On February 12th, 2016 the Federal Circuit decided Lexmark Int’l Inc. v. Impression Prods., No. 2014-1617, 2014-1619, 2016 U.S. App. LEXIS 245.

Lexmark International (Lexmark) begged the issue of whether sales of printer cartridges carried with it “conferred authority” to enable Impression, one of Lexmark’s buyers’ customers, to import and sale an otherwise infringing product.  Impression Products (Impression) bought repurposed “return program” (single-use restricted) cartridges from a third party in which the original Lexmark DRM microchip (implemented to restrict use).

In short, no such authority is conferred by a domestic or international sale. A wide range of both Federal Circuit and Supreme Court precedence were analyzed and contextualized for the court’s decision.

The Federal Circuit affirmed the holdings in both Mallinckrodt and Jazz Photo.  In Mallinckrodt, the Federal Circuit held there was no per se illegal bar on price-fixing or tying restrictions, specifically that a restriction may be legal so long is found to be reasonably within the patent grant, as opposed to an impermissible expansion.  Accordingly, a single-use restriction if correctly and lawfully communicated to the buyer, does not confer within the exhaustion of the seller’s patent rights.  In Jazz Photo, the Federal Circuit held that the refitting of a disposable camera with new film, battery, etc. was a permissible repair of the patented article as opposed to impermissible reconstruction.

The District Court and the Federal Circuit here looked closely at Kirtsaeng. There the Court held that first sales made lawfully under the Copyright Act, whether abroad or domestic, exhausts the scope of copyright rights.  The practical effect within the Kirtsaeng parties is that an individual may buy a patented article abroad, and if that sale was authorized, satisfying the first sale doctrine, the buyer may resell the article without restriction.  The Federal Circuit here determined that Kirtsaeng, does not nor should it limit and constrict the no-exhaustion patent conclusion in Jazz, as the Patent Act should not be automatically equated to Copyright principles.

In Quanta, the Supreme Court held that the sale of a product, which substantially embodies all essential features, but does not contain all limits or is otherwise incomplete exhausts patent rights.  The same reasoning applies to method patent rights so long as the sale satisfactorily embodies the patent scope.  Thus within Quanta, it was found that a licensee’s sale of a product exhausts the patentee’s rights as well, so long, as there are no restrictions towards consumer/user sales.  In Lexmark, the Federal Circuit reversed the District Court’s finding that Quanta overruled Mallinckrodt.

In Lexmark “[w]e conclude otherwise, as we did in Mallinckrodt and subsequent decisions. A sale made under a clearly communicated, otherwise-lawful restriction as to post-sale use or resale does not confer on the buyer and a subsequent purchaser the “authority” to engage in the use or resale that the restriction precludes.”

In short, assuming that such a post-sale restrictions falls within the permissible range outlined in Mallinckrodt and Quanta, which is clearly communicated does not exhaust the patentee’s rights.  Further, a foreign sale of a patented article made by or with approval from the patentee does not enable the buyer to engage in prohibited repair conduct.  Loss of patent rights is still contingent on the existence of an express or implied license.

The principle of patent exhaustion has gained a second wind, reinvigorating the scope of patent rights in the context of domestic and international sales.

See either http://www.ipwatchdog.com/2016/02/21/cafc-reaffirms-patent-exhaustion-doctrine-lexmark-v-impression-products/id=66314/ or http://www.ipwatchdog.com/2016/03/01/restricted-sales-not-exhaust-patent-rights-supreme-court-rulings/id=66573/ for another discussion of this topic.

Greg Miraglia




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