SCOTUS clarifies doctrine limiting patent rights
Anyone who has ever tried to avoid the high prices of toner cartridges by purchasing refills from so-called remanufacturers will be interested in a recent ruling from the U.S. Supreme Court — and many patentees should be interested, too. In Impression Products, Inc. v. Lexmark Int’l, Inc., the Court provided some important clarifications to the patent exhaustion doctrine that limits a patentee’s rights.
A case of exhaustion
Lexmark International owns several patents on toner cartridges and how they’re used. It sells cartridges in the United States and abroad.
The company offers two options to consumers. They can:
- Pay full price and obtain cartridges with no restrictions, or
- Buy discounted cartridges through the company’s “Return Program” if they sign a contract agreeing to use each cartridge only once and refrain from transferring cartridges to any third parties.
Remanufacturers nonetheless manage to acquire empty Lexmark cartridges, including Return Program cartridges and cartridges sold abroad. They then refill them with toner and resell them at lower prices than Lexmark does. In this situation, Lexmark sued remanufacturer Impression Products, Inc. for patent infringement. Lexmark claimed infringement for two groups of cartridges: Return Program cartridges that Lexmark sold within the United States and all toner cartridges that Lexmark sold abroad and that remanufacturers imported into the country.
The trial court dismissed the claims regarding the domestic cartridges, but not the claims related to the foreign cartridges. On appeal, the Federal Circuit Court of Appeals ruled for Lexmark with respect to both types of cartridges, finding that their sales didn’t exhaust the company’s patent rights in them. The case then moved on to the U.S. Supreme Court.
A clearer picture
Under the patent exhaustion doctrine, a patent owner’s sale of one of its products exhausts its patent rights regarding that item. On appeal, Impression Products argued that Lexmark’s sales of its toner cartridges meant Lexmark lost the right to pursue patent infringement claims related to both the domestic and the foreign cartridges.
In its review, the Supreme Court quickly concluded that Lexmark exhausted its patent rights in the domestic cartridges the moment it sold them. Although the single-use / no-resale restrictions in its customer contracts may have been enforceable, they didn’t entitle Lexmark to retain patent rights in an item it elected to sell.
But what about the foreign sales? Lexmark argued that the Patent Act doesn’t give rights to patentees abroad. As a result, patentees selling in foreign markets might not be able to sell their products for the same prices that they could in the United States. Because there are no patent rights to exhaust out of the country, Lexmark argued, there should be no patent exhaustion from sales abroad.
However, the Supreme Court stressed that exhaustion is triggered by a patentee’s decision to give up a patented item for whatever fee it determines is appropriate. A patentee might not command the same amount abroad as in the United States, it conceded, but the Patent Act doesn’t guarantee a particular price — only that a patentee receive one reward for every item that passes out of the monopoly created by patent rights.
Thus, the high court concluded that Lexmark’s foreign sales exhausted its patent rights. The Court found nothing in the text or history of the Patent Act showing that Congress intended to restrict exhaustion to domestic sales.
The Supreme Court’s ruling will no doubt be welcomed by toner cartridge buyers across the country. The owners of patents used in reusable products, however, are probably less pleased. Without patent protection, they’re left with only contract law to restrict the use or resale of their products. And because the contracts are with purchasers, this means they’d have to sue their own customers. •
Impression Products, Inc. v. Lexmark Int’l, Inc., No. 15-1189, May 30, 2017 (U.S.)