Why it matters: The Federal Circuit has long held that sales of patented products outside the United States, as well as sales of patented products to end users in the United States that are accompanied by a lawful single-use/no-resale restriction, do not give rise to patent exhaustion. However, some have questioned the continued validity of these holdings in light of recent decisions by the U.S. Supreme Court. An en banc panel of the Federal Circuit, in Lexmark International, Inc. v. Impression Products, Inc., has confirmed that its prior precedent concerning the uncodified doctrine of patent exhaustion has not been overruled—at least when the patented products are sold by the patent owner.
Detailed discussion: On February 12, 2016, an en banc panel of the Federal Circuit in Lexmark International, Inc. v. Impression Products, Inc.held that Lexmark's patent rights were not "exhausted" by: (1) foreign sales of its patented toner cartridges; or (2) domestic sales of its patented toner cartridges that were subject to an express single-use/no-resale restriction. The panel rejected arguments that long-established Federal Circuit precedent concerning the doctrine of patent exhaustion had been overturned by more recent U.S. Supreme Court decisions.
The doctrine of patent exhaustion (otherwise known as the patent "first sale" doctrine) addresses the circumstances under which a sale of a patented article (or an article sufficiently embodying the patent), by the patentee (or authorized by the patentee), confers on the buyer the "authority" to engage in acts involving the article (such as resale) that are infringing acts in the absence of such authority.
Lexmark makes and sells printers and toner cartridges for its printers (cartridges that are covered by several Lexmark patents). Some of the cartridges at issue were first sold by Lexmark outside the United States. Others were sold domestically, but at a discount and subject to an express single-use/no-resale restriction. Impression later acquired the cartridges at issue, had a third party physically modify those cartridges subject to the restriction, and resold the patented Lexmark cartridges in the United States (or imported them into the United States for resale). Impression's actions therefore constituted patent infringement—unless Lexmark's initial sale of the cartridges triggered the doctrine of patent exhaustion (or some other defense, such as an implied license).
The lower (district) court granted Impression's motion to dismiss with respect to the Lexmark cartridges first sold in the United States, but found in favor of Lexmark with respect to the cartridges it had sold abroad. Both parties appealed, where the Federal Circuit, sua sponte, requested en banc review of the following two questions:
- The case involves certain sales, made abroad, of articles patented in the United States. In light of Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2012), should this court overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), to the extent it ruled that a sale of a patented item outside the United States never gives rise to United States patent exhaustion?
- The case involves…sales of patented articles to end users under a restriction that they use the articles once and then return them… In light ofQuanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion?
The First Question (Sales Made Outside the United States)
With respect to the first question, the en banc panel declined to overturnJazz Photo, a case holding that "a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority." In so doing, the Federal Circuit distinguished the Supreme Court's 2012Kirtsaeng opinion, stating that Kirtsaeng addressed the "first sale" doctrine codified in the Copyright Act (17 U.S.C. §109(a)), and did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise-infringing domestic acts.
The Second Question (Sales Made Pursuant to a Restriction)
The Federal Circuit also affirmed its prior decision in Mallinckrodt—that a patentee, when selling a patented article subject to a resale/use restriction that is lawful and clearly communicated to the purchaser, does not (by that sale) give the buyer, or a downstream buyer, the resale/reuse authority that has been expressly denied. The en banc panel stated thatMallinckrodt's principle remained sound, even after the Supreme Court's decision in Quanta Computer, in which the Court did not have before it (or address) a sale by a patentee (let alone one made subject to a restriction), but instead addressed a situation where the sale was made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.
On March 21, 2016, Impression filed a petition for writ of certiorari with the Supreme Court.
See here to read the 2/12/16 en banc Federal Circuit opinion in Lexmark International, Inc. v. Impression Products, Inc.
See here to read the Federal Circuit's 4/14/15 order entitled "Sua Sponte Hearing En Banc."