The Federal Circuit's new rulings on patent exhaustion



February 12, 2016

Intellectual Property Alert

Author(s): Jennifer Hayes

This alert relates to the impact of the Federal Circuit’s Lexmark International v. Impression Products opinion on cases involving patent exhaustion. Patent owners can rest assured that lawful and clearly communicated single-use or no resale restrictions do not exhaust their patent rights and that foreign sales of patented products that are then imported into or sold in the United States also do not exhaust their patent rights.

Today, the Federal Circuit sitting en banc in Lexmark International v. Impression Products held that resale or reuse of a purchased patented article that is subject to a single-use or no-resale restriction that is clearly communicated to the purchaser remains infringing conduct under the Patent Act, consistent with its earlier decision in Mallinckrodt v. Medipart. The Federal Circuit also held that a patentee by selling or authorizing the sale of a patent product abroad does not exhaust its patent rights with respect to importing the article or selling the product in the United States, consistent with its earlier decision in Jazz Photo v. International Trade Commission.

In the Lexmark case, Lexmark makes and sells toner cartridges for its printers and owns a number of patents that cover those cartridges and their use. The cartridges were sold by Lexmark both in the United States and abroad. All of the domestically sold cartridges and some of the foreign-sold cartridges were subject to a single-use and no-resale restriction. Impression Products purchased and resold physically modified cartridges that enabled reuse of the toner cartridges in violation of the single-use and no-resale restriction. There was no dispute about the adequacy of notice or binding nature of the single-use and no-resale restriction. Additionally, Impression Products did not contend that the restriction gave rise to a patent misuse defense, constituted an antitrust violation, or exceeded the scope of the Patent Act’s grant of rights.

The en banc Federal Circuit disagreed with Impression Products’ argument that the Federal Circuit’s Mallinckrodt and Jazz Photo decisions should be overturned in light of recent Supreme Court decisions. In particular, the Federal Circuit distinguished the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons which held that foreign sales exhaust copyrights on the basis that exhaustion is statutorily defined, while the patent exhaustion doctrine is derived from long-standing case law. The Federal Circuit also distinguished the Supreme Court’s decision in Quanta v. LG on the basis that there were no restrictions on the sales made by the licensee in Quanta. The full Lexmark opinion can be found here.

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