Foreign sales do not trigger patent exhaustion, and patentees can impose restrictions on further use or sale of patented items to prevent their own sales from exhausting their rights
Lexmark International, Inc. v. Impression Products, Inc., Nos. 2014-1617, 2014-1619 (Fed. Cir. Feb. 12, 2016) (en banc)
The patentee claimed infringement by the resale and import of patented products that were first sold by the patentee both domestically and abroad. Some of the foreign-sold products, and all of the domestically sold products, were subject to an express single-use/no-resale restriction. The alleged infringer challenged the patentee’s rights under the doctrine of exhaustion. Notably, the parties did not consider any implied license issues for the foreign sales.
The district court held that the foreign sales did not exhaust the patentee’s rights, but that the sales subject to the single-use/no-resale restrictions exhausted the patent rights because such rights cannot be preserved by post-sale restrictions. The Federal Circuit affirmed the district court as to the foreign sales, but reversed the holding as to post-sale restrictions.
The Federal Circuit, en banc, reaffirmed its 2001 Jazz Photo decision that only sales in the United States can trigger patent exhaustion. It also rejected the alleged infringer’s contention that a different result was compelled by the Supreme Court’s 2013 copyright decision in Kirtsaeng v. John Wiley & Sons, Inc., which did not address patent law or the treatment under the Patent Act of a foreign sale as neither conclusively nor even presumptively exhausting the patentee’s rights in the U.S.
The Federal Circuit also adhered to its 1992 Mallinckrodt decision that a patentee does not exhaust its rights when it sells a patented article subject to a lawful, clearly communicated single-use/no-resale restriction. The Federal Circuit distinguished the Supreme Court’s 2008 Quanta Computer v. LG Electronics decision, where the court considered a sale by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.