Impression Products, Inc. v. Lexmark International, Inc.

Impression Products, Inc. v. Lexmark International, Inc.
137 S. Ct. 1523 (2017)

Authored by Cara M. Arnold

Statement of Facts: Lexmark International, Inc. (“Lexmark”) is a printer manufacturer that designs and sells toner cartridges around the world. To prevent remanufacturers from acquiring the empty Lexmark cartridges from purchasers to refill and resale at lower prices, Lexmark gave purchasers two options: (1) buy a cartridge at full price without restrictions; or (2) buy a cartridge at a discount through Lexmark’s “Return Program.” If a customer purchased a cartridge through the Return Program, the customer had to sign a contract agreeing to use it only once and to refrain from conveying the empty cartridge to anyone but Lexmark. Lexmark sued remanufacturer Impression Products, Inc. (“Impression Products”) for patent infringement with respect to Return Program cartridges that Lexmark sold within the United States and all cartridges that Lexmark sold abroad that Impression Products imported into the country. Lexmark alleged that because it expressly prohibited reuse and resale of the Return Program cartridges, Impression Products infringed Lexmark patents when they refurbished and resold them. Additionally, with respect to the cartridges sold abroad, Lexmark claimed that foreign sales do not trigger patent exhaustion unless the patentee expressly or implicitly transfers or licenses its rights, so Impression Products infringed Lexmark’s patent rights by importing and selling these cartridges into the country without Lexmark’s authorization. Impression Products believed that Lexmark’s sales, both in the United States and abroad, exhausted its patent rights in the cartridges, so Impression Products was free to refurbish and resell them, and to import them if acquired abroad.

Procedural History: In 2010, Lexmark filed a patent infringement suit against Impression Products. The United States District Court for the Southern District of Ohio denied Impression Product’s motion to dismiss with respect to cartridges that had been sold abroad and granted Impression Product’s motion to dismiss with respect to the Return Program cartridges that had been sold domestically. Lexmark and Impression Products appealed to the Federal Circuit, and the Federal Circuit, en banc, ruled for Lexmark with respect to both groups of cartridges. For the Return Program cartridges, the Federal Circuit relied on a previous decision in Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (1992) and held that a patentee may sell an item and retain the right to enforce, through patent infringement lawsuits, clearly communicated, lawful restrictions on post-sale use or resale. Lexmark International, Inc. v. Impression Products, 816 F.3d 721, 735 (2016). Since Impression Products knew about Lexmark’s restrictions and those restrictions were lawful, Lexmark did not exhaust its patent rights and could sue Impression Products for patent infringement. As for the cartridges that Lexmark sold overseas, the Federal Circuit again relied on a previous decision, Jazz Photo Corp. v. International Trade Commission, and held that when a patentee sells a product abroad, it does not exhaust its patent rights over that item. 264 F.3d 1094 (2001); 816 F.3d at 726–27. Therefore, Lexmark was free to sue Impression Products for patent infringement when it imported these cartridges. In December 2016, the Court granted certiorari.

Questions Presented: First, whether a patentee that sells an item under express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit. Second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.

Holdings: No, a patentee that sells an item under express restriction on the purchaser’s right to reuse or resell the product may not enforce that restriction through an infringement suit. Yes, a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply. The Federal Circuit’s judgment is reversed and remanded for further proceedings.

Reasoning: Beginning with the Return Program cartridges that were sold in the United States, the Court concluded that Lexmark exhausted its patent rights in these cartridges after sale. The doctrine of patent exhaustion has imposed a limit on the right to exclude for many years. A patentee may set the price and negotiate contracts with purchasers, but it may not, by virtue of his patent, control the use or disposition of the product after ownership passes to the purchaser. Thus, the sale immediately terminates all patent rights to that item. This idea is traced back to the common law’s refusal to permit restraints on the alienation of chattels, and Congress has repeatedly revised the Patent Act in line with this principle. The Federal Circuit reached a different result due to flawed logic. It explained that a patentee’s decision to sell an item “presumptively” grants authority to the purchaser to use it and resell it. The Federal Circuit further noted, however, that the patentee does not have to hand over the full set of rights every time. The issue with this is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale.  Instead, it limits the scope of the patentee’s rights. The limited right a patent adds and grants exclusively to a patentee—to prevent others from using, selling or importing an item—is extinguished by the exhaustion doctrine. Thus, a sale transfers the right to use, sell, or import because those rights come along with ownership, and the buyer is free from an infringement lawsuit because there is no exclusionary right left to enforce. Additionally, the Court clarified that the same analysis applies to licensees. A patentee may enforce limitations on its licensees with contractual provisions, so long as the licensee complies with the restrictions in its contract with the patentee. An authorized sale by the licensee nonetheless exhausts all patent rights in the item sold.

As for the cartridges that were sold abroad, the Court concluded that an authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act. The Court relied on its 2013 decision in Kirtsaeng v. John Wiley & Sons, Inc. to apply the “first sale” doctrine to patent law. 568 U.S. 519 (2013). In Kirtsaeng, the Court held that the “first sale doctrine,” which provides that a copyright owner loses the power to restrict the purchaser’s freedom “to sell or otherwise dispose of …” the copy after the copyright owner sells it, applies to copyrighted work lawfully made and sold abroad. 568 U.S. at 525. The Court analogized patent exhaustion and copyright exhaustion because the doctrines are similar and have the same purpose.  The first sale doctrine, like the patent exhaustion doctrine, originated in the common law’s refusal to permit restraints on alienation of chattels. Neither the common law on first sale nor patent exhaustion makes geographical distinctions. The Federal Circuit agreed with Lexmark’s argument that patent exhaustion did not apply outside of the United States and held that patentees may maintain patent rights in a foreign sale. However, the Court explained that restrictions and locations are irrelevant when it comes to the sale of patented goods. What is relevant is the patentee’s decision to make the sale. Exhaustion is triggered by the patentee’s decision to give that item up and receive whatever fee it decides appropriate.

Concurring/Dissenting Opinion: Justice Ginsburg agreed with the majority’s holding regarding domestic exhaustion, but she disagreed with the majority’s holding on international exhaustion. Patent laws are territorial and vary by country. A sale abroad operates outside of the U.S. patent system, thus it makes little sense to say that the same exhausts an inventor’s U.S. patent rights. Justice Ginsburg dissented from the majority’s decision in Kirtsaeng and adheres to the view that a foreign sale should not exhaust U.S. copyright protections. Additionally, although patent law and copyright law may be similar, they are not “identical twins.” Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 439  n. 19 (1984). Copyright protections, unlike patent protections, are synchronized across countries.  Consequently, patent protection should not be diminished when considered in the context of a foreign sale.

 

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