20 March 2017
Washington DC
Reporter: Barney Dixon

SCOTUS to decide patent exhaustion question


The US Supreme Court will hear oral arguments tomorrow (21 March) in the much-anticipated Impression Products v Lexmark International litigation, as justices grapple with one of the more uncertain areas of US patent law.

Lexmark accused Impression of patent infringement at the US District Court for the Southern District of Ohio last year, after Impression sold Lexmark products, which were modified abroad, in the US.

But Impression filed a motion to dismiss, arguing that Lexmark had “exhausted its US patent rights” by its initial sales of them.

The district court granted Impression’s motion involving products Lexmark had first sold in the US, but also held that the exhaustion doctrine did not apply to the products Lexmark had sold abroad.

Both parties appealed to the US Court of Appeals for the Federal Circuit, which issued a 10-2 en banc decision, siding with Lexmark in that the sale of a patented product abroad does not exhaust a party’s rights.

Impression took the case to the Supreme Court, asking whether a “conditional sale” that transfers title to the patented item, while specifying post-sale restrictions on the article’s use or resale, avoids application of the patent exhaustion doctrine and therefore permits the enforcement of restrictions through the infringement remedy.

Christopher Loh, partner at Fitzpatrick, Cella, Harper & Scinto, argued that Impression’s position “appears to ignore a long line of precedent upholding the rights of patentees to sue downstream purchasers for unauthorised uses”.

“I think the court’s questions to Impression’s counsel will focus on that precedent.”

Loh also identified the Supreme Court’s continued interest in questions over what types of extraterritorial activity might affect US patent rights, as seen in its Life Tech v Promega ruling.

“Several amici have voiced a common concern that, if foreign sales are held to trigger exhaustion, such sales might reduce incentives to innovate and encourage the formation of grey markets for low-quality or potentially unsafe goods,” he said.

Robert Gerstein, patent litigation partner at Marshall Gerstein, added that a reversal by the Supreme Court on either side would “upset the business models of many companies”.

“Businesses like Lexmark that sell products at a lower price believing they will not be reused might raise prices or lease products instead of selling them. Depending on how the court rules, some businesses might use licences or other structures to enhance their ability to impose post-sale restrictions.”

He added: “Finally, those businesses that charge more in the US for patented items than they do for foreign sales, will likely see more of their products purchased overseas and brought back to the US.”

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