Lexmark Creates Problems for Licensors and Sellers of Patented Products

The most important patent-antitrust case in recent years is not an antitrust case but is the United States Supreme Court's May 2017 decision in Impression Products Inc. v. Lexmark Int'l., Inc., 583 U.S. ___ (2017). Impression Products held the first authorized sale exhausted the patent right, so that any restrictions on the buyer are contractual only.

This means that restrictions on further use or distribution are not justifiable as limitations on the rights transferred with the sale, but rather can only be justified as contract terms. This decision clearly overruled Mallinckrodt v. Medipart, 976 F.2d 700, 701 (1992), and effectively gutted the most important Federal Circuit antitrust decision immunizing a patent owner from antitrust claims, In re Independent Service Organizations Antitrust Litigation (CSU et al. v. Xerox Corp.), 203 F.3d 1322 (Fed. Cir. 2000).

The net effect of Lexmark on patent antitrust law is that post-sale restrictions are now subject to attack as violation of antitrust and unfair competition laws, and not immunized from scrutiny under the rule that protects exercise of the patent grant. Moreover, post-sale restrictions that violate Section 1 of the Sherman Act's prohibition on contracts that are unreasonable restraints on trade, or that violate Section 2's bar against anticompetitive acts that maintain or promote monopolies, are potentially patent misuse, rendering the patent unenforceable. Patent owners that have put post-sale limitations on reuse, resale, resale pricing or distribution, should look at these contracts to evaluate whether they raise potential issues in light of Lexmark.