United States: US Supreme Court To Review Patent Exhaustion Doctrine

Summary

On December 2, 2016, the Supreme Court of the United States granted cert in a key case regarding the scope of the patent exhaustion doctrine, or "first sale doctrine," as it relates to (1) sales of a patented item subject to restrictions on post-sale use and (2) authorized sales of a patented article outside of the United States. The US Supreme Court's resolution of this case will have important implications for secondary markets for patented products and global commerce.

In Depth

Overview

On December 2, 2016, the Supreme Court of the United States granted Impression Products, Inc.'s (Impression Products) petition for a writ of certiorari appealing a Federal Circuit en banc decision that held that Lexmark International, Inc. (Lexmark) did not exhaust its US patent rights when it sold its patented toner cartridges to customers: (1) in the United States, subject to a post-sale single-use/no-resale restriction, and (2) outside the United States.

The patent exhaustion doctrine, or "first sale doctrine," holds that the initial authorized sale of a patented item terminates all patent rights to that item. However, the US Court of Appeals for the Federal Circuit has recognized two exceptions to the patent exhaustion doctrine. First, in Mallinckrodt, Inc. v. Medipart, Inc., the Federal Circuit held that a patentee may transfer title to the patented article and specify a post-sale reuse or resale restriction on the article that may be enforced by means of the patent laws. Second, in Jazz Photo Corp. v. International Trade Commission, the Federal Circuit held that a patentee's US patent rights are not exhausted when it sells the patented article outside the United States.

The US Supreme Court's resolution of this case will have significant implications for secondary markets for patented products and global commerce. Impression Products and several amici, including the United States, argue that if the Federal Circuit's opinion stands, secondary markets for patented products will "grind to a halt" at substantial cost to consumers. 

Background

Lexmark is a printer manufacturer that makes and sells patented toner cartridges for its printers to customers within and outside the United States. Lexmark offers toner cartridges to consumers subject to a patent license that has a single-use/no-resale requirement.

Impression Products is a remanufacturer of toner cartridges that acquires spent Lexmark toner cartridges sold in the United States and internationally, refurbishes them, and sells them for use with Lexmark printers in competition with new and refurbished cartridges sold by Lexmark.

In 2010, Lexmark brought suit against Impression Products and other remanufacturers for patent infringement. Lexmark contended that Impression Products infringed Lexmark's patents because Impression Products contributed to the breach of the single-use/no-resale requirement of the purported patent license that arose from the sale of toner cartridges to consumers. Impression Products moved to dismiss Lexmark's claims on the grounds that Lexmark exhausted its US patent rights in the cartridges by its initial sales of cartridges from Lexmark to distributors, who in turn resold to consumers. First, Impression Products argued that Lexmark's single-use/no-resale requirement was an invalid post-sale restriction under the Supreme Court's decision in Quanta which, Impression Products argued, implicitly overruled the Federal Circuit's earlier decision in Mallinckrodt. Second, Impression Products argued that Lexmark exhausted its patent rights as to cartridges first sold abroad under the Supreme Court's copyright exhaustion analysis in Kirtsaeng which, Impression Products argued, implicitly overruled the Federal Circuit's decision in Jazz Photo.

The US District Court for the Southern District of Ohio held that the patent exhaustion doctrine barred Lexmark's patent infringement claims against Impression Products regarding toner cartridges that were first sold by Lexmark in the United States, concluding that to the extent Mallinckrodt held that post-sale use restrictions precluded patent exhaustion after an authorized sale, it was overruled by Quanta. However, the district court also held that Lexmark did not exhaust its US patent rights in those cartridges that Lexmark initially sold abroad, concluding that Kirtsaeng, a copyright case, was not plainly inconsistent with Jazz Photo.

Both parties appealed. The Federal Circuit heard the case en banc and held that neither the domestic nor foreign sales had exhausted Lexmark's patent rights in the toner cartridges. The court adhered to Mallinckrodt and Jazz Photo. After the Federal Circuit issued its opinion, Impression Products filed its petition for writ of certiorari with the US Supreme Court in March 2016.

Implications

As Impression Products and several amici, including the United States, argued in briefs filed with the US Supreme Court, the ultimate outcome of this case will have important practical consequences for secondary markets for patented products and global commerce.  

If the US Supreme Court upholds the Federal Circuit's position that "conditional sales" do not exhaust patent rights, then a patent holder may be able to limit or even eliminate the secondary market in its patented goods by including a post-sale restriction on use or resale in its sales contracts. For example, car manufacturers may be able to include post-sale restrictions on the use and resale of car components that could effectively outlaw their repair by any aftermarket competitors. In lieu of an outright ban on the use or resale of the patented article, a patentee might be able to "demand royalties for the use or resale of articles embodying its invention at multiple downstream points in the channels of commerce, long after the first authorized sale in the United States." The district court cautioned that such a holding would "create significant uncertainty for downstream purchasers and end users who may continue to be liable for infringement even after an authorized sale to the consumer has occurred."  

If the US Supreme Court upholds the Federal Circuit's position that an authorized sale of a US-patented item abroad does not exhaust patent rights, then companies seeking to import products into the United States may need "to track the provenance of every sub-component and sub-sub-component within its products" in order to avoid patent infringement assertions once the product is imported to the United States. As amici noted, this is particularly difficult in the global high technology industry where products are frequently covered by "thickets" of patents. Such a holding may also provide a patentee with the opportunity to twice extract royalties for its patent: the patentee may be able to sell its patented article for use in a component, and then sue for infringement once the finished product is imported to the United States.  

For its part, Lexmark believes that such concerns are overstated.  Regardless, given the potential implications of this case for secondary markets and global commerce, patentees and marketplace participants should closely follow the US Supreme Court's resolution of this case. Resolution of this case will have significant implications on how patent holders either bring their products to market or license their rights to others. Also, companies that participate in markets where parts or consumable products are necessary to keep larger products or systems operational will need to assess their exposure to potential patent infringement assertions. This case will become the seminal decision on the application of the patent exhaustion doctrine under US law. 

McDermott Will & Emery has been following these issues and this case since its inception. 

US Supreme Court to Review Patent Exhaustion Doctrine

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.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions