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IP Alert
IP Alert UPDATE: Supreme Court Restricts Post-Sale Patent Rights Under Exhaustion Doctrine in Lexmark Case

June 1, 2017

As previously reported, on May 30, 2017, the U.S. Supreme Court issued a decision in Impression Products, Inc. v. Lexmark International, Inc., holding that patentees retain no rights under patent law after an authorized sale of a patented invention, therefore leaving patentees to rely on license restrictions to control subsequent use of a patented invention. The Court’s opinion addresses two issues: first, whether a patentee may sue for patent infringement based on restrictions in a purchase agreement, and second, whether a patentee may sue for patent infringement if products are sold overseas and subsequently imported to the United States without permission from the patentee. In both situations, the Court’s holding prevents an action for patent infringement under the exhaustion doctrine.

The Court’s opinion reversed the Federal Circuit, which had previously held that a patentee may sell an item and retain the right to enforce—through patent infringement lawsuits—clearly communicated and otherwise lawful restrictions regarding post-sale use or resale. Similarly, for foreign-sold products, the Federal Circuit had held that a patentee’s decision to sell a product abroad did not terminate its ability to bring an infringement suit against a buyer that imported the article and sold it in the U.S. (See corresponding IP alert here.)

The case relates to inkjet cartridges, which Lexmark patented and sells for use in its own printers. Lexmark sought to prevent these cartridges from being refilled with toner and resold by third-party remanufacturers such as Impression Products. To accomplish this, Lexmark implemented a “Return Program” that allowed consumers to purchase Lexmark inkjet cartridges at a discounted price, on the condition that the customers agree to use the cartridges only once and then return the empty cartridges to Lexmark. Impression Products acquired empty inkjet cartridges, refilled them, and then resold them in the U.S. Some of the cartridges sold by Impression Products were originally sold in the U.S. under Lexmark’s Return Program, and others—including both Return Program and regular cartridges—were originally sold outside of the U.S. Lexmark alleged that both categories of resold cartridges infringed its patents.

The Supreme Court held that Lexmark’s patent rights in both categories of cartridges had been exhausted by the original sale of the inkjet cartridges, reasoning that patent exhaustion is a doctrine that enforces the common law principle against restraints on alienation. Thus, although patentees are granted a limited monopoly that allows them to sell patented products at potentially higher prices, patent law does not allow the patentee to restrain the subsequent use and enjoyment of those patented products. Under Supreme Court precedent, once patentees or their authorized licensees sell a patented product, that product is “beyond the confines of patent law.” The Court held further that this rule applies equally to foreign sales, even though a U.S. patent cannot be enforced against such sales. According to the Court, “[e]xhaustion is a separate limit on the patent grant, and does not depend on the patentee receiving some undefined premium for selling the right to access the American market.”

The Court was careful to point out that patentees may still enter sales contracts that restrict the buyer’s rights, but any action for breach of that contract springs from the contract and not from patent law. Thus, Lexmark could sue its customers under the terms of the Return Program, but it would have to sue each customer individually. Lexmark cannot sue remanufacturers such as Impression Products, which are not parties to the Return Program agreement. Similarly, non-sale transactions such as leases might be structured with a limited license only to use the patented product, such that patentees could retain the right to sue for patent infringement if the licensee refills or sells the product.

This decision will impact businesses that rely upon sales of refilled, reworked, or replacement components. It will also impact businesses with concerns about so-called grey market sales in which patented products sold overseas at a discount are subsequently imported into the United States without authorization.

For more information on this decision, please contact Fitch Even partner David A. Gosse, author of this alert.

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