Consumables have large profit margins, which gives rise to the old adage “give away the razor to sell razor blades.” The large profit margin provides impetus for companies to try to prevent the recycling and redistributing of their consumable products. About seven years ago, Lexmark attempted to stop the refilling and redistribution of their printer cartridges by including a computer chip and program in each cartridge. Refilled cartridge re-distributors used a compatible chip and a copy of the program. Lexmark sued the chip supplier and obtained an injunction at the District Court, but the injunction was reversed by the Court of Appeals of the Sixth Circuit. The Sixth Circuit Appeals Court found that fair use was likely and that Lexmark did not show likelihood of success in the Digital Millennium Copyright Act claims.
After failing in their attempt at using copyrights to prevent refilling, Lexmark then patented components of some of their new cartridges in order to prevent copying and perhaps prevent refilling. On August 20, 2010, Lexmark filed a complaint with the US International Trade Commission (ITC) alleging that a number of companies were either selling replacement cartridges (“clones”) that infringe a number of Lexmark patents, or were selling refilled, genuine Lexmark cartridges that were purchased outside of the United States. The legal issues with respect to the replacement cartridges, are the usual issues in an infringement complaint: claim construction, applicability of the doctrine of equivalents, as well as the validity and enforceability of the patents. With respect to the refilling of the genuine Lexmark cartridges, the legal issues are different from infringement.
In regards to refilling cartridges, the legal issues are repair versus reconstruction and patent exhaustion. For the sale of a patented item in the US, the patent holder’s (patentee’s) rights are exhausted by the sale. If the item is sold in the US, the sold patented item becomes the property of the buyer and the patentee does not have the right to exclude use.
The right to repair is one of the property rights held by the buyer of the patented item. In Jazz Photo v. ITC, the Court of Appeals for the Federal Circuit (CAFC) provided a summary of the legal issues behind repair versus reconstruction. The right to repair and its connection to patent exhaustion dates back to early Supreme Court cases; however, the CAFC has previously held that the repair rights (also referred to as the “repair defense”) provided by patent exhaustion are only available to patented products sold within the U.S. A patented product purchased outside of the U.S. does not provide the buyer with a right to repair and distribute. Consequently, refurbishing and refilling a cartridge purchased outside of the US may result in patent infringement if parts of the cartridge are protected by patents.
The CAFC has recently restated its previous position that patent exhaustion does not apply to products purchased outside of the U.S. However, the US Supreme Court is considering, in case of Costco v. Omega (in which Costco appeals a 9th Circuit decision, whether the first sale doctrine in copyrights, which is analogous to patent exhaustion, applies to items sold outside of the United States. A holding that the first sale doctrine, which exhausts a copyright owner’s rights, applies to items sold outside of the United States could change the position that patent exhaustion does not apply to products bought outside of the US.