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Supreme Court Cuts Back Patent Owners’ Post-Sale Rights

Posted in Patent Law, Trademark Law

Patent owners can no longer restrict the use of their patented products after the products are sold.  Under the doctrine of patent exhaustion, a patent owner’s rights are “exhausted” once the patent owner sells the product.  In Impression Products v. Lexmark International, Inc., 2017 U.S. LEXIS 3397 (May 30, 2017), the Supreme Court expanded the scope of patent exhaustion, reversing a long-standing rule that a patent owner can control the use of its patented product after the product is sold.  The Supreme Court held that the sale (or license) of a patented product exhausts all of the patent owner’s rights.  The Court also held that exhaustion applies regardless of whether the sale is inside or outside the U.S.

Lexmark owned several patents for toner cartridges for laser printers.  When the toner in the cartridge was used up, the cartridge could be refilled and reused.  Lexmark gave consumers two choices in purchasing its cartridges: the consumer could either pay full price for the cartridges with no restrictions or pay a discounted price with a contract to use the cartridge only once and return the empty cartridge only to Lexmark.  Lexmark installed microchips on the refundable cartridges to prevent their reuse.

Impression Products and other companies bought the used Lexmark cartridges and solved the microchip problem, refilling the cartridges with toner and selling the refilled cartridges at a price  lower than Lexmark’s price.

Lexmark sued Impression Products for patent infringement.  Lexmark claimed that Impression Products infringed Lexmark’s patents by purchasing the used returnable cartridges and reselling them, in violation of the contract Lexmark had with the original purchasers.  Lexmark also claimed that Impression Products infringed Lexmark’s patents by purchasing Lexmark cartridges that Lexmark had sold outside the U.S. and importing them into the U.S. for sale

Impression Products argued that it had not infringed the patents because Lexmark’s sales of the cartridges, in the U.S. or abroad, exhausted Lexmark’s patent rights.  Impression Products moved to dismiss both of Lexmark’s claims.  The district court granted the motion as to the returnable cartridges, but denied it as to the cartridges that were sold abroad.

The Federal Circuit Court of Appeals ruled for Lexmark on both claims.  As to the returnable cartridges, the court held that patent exhaustion did not preclude the patent owner from imposing limits on post-sale use or resale, as long as the restrictions were clearly stated.  As to the cartridges sold abroad, the court held that the patent owner retained the right to sue those who imported into the U.S. the cartridges originally sold abroad.

The Supreme Court reversed the Federal Circuit on both claims.  First, the Court held that patent owners exhaust their rights when they sell the patented product, and it is irrelevant whether the post-sale limitations imposed by the patent owner are clearly stated.  The patent owner relinquishes all rights to the patent when it sells the product.  At that point, the product “becomes ‘the private individual property’ of the purchaser, with the rights and benefits that come along with ownership.”  Id. at *18.  The Court explained that the patent exhaustion doctrine means that “patent rights yield to the common law principle against restraints on alienation.”  Id.  According to the Court, “there is no basis [in the law] for restraining the use and enjoyment of things sold.”  Id. at *19.

The Court explained that sales through licensees are treated the same way as sales by the patent owner.  Such sales exhaust the patent owner’s rights.  Thus, a patent owner cannot impose limits on the ultimate purchaser’s use of the patented product through the use of a license to an intermediary.

Second, the Court held that Lexmark’s sales outside the U.S. are also subject to patent exhaustion.  If a patent owner sells its patented product abroad, it loses all patent rights, just as if it had sold the product in the U.S.  Others are free to import the product that they purchased outside the U.S. for sale in the U.S.