Supreme Court Rules in Impression Products v. Lexmark: No Patent Rights After Domestic and Foreign Sales

In a blow to Lexmark International, the U.S. Supreme Court today, in an almost unanimous opinion (7-1), ruled against Lexmark in the landmark Impression Products v. Lexmark International patent-exhaustion case. In an opinion written by Chief U.S. Supreme Court Justice Roberts, the court reversed a U.S. Federal Circuit ruling on both domestic (8-0) and international patent exhaustion (7-1) in the case.

The Supreme Court’s Roberts wrote in the opinion: “We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.” Roberts later continued: “Patent exhaustion reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.”

Background

Impression Products of Charleston, West Virginia, refurbishes, refills, and then resells printer toner cartridges – including Lexmark International toner cartridges – a practice that Lexmark International – now owned by China’s Apex Technology and a consortium of investors – has legally tried to stop for many years, arguing that the refilling and resale of its toner cartridges violated its patents.

The key question in Impression v. Lexmark involved is whether restrictions placed on a patented product could be enforced through a patent-infringement suit. Under current U.S. legal rulings, the answer has been yes.

In 2010, Lexmark sued Impression Products in Ohio federal court, arguing that because it retained patents rights for its cartridges, Impression Products infringed on its patents by refilling and reselling Lexmark toner cartridges.

Today’s Ruling

The U.S. Supreme Court has rejected this argument, however, using common-law principles of ownership as reflected in its 1853 decision in Bloomer v. McQuewan.

The court also wrote in Impression Products vs. Lexmark: “The sale transfers the right to use, sell, or import because those are the rights that come along with ownership, and the buyer is free and clear of an infringement lawsuit because there is no exclusionary right left to enforce…

“Lexmark exhausted its patent rights in the (Lexmark) Return Program cartridges that it sold in the United States. A patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose. As a result, even if the restrictions in Lexmark’s contracts with its customers were clear and enforceable under contract law, they do not entitle Lexmark to retain patent rights in an item that it has elected to sell…

“In sum, patent exhaustion is uniform and automatic. Once a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee purports to impose, either directly or through a license….”

The court also concluded that sales of products abroad also exhausted U.S. patent rights.

U.S. Supreme Court Justice Ginsburg also concurred with the court’s holding on domestic exhaustion, but dissented regarding international exhaustion. She held that “A foreign sale…does not exhaust a U.S. inventor’s U.S. patent rights.”

The court also indicated, however, that if the patentee (such as Lexmark) negotiated a contract with the purchaser that restricted the purchaser’s right to sell the product, then the patentee would be able to enforce that restriction but not via a patent-infringement lawsuit: “If the patentee negotiates a contract restricting the purchaser’s right to use or resell the item, it may be able to enforce that restriction as a matter of contract law, but may not do so through a patent infringement lawsuit.” This appears to indicate that Lexmark’s Return Cartridge Program, under which customers pay a discounted price for toner cartridges, in exchange for the customer returning depleted toner cartridges back to Lexmark – would still be in effect – and Lexmark, under contract law, could sue customers who purchased discounted cartridges and then re-sold the cartridges.  Bob Patton, senior vice president and general counsel for Lexmark, said that although Lexmark is disappointed by the ruling, Lexmark’s post-sale restrictions are “clear and enforceable under contract law.”

Andrew Pincus, a lawyer for Impression Products, said the ruling “freed entrepreneurs such as Impression Products from the threat of lawsuits… and enables these entrepreneurs to compete in secondary markets and provide consumers with quality goods and services at lower prices.”

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