The Supreme Court has further limited the rights of patent owners, determining that, once a patentee sells a product either in the U.S. or abroad, it exhausts all of its U.S. patent rights in that product, regardless of any restrictions the patentee purports to impose.
The products at issue in Impression Products, Inc. v. Lexmark International, Inc. are toner cartridges used with laser printers. Lexmark designs, manufactures and sells toner cartridges to consumers in the United States and around the globe. It owns a number of patents that cover components of these cartridges and the manner in which they are used.
Lexmark structures its sales so as to encourage customers to return spent cartridges. One way it does this is by selling cartridges at roughly a 20% discount through Lexmark’s return program. A customer who buys cartridges through the return program owns the cartridges but, in exchange for the lower price, signs a contract agreeing to use the cartridges only once and to refrain from transferring the empty cartridges to anyone but Lexmark.
The purpose of this restriction is to prevent other companies, known as remanufacturers, from acquiring empty Lexmark cartridges, refilling them with toner and reselling them at a much lower price than the price for the new ones sold by Lexmark.
As we reported in 2016, the Federal Circuit, in an earlier stage of this litigation, held that Lexmark could lawfully reserve rights with respect to the patented cartridges as long as the reservation did not run afoul of other laws, such as the antitrust laws. This holding applied to cartridges sold both in the U.S. and abroad.
According to the Federal Circuit, reserving patent rights did not conflict with the common law’s antagonism to restrictions on a purchaser’s right to transfer his ownership rights because patent rights are part of the statutory regime that trumps common law. The Federal Circuit defiantly reaffirmed its holding in Mallinckrodt Inc. v. Medipart, Inc. (1992), even though that decision had been effectively overridden by the Supreme Court’s 2002 decision in Quanta Computer, Inc. v. LG Electronics, Inc.
The Supreme Court was blunt in rejecting the Federal Circuit’s analysis. The lower court “got off on the wrong foot” with its view that the exhaustion doctrine does not require a patent owner to hand over its full “bundle of rights” whenever it sells a patented article:
The products at issue in Impression Products, Inc. v. Lexmark International, Inc. are toner cartridges used with laser printers. Lexmark designs, manufactures and sells toner cartridges to consumers in the United States and around the globe. It owns a number of patents that cover components of these cartridges and the manner in which they are used.
Lexmark structures its sales so as to encourage customers to return spent cartridges. One way it does this is by selling cartridges at roughly a 20% discount through Lexmark’s return program. A customer who buys cartridges through the return program owns the cartridges but, in exchange for the lower price, signs a contract agreeing to use the cartridges only once and to refrain from transferring the empty cartridges to anyone but Lexmark.
The purpose of this restriction is to prevent other companies, known as remanufacturers, from acquiring empty Lexmark cartridges, refilling them with toner and reselling them at a much lower price than the price for the new ones sold by Lexmark.
As we reported in 2016, the Federal Circuit, in an earlier stage of this litigation, held that Lexmark could lawfully reserve rights with respect to the patented cartridges as long as the reservation did not run afoul of other laws, such as the antitrust laws. This holding applied to cartridges sold both in the U.S. and abroad.
According to the Federal Circuit, reserving patent rights did not conflict with the common law’s antagonism to restrictions on a purchaser’s right to transfer his ownership rights because patent rights are part of the statutory regime that trumps common law. The Federal Circuit defiantly reaffirmed its holding in Mallinckrodt Inc. v. Medipart, Inc. (1992), even though that decision had been effectively overridden by the Supreme Court’s 2002 decision in Quanta Computer, Inc. v. LG Electronics, Inc.
The Supreme Court was blunt in rejecting the Federal Circuit’s analysis. The lower court “got off on the wrong foot” with its view that the exhaustion doctrine does not require a patent owner to hand over its full “bundle of rights” whenever it sells a patented article:
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, however, extinguishes that exclusionary power.
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