Lexmark Int’l, Inc., v. Impression Products, Inc.

The en banc U. S. Court of Appeals for the Federal Circuit issued its long awaited (10-2) decision, reaffirming the court’s prior rulings inMallinckrodt and Jazz Photo that a seller can use its patent rights to block resale and reuse of a product, and authorized sales of a product abroad does not exhaust the U.S. patent rights associated with that product. Lexmark Int’l, Inc., v. Impression Products, Inc., Case Nos. 14-1617; -1619 (Fed Cir, Feb. 12, 2016) (en banc) (Taranto, J., joined by Prost, CJ and Newman, Lourie, Moore, O’Malley, Reyna, Wallach, Chen and Stoll,JJ.) (Dyk, J. dissenting, joined by Hughes, J.).

The case arose in the context of a printer manufacturer, Lexmark, enforcing patent rights in its toner cartridges. Lexmark’s infringement suit addressed two types of cartridges: “single-use” cartridges Lexmark initially sold in the United States, at a reduced price, subject to a box-top label license that notified customers to use the cartridge only once; and cartridges Lexmark sold abroad. Impression acquired spent cartridges, repaired the cartridges such that they could be used again and sold the cartridges in the United States without Lexmark’s authorization.

When Lexmark sued for infringement, Impression responded that Lexmark’s initial sale of the cartridges in the distribution chain without any restriction on resale terminated or “exhausted” Lexmark’s right to enforce its U.S. patents. The district court held that the doctrine prevented Lexmark from enforcing the post-sale single-use restrictions in a patent-infringement suit but allowed Lexmark to enforce its patent rights in foreign-sold cartridges resold by Impression in the United States, because the first sale occurred abroad.

Soon after the appeal was docketed at the Federal Circuit, the Court sua sponte ordered an en banc consideration of the issue of international patent exhaustion in the Court and its 2001 Federal Circuit decision in Jazz Photo (IP Update, Vol. 4, No. 9), to be reconsidered in view of the Supreme Court 2012 copyright decision in Kirtsaeng v. John Wiley & Sons (IP Update, Vol. 15, No. 5). The Federal Circuit patent rule was there was no exhaustion of U.S. patent rights as a consequence of an authorized sale abroad, while the Supreme Court copyright rule was essentially the opposite.

In its en banc order, the Federal Circuit also noted the apparent tension between its 1992 Mallinckrodt decision (finding single use/no resale restrictions by patent owner to be lawful) and the Supreme Court’s 2008 Quanta Computer decision (IP Update, Vol. 11, No. 6) as to whether patent owners can restrict the scope of exhaustion attended the sale of a patented article (IP Update, Vol. 18, No. 4).

The majority opinion, penned by Judge Richard G. Taranto (92 pages), explained in considerable detail why Mallinkrodt and Jazz Photoremain good law, notwithstanding the Supreme Court’s intervening decisions in Quanta and Kirtsaeng.

In doing so, the Federal Circuit rejected arguments that foreign sales and unrestricted first sales of an item that had post–first sale use restrictions automatically exhaust patent rights in a patented article. Both the U.S. government and a toner-cartridge remanufacturer had urged the court to reconsider its exhaustion precedents in light of the intervening Supreme Court decisions.