How Impression Products v. Lexmark International Can Impact the Patent Field
On December 2, 2016, the Supreme Court granted cert. to review the Federal Circuit’s decision regarding domestic and international patent exhaustion in Lexmark International, Incorporated v. Impression Products, Incorporated.[1] The parties have submitted briefs and oral arguments are scheduled for March 21, 2017.
Plaintiff Lexmark International (“Lexmark”) obtained patents for its toner cartridges for laser printers. Id. at 727. Lexmark sold the patented toner cartridges subject to a single-use/no re-sale restriction in both the United States and abroad. Id. The single-use/no re-sale restriction required that a purchaser agree (1) not to reuse the cartridge when the toner runs out and to (2) return the empty cartridge to Lexmark for recycling and remanufacture.[2] The parties agree that the end user had adequate notice of the restriction.[3]
In 2010, Lexmark sued Impression Products patent infringement under 35 U.S.C. 271(a) in the U.S. District Court for the Southern District of Ohio.[4] Lexmark alleged that Impression Products purchased used cartridges initially sold to consumers in the United States and abroad, refurbished the them, and ultimately resold the cartridges to new consumers in the United States, which is directly contrary to the single-use/no-resale restriction on the cartridge.[5] In response, Impression Products argued that Lexmark exhausted its patent rights by selling the cartridges both domestically and abroad.[6]
The District Court granted Impression Products’ motion to dismiss Lexmark’s infringement claims for the cartridges initially sold domestically.[7] The District Court concluded that the Supreme Court’s decision in Quanta Computer, Inc., v. LG Electronics, Inc.[8] implicitly overruled the Federal Circuit’s holding in Mallinckrodt, Incorporated v. Medipart, Incorporated.[9] Thus, the District Court held that despite the post-sale restrictions accompanying the cartridges, Lexmark authorized the initial sale of those cartridges and exhausted its patent rights.[10]
In regards to the cartridges sold abroad, the District Court denied Impression Product’s second motion to dismiss. Id. Specifically, the District Court concluded that the Supreme Court’s decision in Kirtaseng v. John Wiley & Sons, Inc.[11] did not overrule the Federal Circuit’s decision in Jazz Photo Corporation v. International Trade Commission.[12] Thus, the District Court concluded that Lexmark’s sales of the cartridges outside of the U.S. did not exhaust its U.S. patent rights.[13]
The Federal Circuit took the case en banc and issued a split 10 – 2 decision on February 12, 2016. Circuit Judge Taranto wrote the majority opinion. The majority reversed the District Court’s holding for the cartridges initially sold domestically and reaffirmed its holding in Mallinckrodt.[14] Thus, the majority held that a patent rights holder does not exhaust its patent rights when it initially sells its patented articles subject to clearly communicated and lawful restrictions.[15] The majority also argued that Quanta is distinguishable because Quanta did not involve sales from a patentee and did not address post-sale restrictions.[16] Therefore, Quanta did not overrule Mallinckrodt.[17]
The majority also affirmed the District Court’s holding for the cartridges initially sold abroad and that Kirtsaeng did not overrule Jazz Photo.[18] Specifically, the majority argued that Kirtsaeng was primarily concerned with statutory interpretation of the Copyright Act and never addressed patent exhaustion in the copyright context.[19] Therefore, Kirtsaeng did not overrule Jazz Photo and held that a foreign sale does not exhaust a U.S. patent holder’s patent rights.[20]
A reversal by the Supreme Court on both issues will likely have a large impact on patent law and technology companies in general. For instance, a reversal of Mallinckrodt by the Supreme Court could limit a patent holder’s rights to enforce post-sale restrictions in the U.S. Therefore, technology companies may have to structure transactions involving their technology as licenses, as opposed to a sale, to preserve their patent rights. Additionally, many products sold in the U.S. are designed, manufactured, and assembled in different countries. Under Jazz Photo, these companies face the risk of a patent infringement suit when they import their finished product into the U.S. Therefore, a reversal of Jazz Photo by the Supreme Court would likely reduce the risk of a patent infringement suit when these companies import their final products to the US.
Oral arguments scheduled for March 21, 2017, and technology companies and patent rights holders will likely receive guidance on these issues by June.
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