, along with Judge Hughes, disagreed with the majority. The dissent “would retain Jazz Photo insofar as it holds that a mere foreign sale does not in all circumstances lead to exhaustion of United States patent rights.” Dissenting op. at 21. But the dissent would agree with the government’s argument “that the foreign sale should result in exhaustion if the authorized seller does not explicitly reserve its United States patent rights.” Id. The dissent contended that “the centerpiece of the majority’s holding,” i.e., that Boesch announced “a doctrinal blanket ban on foreign exhaustion,” was not correct. Id. Judge Dyk also noted that “every one of the lower court decisions before Jazz Photo applied exactly the rule for which the government argues.” Id. at 22. In short, in Judge Dyk’s view, “the necessary accommodation between the interests of the rights holder and the unsuspecting buyer can only be achieved by the government’s proposal to put the burden on the U.S. rights holder to provide notice of a reservation of U.S. rights to the purchaser, an approach supported by the earlier lower court decisions and legislative action.” Id. at 29.


1. Importantly the court noted three aspects of Impression's arguments narrowed the court's focus. "First, we discuss only Lexmark's sales to end users (and the resales and reuses deriving from those sales), because neither party has made an argument for distinguishing Lexmark's sales to resellers. Second, we take as a premise that both the first purchaser and Impression as a repurchase had adequate notice of the single-use/no-resale restriction before they made their purchases; the adequacy of that notice is unchallenged. Thus, we do not have before us the questions that would arise, whether under principles governing bona fide purchasers or otherwise, if a downstream re-purchaser acquired a patented article with less than actual knowledge of such a restriction. Third, Impression has not contended that the particular restriction at issue gives rise to a patent-misuse defense, constitutes an antitrust violation, or exceeds the scope of the Patent Act's express grant of exclusive rights over patented articles, 35 U.S.C. §§ 154, 271." Slip op. at 13.

2. For a general analysis of the doctrines of exhaustion, first sale and implied license, see §§2:35-2.38 and Chapter 10 of Nimmer and Dodd, Modern Licensing Law (Thomson West--2015-2016 ed.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.