Foreign Sales and Use-Restricted Sales May Exhaust U.S. Patent Rights
Impression Products, Inc. v. Lexmark International, Inc., (May 30, 2017) (ROBERTS, CJ (with Kennedy, Thomas, Breyer, Alito, Sotomayor, Kagan, JJ); Concurrence-in-part, dissent-in-part: Ginsburg) (Fed Cir: en banc (Prost, Newman, Lourie, Moore, O’Malley, Reyna, Wallach, Chen, TARANTO, Stoll) (dissent: Dyk, with Hughes)) (S.D. Ohio: Barrett) (5 of 5 stars)
Supreme Court reverses Fed Cir determinations (816 F.3d 721) concerning patent exhaustion. First, the Fed Cir erred in determining that there was no exhaustion from Lexmark’s sale in the United States of printer cartridges subject to “single-use/no resale” restrictions. While such restrictions “may have been clear and enforceable under contract law, . . . they do not entitle Lexmark to retain patent rights in an item it has elected to sell.” Op. at 5. The opinion discusses how exhaustion doctrine imposes positive limits on the scope of a patentee’s rights such that, after a sale, “there is no exclusionary right left to enforce.” Id. at 10. The opinion also draws a distinction between a patentee’s ability to restrict the acts of its licensees (as in General Talking Pictures, 305 U.S. 124 (1938)), which can preserve the right to sue for infringement, and the ability to restrict the post-sale activities of purchasers.
The Fed Cir also erred in determining that there was no exhaustion from Lexmark’s sale of products overseas. “An authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.” Op. at 13. The opinion rejects Lexmark’s argument that the territorial nature of patent law should lead to a different result. Because exhaustion is a “separate limit on the patent grant,” it may be triggered whenever—and wherever—the patentee makes a decision to sell an item embodying the patent rights. Boesch, 133 U.S. 697 (1890), is not contrary, as it involved an overseas sale in which the patentee “had nothing to do with the transaction.” Op. at 16. The opinion also discusses, and rejects, the rule proposed by the Government that foreign sales exhaust patent rights absent specific reservation of such rights. “[The Government’s] position is largely based on policy rather than principle.” Id. at 17.
KEYWORDS: PATENT EXHAUSTION; TERRITORIALITY; LIMITATIONS ON USE