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SCOTUS: Supreme Court Limits Patent Owners’ Post-Sale Power

May 31, 2017 (snippets Alert)

Authored by Kevin E. Noonan, Ph.D.

The Supreme Court handed down its opinion in Impression Products v. Lexmark yesterday, reversing the Court of Appeals for the Federal Circuit regarding the scope of the patent exhaustion doctrine. The Court held that patent rights are exhausted completely for an authorized sale of a patented article to a purchaser, whether in the U.S. or abroad, and that a patentee cannot lawfully restrict the purchaser’s rights by asserting patent infringement.

The case arose over the resale of laser printer toner cartridges, sold by Lexmark both in the U.S. and abroad. The cartridges were sold at a discount under an agreement that prohibited the buyer from selling to any third party the cartridges for reloading with toner. Petitioner/accused infringer Impression Products reloaded and sold Lexmark cartridges obtained from discount purchasers both foreign and domestic. The district court dismissed Lexmark’s patent infringement suit as to U.S. sales but permitted pursuit of an infringement remedy for foreign sales; the Federal Circuit affirmed as to foreign sales but also permitted Lexmark to proceed against Impression Products for infringement based on U.S. sales as well.

The Supreme Court held that sale of a patented article exhausted the patentee’s ability to restrict a purchaser’s ownership rights in the purchased article. The Court based its decision on the “venerable principle” in common law against restraint on the alienation of chattels. The Court found that this principle was a limitation on the patentee’s right to exclude and that there was no indication Congress intended to overrule this principle with patent law’s infringement provisions. The Court recognized that there could be remedies under contract law that would permit a patentee to restrict use of a patented article after sale, but that all patent rights were exhausted.

The Court extended the reach of the patent exhaustion principle to include foreign sales, analogous to its copyright decision in Kirtsaeng v. John Wiley & Sons, Inc., 568 U. S. 519, 538 (2013). The opinion states that there is no “theoretical or practical” reason to treat these two forms of intellectual property differently and that prohibitions against restraints on alienation of property have no geographical limits.

The Court’s analysis suggests that there may be other ways to achieve Lexmark’s goals that would pass muster; for example, rather than selling toner cartridges at a discount under the proviso that they not be resold to third parties, Lexmark could offer a discount on replacement cartridges provided that empty cartridges were returned. But the Court’s decision affirmatively prohibits patentees from using patent infringement as a way to police resale (or reimportation) of a patented article once sold, or to otherwise in any way use patent law to limit a purchaser’s ownership rights once a patented article has been sold.

Decided May 30, 2017

The opinion can be found at https://www.supremecourt.gov/opinions/16pdf/15-1189_ebfj.pdf.

Kevin E. Noonan, Ph.D., an MBHB partner and Chair of the firm’s Biotechnology & Pharmaceuticals Practice Group, is an experienced biotechnology patent lawyer who brings more than 20 years of extensive work as a molecular biologist studying high-technology problems in serving the unique needs of his clients. noonan@mbhb.com

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