On May 30, 2017, the United States Supreme Court in Impression Prods. Inc. v. Lexmark Int’l, Inc. expanded the patent exhaustion doctrine to hold that U.S. sales subject to post-sale restrictions, as well as foreign sales, may exhaust a U.S. patentee’s right to sue purchasers for patent infringement. The Supreme Court’s Impression decision overturns decades of Federal Circuit precedent under which those types of sales were deemed not to exhaust U.S. patent rights.

Background

The dispute in Impression concerns two types of Lexmark printer cartridges: (i) cartridges sold in the United States subject to a lawful restriction that the cartridges not be reused or resold in the United States; and (ii) cartridges first sold abroad and then remanufactured and imported into the United States. Lexmark sued Impression for patent infringement based on Impression’s remanufacture and resale of both types of cartridges. Impression moved to dismiss the suit, asserting that, under the patent exhaustion doctrine, Lexmark’s sales of both types of cartridges exhausted Lexmark’s right to sue Impression for patent infringement. The district court found that Lexmark’s sale of cartridges in the U.S.—but not its foreign sales—triggered the exhaustion doctrine. The parties appealed.

On appeal, the Federal Circuit relied on its prior precedent to hold that neither Lexmark’s U.S. sales nor Lexmark’s foreign sales triggered the exhaustion doctrine. As to the cartridges sold in the U.S., the Federal Circuit, citing Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), concluded that Lexmark’s lawful post-sale restrictions precluded application of the exhaustion doctrine to those cartridges. As to the cartridges sold abroad, the Federal Circuit, citing Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), concluded that sales abroad did not exhaust Lexmark’s ability to sue Impression for infringement in the United States.

The Supreme Court Decision

The Supreme Court reversed and remanded. In a decision authored by Chief Justice Roberts (and joined by Justices Kennedy, Thomas, Breyer, Alito, Sotomayor and Kagan), the Supreme Court held that “[o]nce a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license.”

In support of that holding, the Supreme Court invoked centuries-old common law against restraints on alienation, as well as prior instances—namely, Boston Store of Chicago v. American Graphophone Co., 246 U.S. 8 (1918), United States v. Univis Lens Co., 316 U.S. 241 (1942), and Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008)—in which the Supreme Court held that U.S. sales subject to various restrictions exhausted the ability of patentees to sue purchasers for infringement. The Supreme Court further justified its expansion of the patent exhaustion doctrine by explaining that, as a policy matter, “extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain.” Citing the briefs of various retail and high-tech amici curiae, the Court also noted that “advances in technology, along with increasingly complex supply chains, magnify the problem.”

In expanding the patent exhaustion doctrine to cover U.S. sales subject to post-sale restrictions, the Supreme Court rejected the Federal Circuit’s view that such post-sale restrictions represent the exercise of a patentee’s authority to withhold certain patent rights from a purchaser—thereby allowing the patentee to enforce those rights following sale. The Supreme Court explained:

The misstep in this logic is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on “the scope of the patentee’s rights.” The right to use, sell, or import an item exists independently of the Patent Act. What a patent adds—and grants exclusively to the patentee—is a limited right to prevent others from engaging in those practices. Exhaustion extinguishes that exclusionary power. As a result, the sale transfers the right to use, sell, or import because those are the rights that come along with ownership, and the buyer is free and clear of an infringement lawsuit because there is no exclusionary right left to enforce. (citations omitted; emphasis in original.)

The Supreme Court further clarified that, in the wake of its Impression decision, sales of patented items that occur through a licensee can trigger exhaustion—notwithstanding that such sales are subject to the patentee’s limitations upon the licensee:

A patentee’s authority to limit licensees does not, as the Federal Circuit thought, mean that patentees can use licenses to impose post-sale restrictions on purchasers that are enforceable through the patent laws. So long as a licensee complies with the license when selling an item, the patentee has, in effect, authorized the sale. That licensee’s sale is treated, for purposes of patent exhaustion, as if the patentee made the sale itself. The result: The sale exhausts the patentee’s rights in that item. (emphases in original.)

If a purchaser does not comply with a restriction imposed by the license, the Supreme Court explained that “the only recourse for the licensee is through contract law, just as if the patentee itself sold the item with a restriction.”

As to foreign sales, the Supreme Court concluded that “[a]n authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.” In reaching that conclusion, the Supreme Court relied primarily on Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013), which held that, under the “first sale doctrine” codified at 17 U.S.C. §109(a) of the Copyright Act, the first sale of a copyrighted item abroad exhausts a U.S. copyright. The Supreme Court explained that Kirtsaeng ultimately was based on the common law doctrine against restraints on alienation; that that common law doctrine “makes no geographical distinctions”; and that “nothing in the text or history of the Patent Act shows that Congress intended to confine that borderless common law principle to domestic sales.”

Justice Ginsburg dissented from the majority’s holding that foreign sales exhaust U.S. patent rights. According to Justice Ginsburg, “[b]ecause a sale abroad operates independently of the U.S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U.S. patent rights. U.S. patent protection accompanies none of a U.S. patentee’s sales abroad—a competitor could sell the same patented product abroad with no U.S.-patent-law consequence. Accordingly, the foreign sale should not diminish the protections of U.S. law in the United States.” Justice Ginsburg also disagreed with the majority’s reliance on Kirtsaeng, in view of the fact that the Patent Act, unlike the Copyright Act, “contains no analogue to 17 U.S.C. §109(a), the Copyright Act first-sale provision analyzed in Kirstaeng.”