31 May 2017
Washington DC
Reporter: Barney Dixon

SCOTUS limits patent exhaustion

The US Supreme Court has unequivocally limited patent rights in the highly anticipated litigation between Impression Products and Lexmark International.

Chief Justice John Roberts, delivering the unanimous opinion of the court, said that when a patent owner sells one of its patented products, it can “no longer control that item through the patent laws—its patent rights are said to ‘exhaust’”.

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

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

Supreme Court justices agreed with Impression, ruling: “The purchaser and all subsequent owners are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit.”

In the decision, the Supreme Court overturned an en banc decision from the US Court of Appeals for the Federal Circuit that sided with Lexmark.

Stroock IP partner Pierre Yanney called the ruling “brutally clear in its holding”.

“Once a patentee sells or authorises a sale of a product—that’s it, the patentee cannot recover for infringement based on that product, even if the patentee imposes restrictions, even if the patentee expressly reserves the right to sue for infringement. Instead, the Supreme Court today says what that leaves for the patentee is a 'contract' claim against the purchaser, not a claim for infringement.”

But he added: “Is this a distinction without a difference? Will infringement actions in such 'downstream customer' cases simply turn into contract actions? It seems the Supreme Court has plugged up one hole, but created another one.”

Ron Abramson, partner at law firm Lewis Baach, said the decision represents “a complete and harsh slap down for the Federal Circuit, at long-last rejecting the Federal Circuit’s long questioned 1992 decision in Mallinckrodt v Medipart, which held that a contractual reservation of rights could overcome the rule of exhaustion by prior sale that applies to the patent property right.”

He added: “I am a bit surprised to see that the court also went eight to nothing for ‘full monte’ exhaustion—upholding not only domestic patent exhaustion as widely expected, but applying the same rule to foreign sales as well, despite the fact that foreign patents under which the latter sales occurred are entirely separate from any corresponding US patents.”

Justice Ruth Bader Ginsburg did issue a partial dissent. While she agreed with the rest of the court on domestic exhaustion, a foreign sale “does not exhaust a US inventor’s US patent rights”.

“Patent law is territorial. When an inventor receives a US patent, that patent provides no protection abroad,” Justice Ginsburg wrote in her partial dissent.

“Because a sale abroad operates independently of the US patent system, it makes little sense to say that such a sale exhausts an inventor’s US patent rights.”

Commenting on Justice Ginsburg’s dissent, Yanney said: “The support for today’s decision appears to be an effort to harmonise copyright rights and patent rights, however, as Justice Ginsburg’s dissent reminds us, the Copyright Act is quite different from the Patent Act—something that seems to have been glossed over in the majority opinion.”

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