In Lexmark Int’l v. Impression Prods., the Federal Circuit addressed whether recent Supreme Court jurisprudence overruled two prior Federal Circuit decisions holding that:

  1. a sale subject to a clearly communicated single-use/no-resale restriction does not trigger the doctrine of patent exhaustion, and
  2. foreign sales do not trigger exhaustion.

On both fronts, the Federal Circuit ruled that recent Supreme Court opinions did not affect its earlier holdings.

What This Means to You

  • Unless and until the Supreme Court speaks on these issues, remember:
    • Clearly communicated, otherwise lawful single-use and no-resale restrictions can circumvent the doctrine of patent exhaustion; and
    • Foreign sales do not exhaust U.S. patent rights.

Case Background

Lexmark, the patentee in this case, makes and sells printers and toner cartridges, in the U.S. and abroad. At issue in the case were (a) cartridges Lexmark sold in the U.S. pursuant to a “Return Program,” through which cartridges were sold at a discount and subject to a single-use/no-resale restriction, and (b) cartridges Lexmark sold outside the U.S., both at full price and subject to Return Program restrictions.

Impression argued that it did not infringe Lexmark’s patents when it resold Return Program cartridges originally sold within the U.S. because such sales were protected by the doctrine of patent exhaustion (a.k.a. the “first sale” doctrine). That doctrine provides that the authorized sale of an article exhausts a patent holder’s rights in that article. Specifically, Impression argued that the Supreme Court’s 2008 Quanta Computer v. LG Elecs. case, which reaffirmed the import of the doctrine of patent exhaustion and extended that doctrine to method claims, overruled the Federal Circuit’s 1992 Mallinckrodt v. Medipart decision, which held that sales subject to lawful single-use/no-sale restrictions do not trigger exhaustion.

Impression also argued that it did not infringe Lexmark’s patents when it imported and resold cartridges Lexmark originally sold outside the U.S. Specifically, Lexmark contended that the Federal Circuit’s 2001 Jazz Photo Corp. v. ITC decision, which held that foreign sales do not trigger exhaustion, was no longer good law in view of the Supreme Court’s 2013 Kirtsaeng v. John Wiley & Sons decision, which held that the “first sale” doctrine applies to copyrighted works lawfully made and sold abroad.

Decision Analysis

In reaffirming its earlier Mallinckrodt decision, the Federal Circuit explained that the exhaustion doctrine requires an unrestricted first sale, and a sale made subject to a lawful post-sale restriction is not such a sale. The Federal Circuit emphasized that a “clear denial of authority leaves a buyer without the denied authority,” and “a buyer cannot reasonably expect that the seller is conferring authority that the seller is expressly denying.”

The Federal Circuit advised that Supreme Court cases containing general expressions of the doctrine of exhaustion (i.e., decisions stating flatly that the authorized sale of an article exhausts a patent holder’s rights), including Quanta, require careful reading to determine the issues the Court actually decided. The Federal Circuit then ruled that Mallinckrodt survived Quanta because in Quanta, the Supreme Court focused on whether the exhaustion doctrine applies to method claims, and did not address patentee sales made subject to lawful post-sale restrictions. The Federal Circuit held that when a patentee sells a patented article under otherwise-proper restrictions on resale and reuse, the patentee does not exhaust its patent rights.

In reaffirming Jazz Photo, the Federal Circuit explained that the Supreme Court’s Kirtsaeng opinion was a copyright-specific decision, one that interpreted an express “first sale” provision in the Copyright Act that has no counterpart in the Patent Act. According to the Federal Circuit, the factors that motivated the Supreme Court’s Kirtsaeng decision were copyright-specific. The Federal Circuit noted that the Patent Act gives patentees the reward available from American markets, and it highlighted patent law’s territorial nature and the high costs of securing global patent rights. The Federal Circuit held that a foreign sale of a U.S.-patented article, even when made by or with the approval of the U.S. patentee, does not exhaust the patentee’s U.S. patent rights. Thus, Lexmark’s foreign sales did not trigger exhaustion and posed no bar to Lexmark’s suit against Impression.

Note: On March 21, 2016, Lexmark filed a petition for writ of certiorari in the Supreme Court. A response to that petition is due on May 23, 2016. So stay tuned to see if the Supreme Court decides to take this case on.

Takeaways

  • Mallinckrodt remains good law (for now): Exhaustion is not triggered when a patentee sells a patented article under otherwise-proper restrictions on resale and reuse that are communicated to the buyer at the time of sale.
  • Jazz Photo remains good law (for now): Foreign sales do not trigger exhaustion of U.S. patent rights.