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.”

More news
The latest news from IPPro Patents
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
USPTO unveils new filing system
15 December 2017 | Washington DC | Reporter: Barney Dixon
The US Patent and Trademark Office (USPTO) has unveiled a new filing system that will launch in 2018 and be fully implemented by 2019
Innovation has thrived under AIA, according to tech association
14 December 2017 | Washington DC | Reporter: Barney Dixon
The High Tech Investors Alliance has responded to contentions that recent legislation and US Supreme Court decisions, including the Alice Corp v CLS Bank case, have weakened the US patent system
Patent perception must shift, says Schecter
13 December 2017 | London | Reporter: Barney Dixon
Public perception must shift if the US is to find feasible solutions to patent abuse, according to chief patent counsel at IBM Manny Schecter
Patent owners winning in IPR
12 December 2017 | New York | Reporter: Barney Dixon
Patent owners are winning more than losing in IPR proceedings, according to a study from law firm Fitzpatrick, Cella, Harper & Scinto
High tech companies weigh in on Allergan deal
11 December 2017 | Washington DC | Reporter: Barney Dixon
Tech companies have argued that Allergan should not be allowed to circumvent the inter partes review process with its controversial patent deal with the Saint Regis Mohawk Tribe
BlackBerry to pay $137 million to Nokia
08 December 2017 | Waterloo | Reporter: Barney Dixon
BlackBerry will pay $137 million to Nokia after the International Chamber of Commerce’s International Court of Arbitration ruled against the company in a patent licensing dispute
ILO ruling “vote of no confidence” for Battistelli, says CSC
07 December 2017 | Munich | Reporter: Barney Dixon
In an open letter to the EPO’s heads of delegations, the CSC said that it interpreted the ILO’s decision as a “massive vote of no confidence in the president of the EPO"