What did Lexmark v. Impression Products change about U.S. patent law?

6480523_sActually, not much.  However, it did resolve a controversy that was brewing after two Supreme Court decisions called into question whether selling a patented article outside the United States would exhaust the patent holder’s rights to exclude use or sale of that article inside the United States. The case also confirmed that patent holders can impose post-sale restrictions in the terms of sale when selling patented articles.

In Lexmark Int’l Inc. v. Impression Products, Inc. (Fed. Cir., en banc, Feb. 12, 2016), Lexmark sold patented printer ink cartridges under a two-tiered pricing program: (1) a low price with permission for only a single use; and (2) a higher price with no use restrictions. Lexmark sued several aftermarket cartridge sellers who were refilling and reselling cartridges that were originally sold under the single-use price model outside of the U.S.

Patent Exhaustion and International Sales

“Patent exhaustion” is the legal doctrine that provides an authorized purchaser of a patented article the authority to engage in certain activities that the patent would otherwise prohibit. The authority given by patent exhaustion include reselling the patented article. However, that authority is not without limits. For example, in a 2001 case (Jazz Photo Corp. v. Int’l Trade Comm’n), the Federal Circuit ruled that a sale of a patented article outside the United States does not authorize the buyer to import the article back into the United States or sell the article within the United States.

In Lexmark, the Federal Circuit considered whether the limitation of Jazz Photo should still hold after the U.S. Supreme recently reached a different conclusion with respect to copyrights. In Kirtsaeng v. John Wiley & Sons, Inc., the Supreme Court ruled that the Copyright Act’s “first sale” doctrine permitted an authorized purchaser of a copy of a work to resell that copy regardless of where it is purchased.

However, in Lexmark the Federal Circuit declined to apply the reasoning of Kirtsaeng to U.S. patent law. The court noted that the Copyright Act expressly gives owners of copyrighted items to take certain acts with respect to the item, but that the Patent Act includes no equivalent provision.

Post-Sale Restrictions

In Lexmark the court also addressed whether the patent holder could impose a “single use” restriction on purchasers of its cartridges. While the district court said “no”, the Federal Circuit reversed, stating that:

[a] sale made under a clearly-communicated, otherwise lawful restriction as to post-sale user or resale does not confer on the buyer and a subsequent entity the ‘authority’ to engage in the user or resale that the restriction precludes.

The court noted that it reached the same conclusion in several decisions dating back to its 1992 decision in Mallinckrodt Inc. v. Medipart, Inc., and it declined to change that precedent in this case.

What’s Next?

While the Federal Circuit’s decision maintained the status quo, that status could be questioned again if the Supreme Court decides to review any aspect of the decision.

To help protect against possible changes by the Supreme Court, which has been very willing to trim the rights of patent holders in recent years, patent holders who sell products abroad may wish to include contractual terms that clearly restrict resales within the United States. Patent holders also may wish to explore contractual relationships that do not result in a “sale” such as a sale by an affiliated foreign entity that is not the patent holder (and not subject to U.S. patent rights), or an arrangement in which the patent holder retains title to the article.

[Image credit:  Norman Kin Hang Chan]

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