April 17 2017
On March 21 2017 the Supreme Court heard oral argument in Impression Products, Inc v Lexmark Int'l, Inc. The case concerns whether a patentee's US patent rights may be exhausted by certain conditional US sales or by foreign sales of a patented item.
Lexmark sells patented printer cartridges for use in its printers. Impression buys printer cartridges, remanufactures them and resells them in the United States. Lexmark sued Impression for patent infringement based on its resale and importation of cartridges remanufactured from Lexmark's cartridges that were first sold:
The US District Court for the Southern District of Ohio concluded that while foreign sales did not trigger exhaustion, US sales did trigger the exhaustion doctrine and prevented Lexmark from suing Impression.
On appeal, Impression argued that two Federal Circuit cases concerning the exhaustion doctrine had been overruled by Supreme Court cases. First, Impression argued that Jazz Photo Corp v International Trade Commission (264 F.3d 1094 (Fed Cir 2001)), which held that a foreign sale does not exhaust US rights, had been implicitly overruled by the Supreme Court's broader view of exhaustion under copyright law in Kirtsaeng v John Wiley & Sons, Inc (133 S Ct 1351 (2013)). Second, Impression argued that Mallinckrodt, Inc v Medipart, Inc (976 F2d 700 (Fed Cir 1992)), in which a conditional sale of a patented article was found not to exhaust the patentee's rights, was overturned by the Supreme Court's decision in Quanta Computer, Inc v LG Electronics, Inc (553 US 617 (2008)). Sitting en banc, the Federal Circuit reaffirmed its decisions, finding them unaffected by the Supreme Court's rulings.
On December 2 2016 the Supreme Court granted certiorari.
In the March 21 2017 oral argument, Andrew J Pincus argued on behalf of Impression and Constantine L Trela Jr argued on behalf of Lexmark. Malcolm L Stewart, deputy solicitor general, argued on behalf of the United States as amicus curiae.
The Supreme Court noted several times that Impression was seeking a significant expansion of the existing scope of the exhaustion doctrine. Justice Kennedy asked Pincus why the exhaustion doctrine had not been codified in the 1952 patent statute and whether the failure to codify the doctrine suggested that the court should be "cautious" in "extending" the doctrine's reach. Justice Alito noted that the "Federal Circuit's rule on this is 25 years old" and Justice Sotomayor observed that Impression's position on the question of foreign sales raised "serious issues" and "negative consequences". Pincus acknowledged that Impression's position could have such consequences, but observed that the Supreme Court has disrupted the settled expectations of patentees before to "get…the law right", citing the Alice decision as an example.
As to the foreign sales question, Alito noted that in recent years the Supreme Court has held that "a statute does not apply outside the United States unless it says that it applies outside the United States" and asked Pincus why the same shouldn't apply to a common-law rule. Pincus responded that he did not believe that extraterritoriality was implicated and that, instead, the issue at hand concerned enforceability of US patent rights.
The court sought clarity from both Impression and Lexmark over whether a patentee has – through a foreign sale of a patented item – recouped the value of its US patent. Sotomayor voiced some skepticism on this point, stating that regardless of whether a US or foreign patent is implicated, the patent owner still receives value. Pincus agreed; however, Lexmark's counsel (Trela) pushed back, asserting that the exhaustion doctrine is based on the notion that a US patentee is entitled to a premium for forfeiting its US patent rights and that, because a US patent has no force overseas, a foreign sale cannot constitute a premium for forfeiting US rights. He also noted that the scope of a patentee's rights can vary widely across countries, citing as examples restrictions on software patents in certain foreign jurisdictions. He further noted that the unilateral adoption by the United States of a "blanket international exhaustion doctrine" could have consequences for international trade.
The government also weighed in on the foreign sales question, advocating a compromise position. According to Stewart, a US patentee should be able to reserve its US rights following a foreign sale (eg, to prevent a foreign buyer from re-importing products), provided that the patentee "expressly" reserve those rights. Justice Breyer raised concerns about how an express reservation of rights would work in practice and the hypothetical liability faced by downstream consumers who have received no adequate notice of such reservation.
Breyer expressed these concerns in his questions to Trela, who offered several responses to address them. Trela noted that it has long been held that conditional sales of patented items are legal and valid, and that a buyer who resells a patented item cannot covey to downstream consumers more rights to the item than he has received. He also asserted that any liability faced by "unwitting" downstream consumers for infringement following a conditional sale is a consequence of patent law itself (which generally does not require infringers to know of their infringement), rather than of the exhaustion doctrine. He further argued that, as a practical concern:
In response, Roberts and Breyer questioned whether contract law, rather than patent law, might be a more appropriate vehicle for enforcing post-sale restrictions on patented items. Trela noted that certain contract restrictions on resale could not be enforced against downstream parties due to lack of privity, and that certain remedies – in particular, injunctive relief – might not be available to patentees under contract law.
It is difficult to predict how the court will decide this case. While Breyer asked most questions and seemed most concerned with the interests of downstream consumers following conditional sales, the other justices seemed to acknowledge that Impression's positions on the questions of both domestic and foreign sales would disrupt settled expectations and present serious consequences. Regardless of how the case is decided, the decision should clarify issues of considerable import to US patentees.
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