Lexmark: A Closer Look at the Patent Exhaustion Doctrine when Articles are Sold Outside the U.S.

On March 21, 2017, the Supreme Court heard oral arguments in Lexmark International, Inc. v. Impression Products, Inc. relating to the doctrine of patent exhaustion. While the opinion is not yet available, the Supreme Court’s decision is expected to become a pivotal decision on the application of the patent exhaustion doctrine. The Supreme Court will review the Federal Circuit’s en banc decision finding: “(1) the first sale doctrine does not apply to patented articles sold subject to restrictions . . .; and (2) the first sale doctrine does not apply to patented articles sold outside of the United States.”

This case deals with a manufacturer of toner cartridges. Lexmark International (“Lexmark”) has several patents relating to these toner cartridges, resulting in sales within the United States and some overseas. These sales are made subject to a restriction that prevents buyers from either reusing the cartridges or transferring them to anyone other than Lexmark. Nonetheless, Impression Products (“Impression”) buys the empty cartridges, restores them, and resells them, which caused Lexmark to sue Impression. Lexmark alleged that Impression’s sales of restored cartridges infringed on Lexmark’s patents by: (1) acquiring, refilling, and selling used cartridges in violation of Lexmark’s post-sale restriction; and (2) acquiring, refilling, and selling used cartridges that were first sold outside the United States.

As a general rule, a patent holder has the exclusive right to make or sell the patented item in the United States. The “first sale doctrine” or “patent exhaustion” doctrine limits that right. This doctrine has traditionally acted as an important vehicle for expanding public access to protected works by providing that the first unrestricted sale of a patented product exhausts the patent owner’s control over that particular item. An example of an exhausted right is the right to maintain control over who subsequently resells the product, even though such sales are not authorized by the owner.

The first question that Impression has asked the justices to consider is whether a patent holder can bypass the exhaustion doctrine by placing specific restrictions on how the buyer can use or resell the patented product. The second question is whether the sale of a patented product outside the United States exhausts the patent holder’s rights. Impression filed a petition seeking Supreme Court review, and, in June, the justices asked the U.S. Solicitor General to weigh in. This pivotal decision will address the application of patent exhaustion in these contexts.

A key issue in deciding these questions is whether Quanta Computer Inc. v. LG Electronics, Inc. (2008) overruled Mallinckrodt, Inc. v. Medipart, Inc. (Fed. Cir. 1992), requiring a determination as to whether a patent holder may invoke patent law to enforce post-sale restrictions, or if the first sale doctrine of patent exhaustion will rule. It has been observed that under the doctrine of the Mallinckrodt case, a patentee may sell its patented product subject to post-sale restrictions. Another key issue is whether, the court’s holding in Kirtsaeng v. John Wiley & Sons, Inc. that the common-law doctrine barring restraints on alienation “makes no geographical distinctions” in the context of patent exhaustion.

On March 21^st, the  Lexmark oral arguments began with an understanding that a loss for the patent holder is not a complete loss because an enforceable contract may still remain. Impression argued that, while a patent holder may grant restrictive licenses, it may not make restrictive sales. Since each nation has its own patent laws, a United States patent imposes no constraints on activities wholly outside the United States. If that is so, it is not immediately obvious how an overseas sale could affect rights under the Patent Act, much less compel their exhaustion. Furthermore, must notice also be provided with regard to the restrictions to bypass the patent exhaustion doctrine?  These answers are much anticipated as we wait to see the Court’s opinion. While reading the oral arguments, it was interesting to see moments of comedic relief while dealing with these serious issues.  For example:

JUSTICE KENNEDY: Can they put a sticker on the products — “Do not sell”? This would be a great boom to the sticker business, right?

With that said, it’s hard to predict the outcome at this point, but “get your stickers ready.”

Katherine Escalante is a second-year law student at Wake Forest University School of Law.  She holds a Bachelors of Arts in International Relations and Global Studies.  She is currently a Notes and Comments Editor and a staff blogger for the Journal of Business & Intellectual Property Law at Wake Forest University. Upon graduation, she intends to pursue a career in Intellectual Property Law.