On May 30, 2017, the U.S. Supreme Court held that when a patent owner sells a product covered by a patent, that sale—whether it takes place in the United States or outside the country—"exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license." By nixing such "downstream" patent rights, the decision underscores the importance of drafting contractual remedies in lieu of relying on the patent laws for protection.
The case, Impression Products v. Lexmark International, involved printer-ink cartridges that were or were not reusable, depending on whether the buyer chose to purchase the more-expensive, unrestricted cartridges, or the less-expensive cartridges, which were sold with express restrictions on reuse. Impression presented the Court with two central questions regarding the scope of patent exhaustion: (i) "whether a patentee that sells an item under an express restriction on the purchaser's right to reuse or resell the product may enforce that restriction through an infringement lawsuit"; and (ii) "whether a patentee exhausts its patent rights by selling its product outside the United States." Rejecting two longstanding precedents of the Federal Circuit, the Supreme Court held that patent exhaustion—the ending of patent-enforcement rights—applies to both domestic and foreign sales: "[R]estrictions and location are irrelevant; what matters is the patentee's decision to make a sale."
We will address the ramifications of the Impression decision in a forthcoming Commentary. For now, it is sufficient to say that the Court's decision highlights the need for carefully drafting remedies for breach of contract, which may now become a substitute for patent-infringement damages.
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.