Earlier this week, the U.S. Supreme Court’s ruling in Impression Prods., Inc. v. Lexmark Int’l, Inc., 581 U.S. ___ (2017) reversed the Federal Circuit’s interpretation of the patent exhaustion doctrine. The Supreme Court held that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.” An “express restriction on the purchas­er’s right to reuse or resell the product” may not be enforced “through an infringement lawsuit” and any relief lies “under contract law.”

Our prior report on the Lexmark case focused on the U.S. Court of Appeals for the Federal Circuit’s early 2016 en banc ruling that, inter alia, “[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.” The Federal Circuit pointed to those “clearly communicated” restrictions on reuse and resale to distinguish Lexmark from the Supreme Court’s prior decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). The en banc Federal Circuit also applied Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), which held that an authorized foreign sale “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.”

As a refresher, in Lexmark, the infringement allegations focus on the resale and reuse of printer cartridges covered by various Lexmark patents. Lexmark offers, both within and outside of the United States, its printer cartridges for sale as either (1) “Regular Cartridges” that may be reused or resold by the original customer without restriction or (2) “Return Program Cartridges” sold at a discount and subject to an express, written restriction on the original customer prohibiting reuse and precluding return to anyone other than Lexmark.

The Supreme Court viewed the “well-established exhaustion rule” as having an “impeccable historic pedigree” based in part on legislative and judicial “hostility toward restraints on aliena­tion.” Using the analogy of “a shop that re­stores and sells used cars,” the Supreme Court illustrated its view of how “extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patent­ees retain.” The holding further relied upon a “well-settled line of precedent,” including Quanta Computer, where it “held that the patentee could not bring an infringement suit because the “authorized sale … took its products outside the scope of the patent monopoly.”

With respect to foreign sales, the Supreme Court relied in part upon its prior copyright decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), and found that “[a]pplying patent exhaustion to foreign sales is just as straight forward” as doing so for domestic sales. The Supreme Court deemed territorial limits inapplicable, as “exhaustion is triggered” not by where an item is sold, but instead “by the patentee’s decision to give that item up and receive whatever fee it decides is appropriate ‘for the article and the invention which it embodies.’”

Although not all sales implicate patent exhaustion, the issue arises when “the patentee decide[s] to make a sale that exhausts its patent rights in an item.” For example, “a sale abroad does not exhaust a patentee’s rights when the patentee had nothing to do with the transaction.” Boesch v. Gräff, 133 U. S. 697, 703 (1890).

Justice Ginsburg concurred on the issue of U.S. sales but dissented on the issue of foreign sales, stating instead that “[b]ecause a sale abroad operates independently of the U. S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U. S. patent rights.” Justice Gorsuch did not participate in the decision.

If you would like to discuss how the Lexmark ruling may affect your business, please contact a member of Bryan Cave’s Intellectual Property Client Service Group.