Impression Prods. v. Lexmark Int’l is a Supreme Court case decided this term that played its part in continuing to reshape IP law in 2017. In the decision, the Supreme Court considered two questions. First, whether a “conditional sale” that transfers title to the patented item while specifying post-sale restrictions on the article’s use or resale avoids application of the patent exhaustion doctrine and therefore permits the enforcement of such post-sale restrictions through the patent law’s infringement remedy. And second, whether patent exhaustion applies to sales that occur outside the United States in light of the court’s holding in Kirtsaeng v. John Wiley & Sons Inc. On the second question, SCOTUS held that a sale of a patented product exhausts all rights both domestic and international in the product. Overturning Federal Circuit case law holding that post-sale restrictions and foreign sales preserve a U.S. patent-holder’s right to sue for infringement. This decision will likely have several implications in IP law.
Background of the case
The case arose over the resale of laser printer toner cartridges, sold by Lexmark both in the U.S. and abroad. Lexmark International, Inc. designs, manufactures, and sells toner cartridges to consumers in the United States and abroad. It owns a number of patents that cover components of those cartridges and the manner in which they are used. Lexmark presents the consumer with two options when they purchase toner cartridges. Either buy a toner cartridge at full price with no restrictions or buy a cartridge at a discount through Lexmark’s “Return Program”. Those who purchase through the “Return Program” are required to sign a contract agreeing to use the cartridge only once and refrain from transferring the cartridge to any third party for reloading.
Lexmark accused Impression Products of reloading and selling Lexmark cartridges obtained through the “Return Program” both foreign and domestic. The District Court dismissed Lexmark’s infringement suit as to U.S. sales but permitted pursuit of a patent infringement remedy for foreign sales; the Federal Circuit affirmed as to foreign sales but also permitted Lexmark’s infringement case to proceed for U.S. sales as well.
Ultimately, the issue before the United States Supreme Court was whether, by selling cartridges domestically and abroad, Lexmark had exhausted its patent rights leaving Impression Products free to refurbish and resell them.
The court also considered whether a “conditional sale” that transfers title with post-sale restrictions on the use or resale of the item avoids the patent exhaustion doctrine and therefore permit the enforcement of the post-sale restrictions by suing for infringement?
The Supreme Court held that Lexmark exhausted its patent rights in the Return Program cartridges that it sold in the United States. A patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any contractual restrictions the patentee imposes. As a result, even if the restrictions in Lexmark’s contracts with its customers were clear and enforceable under contract law, they do not entitle Lexmark to retain patent rights in an item that it has elected to sell. The court also held that an authorized sale outside the United States, also exhausts all rights under the Patent Act.
The implications for patent owners particularly those who sell patented products in foreign markets can be considerable. According to IP Watchdog, the decision may result in “patent owners seeking to raise prices for goods sold abroad, but for price regulated products such as pharmaceuticals it may not be so easy to do. Thus, patent owners may need to further rely on regulatory authorities to impose restrictions on products regulated by the FDA or other regulatory bodies to prevent importation of patented goods purchased at lower prices in foreign markets.”
Bob Stoll, Partner at Drinker Biddle asserts that 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 other countries, who benefit from life saving drugs, and the innovators in the US will suffer.
At the same time, this ruling can be seen as a win for consumers. Possibly increasing and strengthening individuals rights to use and repair things, that one believes they already own, as they see fit. According to Public Knowledge. “Corporate restrictions on how products are used and resold are costly and onerous for consumers,” and “The decision today largely puts a stop to that practice, at least with respect to patent law.”
Ngwika Crystal Fomba is a J.D. candidate, 2019, at NYU School of Law.