United States: Lower Courts Navigate Supreme Court's Patent Exhaustion Decision

On May 30, 2017, the US Supreme Court issued its influential decision in Impression Products, Inc. v. Lexmark, Int'l, Inc., 137 S. Ct. 1523 (2017). The landmark decision, which clarified the patent exhaustion doctrine and reversed decades of Federal Circuit precedent, has the potential to significantly impact both foreign and domestic transactions. The decision includes two significant holdings. First, "[o]nce a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license." Id. at 1535. Second, "an authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act." Id. Consequently, post-Impression Products, both restrictions and location are now irrelevant to determine whether a patentee has exhausted its rights. Indeed, a foreign sale now limits patent rights in the US.

In the six months since the Supreme Court's Impression Products decision, there have been a half dozen lower court decisions that have relied on it. There are lessons to be learned from litigants who have used the decision, and the patent exhaustion defense, successfully or, more often, unsuccessfully, to defend against claims of patent infringement.

In Impression Products, Lexmark made and sold toner cartridges in the US and abroad. It sold cartridges at full price with no restrictions and also discounted cartridges through a "Return Program" whereby customers agreed to only use the cartridge once. Companies such as Impression Products would acquire empty toner cartridges from the US and abroad, including "Return Program" cartridges; refill them with toner; and resell them.

Lexmark sued Impression Products for patent infringement for selling both the "Return Program" cartridges, which had restrictions on sale, and the cartridges Lexmark sold abroad that Impression Products imported into the US and resold. The US Court of Appeals for the Federal Circuit ruled for Lexmark with respect to both groups of cartridges, finding (i) a patentee may sell an item and retain the right to enforce, through patent infringement lawsuits, clearly communicated, lawful restrictions on post-sale use or resale; and (ii) when a patentee sells a product overseas, it does not exhaust its patent rights over that item. Id. at 1530-31.

Although Impression Products expanded the patent exhaustion doctrine, two district courts have found plaintiffs did not exhaust their rights through settlement agreements entered into with suppliers because sales to the defendants (customers of the suppliers) were expressly not "authorized" by the settlement agreements. Magistrate Judge John D. Love of the US District Court for the Eastern District of Texas found that the doctrine did not apply in Chrimar Sys. v. Alcatel-Lucent Enter. USA Inc., No. 6:15-CV-00163, 2017 U.S. Dist. LEXIS 122002 (E.D. Tx. Aug. 3, 2017), where plaintiff Chrimar specifically excluded from a settlement (and license) agreement with Alcatel-Lucent Enter (ALE) supplier Accton Technology Corp., products that Accton sold to companies currently in litigation with Chrimar. In Chrimar, after a final judgment against ALE, the defendant moved to modify the judgment because, it argued, Chrimar exhausted its rights when it licensed ALE's supplier Accton. The bulk of the parties' dispute revolved around two specific provisions from the settlement agreement: (i) a provision granting Accton the right to "make[], use[], offer[] to sell, or sell[], within the United States or import[] into the United States"; and (ii) a provision defining Accton sales to a company currently involved in litigation with Chrimar as "Unlicensed Products." The court explained that, unlike in Impression Products, this was not a post-sale restriction, but rather a sale that exceeded the scope of the license agreement; that it was therefore not authorized; and that therefore there was no basis to modify the judgment. Id. at *12-13.

Similarly, in Sunoco Partners Marketing & Terminals L.P. v. U.S. Venture, Inc., No. 15 C 8178, 2017 U.S. Dist. LEXIS 159109 (N.D. Ill. Sept. 27, 2017), the court distinguished sales that were not "authorized" under the settlement agreement. In Sunoco, the oil company settled with Technics Inc., which sells butane blenders and systems to gas and liquid processing facilities, and dismissed the company from the suit. The settlement agreement specified that it was not a license that pertained to future use by Technics or Technics' customers. Defendant U.S. Venture relied on the Technics settlement agreement in its motion for summary judgment, arguing that Sunoco exhausted its patents by settling with Technics and that the agreement was a retroactive authorization of the sale of patented systems from Technics to Venture. In opposing Venture's motion for summary judgment, Sunoco argued that patent exhaustion requires that the sale of a patented system be "authorized" when the sale occurs. The court agreed with Sunoco, finding that patent exhaustion requires an "initial authorized sale of a patented item[,]" and a "freedom from suit." Id. at *23. Explaining that "Impression Products had nothing to do with whether sales could be retroactively authorized. It concerned sales that were undisputedly authorized when they occurred; the question was whether the patent holder could retain some patent rights after a sale of a patented item and enforce those rights through an infringement suit," the court denied the motion. Id. at *30-31.

One court has, however, granted a motion for summary judgment of non-infringement, finding patent exhaustion based on a license agreement with defendants' suppliers because the court found the sale was "authorized." In MiiCs & Partners America, Inc. v. Toshiba Corporation, No. 14-cv-803, 2017 U.S. Dist. LEXIS 127745 (D. Del. Aug. 11, 2017), the plaintiff sued, among others, Funai Corporation and Toshiba for patent infringement.Both Funai and Toshiba purchased LCD panels from Samsung and Panasonic Corporation that are incorporated into the accused televisions, tablets, and laptops. However, Samsung and Panasonic had licenses to sell the LCD components from NEC Corporation of America, the prior owner of the asserted patents. In each license there was language limiting Samsung and Panasonic from making end-user products with the licensed parts. Samsung moved for partial summary judgment on Toshiba and Funai's behalf, and Funai moved for partial summary judgment of no infringement. Plaintiff MiiCs & Partners opposed, arguing that because the suppliers could not make end-user products themselves, sales of the licensed components to be put into end-user products were not authorized and could not exhaust their patent rights. Judge Andrews rejected that argument. Following the Supreme Court decision in Impression Products, he granted the motions for summary judgment of no infringement. Citing Impression Products, he wrote that "a patentee's authority to limit licensees does not...'mean that patentees can use licenses to impose post-sale restrictions on purchasers that are enforceable through the patent laws.'...'So long as a licensee complies with the license when selling an item, the patentee has, in effect, authorized the sale,' and the patentee's rights are exhausted." Id. at *13.

The district court cases also remind us that procedure is important. In Huawei Technologies Co. Ltd. v. T-Mobile US, Inc., No. 2:16-CV-00055, U.S. Dist. LEXIS 184542 (E.D. Tx. Oct. 15, 2017), we learn that the patent exhaustion defense and the supporting agreements must be timely disclosed or you risk exclusion regardless of the strength of the defense. In Huawei, defendants' motion for summary judgment based on patent exhaustion was denied and the defendants were precluded from relying on a third-party agreement at trial that supported their patent exhaustion defense because they did not timely disclose the agreement as the basis for their patent exhaustion defense until two weeks after the close of fact discovery. Despite denying the defendants' motion, District Judge Robert Payne recognized the potential implication of the agreement, "[t]he third-party agreement is unquestionably important, as the evidence could support an exhaustion defense that would preclude a finding of liability for any infringement." Id. at *19. Thus, to be able to rely on the patent exhaustion defense on summary judgment and at trial, it is imperative to explore and disclose this defense early on in fact discovery to be able to take full advantage of the Supreme Court's decision and the breadth of the defense.

To date, while Impression Products significantly expanded the patent exhaustion doctrine, a majority of district courts presented with this defense have found it inapplicable. We will continue to monitor the development of this doctrine.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

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.

Events from this Firm
30 Jan 2019, Other, Chicago, United States

Please join us on January 30, 2019, for the Fifth Annual Courageous Counsel Leadership Institute. This year's theme is "Risk and reward: Creating a culture that promotes innovation, change and growth.

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
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
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.


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.


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