Federal Circuit Ruling Retains Pro-Patent Owner Limits on Patent Exhaustion
Patent owners like Lexmark International, Inc., are celebrating a Federal Circuit decision to reaffirm patent owners limits on patent exhaustion regarding post-sale use restrictions, past-sale resale restrictions and foreign sales.[1]
Normally, a patent owner’s sale of its patented product distinguishes its right in that product. Thereafter, the buyer may unlimitedly use, offer for sale and resell that product without being liable for patent infringement.[2] However, a patent owner can prevent such patent exhaustion by selling its patented product subject to a clearly communicated, lawful restriction on post-sale use or resale.[3] These restrictions are especially common in the medical device industry because they help producers maintain the quality of their products and protect patient safety.[4]
Selling a patented product abroad also fails to exhaust the patent owner’s United States patent rights. Patent owners have historically taken advantage of this exception to prevent arbitrage and sell products at lower prices overseas.[5]
In Lexmark, Int’l, Inc. v. Impression Prods., Inc., the 10-2 en banc panel held that these two valued exceptions are still applicable and restrict the reach of patent exhaustion in light of recent Supreme Court decisions Quanta Computer, Inc. v. LG Electronics, Inc. and Kirtsaeng v. John Wiley & Sons, Inc.[6]
In Quanta, the court found that “authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control post-sale use of the article.” In Kirtsaeng, the court found that sales abroad exhaust U.S. copyrights.[7]
The court rejected the contention that the Quanta decision should be interpreted to mean that such restrictions result in exhaustion, stating that the Quanta cases involved different issues. The en banc court also found that the Supreme Court’s decision in Kirtsaeng did not apply because the Copyright and Patent Act call for different results.[8]
For now, this decision settles the post-Quanta and post-Kirtsaeng confusion about the limits on patent exhaustion. Patent owners can continue to enforce their rights against those who violate lawful restrictions or those who purchase patented items overseas and import them into the United States for resale.[9]
Nevertheless, Edward O’Connor of Avyno Law PC, an attorney for Impression, said that the company will appeal to the Supreme Court in the next few weeks.[10]
“We always figured that this was one step on the way to the Supreme Court,” he said. “We intend to file a petition for writ of certiorari quickly.”[11]
On the other hand, Constantine Trela, counsel for Lexmark, is very pleased with the Federal Circuit’s decision, which he mentioned was “very, very thorough.”[12]
While this pro-patent decision maintains the Federal Circuit precedent, consumers and those who may be potentially accused of infringement down the road likely see this as a loss. However, in several recent decisions, the Supreme Court has reversed Federal Circuit decisions that the Court said inappropriately created special rules that only apply to patent cases.[13]
Image: Eric Smith, owner of Impression Products, Inc. Credit: Krista Belcher.
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