Exhaustion and the “Right to Repair”: Impression Products, Inc. Property Rights vs. Lexmark Intern., Inc. | Fish & Richardson

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[co-author: Veena Tripathi]

Hailed by some as the “right to repair,” the Supreme Court ruled on May 30, 2017 that a seller’s patent rights do not extend beyond the initial sale of the patented product. Impression Products, Inc. v Lexmark Intern., Inc. 137 S.Kt. 1523 (2017). Patent laws in the United States allow the patentee to “exclude others from making, using, offering, or selling”. [its] Invention throughout the USA or importation of the invention into the USA ” 35 USC §154 (a). If a party does not comply with this obligation, it is liable for patent infringements. §271. When a patentee sells one of their products, those rights are “exhausted” and the new purchaser inherits the property rights. In the past, the Court of Justice has ruled that if the post-sale restrictions are lawful, then the law of contract is sufficient to limit the buyer’s rights. Mallinckrodot, Inc. v Medipart, Inc., 976 F. 2d 700 (1992). In addition, the Court of Justice has long upheld the view that a patentee does not exhaust his patent rights by selling items abroad. Jazz Photo Corp. against International Trade Commission, 264 F.3d 1094 (2001), Dickerson versus Tinling, 84 F. 192 (1897), Dickerson v. Matheson, 57 F. 524 (1893). The decision of the Supreme Court in Lexmark nullifies both longstanding beliefs of ownership. Impression Products, Inc. v Lexmark Intern., Inc. 137 S.Kt. 1523 (2017).

The main controversy in Lexmark centered around remanufactured toner cartridges. Lexmark cartridge buyers had one of two options: Either buy a full-price, unrestricted toner cartridge, or participate in a “return program” where the consumer must agree to use the cartridge once and only resell it to Lexmark in exchange for a lower price . Third-party vendors, including Impression Products, buy and refill empty cartridges. They also sell remanufactured cartridges domestically and internationally. Lexmark has sued for patent infringement alleging that (1) reselling cartridges in the United States subject to legal post-sale restrictions and (2) importing cartridges without authorization is infringing.

On December 2, 2016, the US Supreme Court issued a court order for a hearing Impression Products, Inc. v Lexmark Intern., Inc. to clarify whether patent rights are exhausted after the patent owner has sold a product for the first time. Impression Products, Inc. v Lexmark Intern., Inc. 137 S.Kt. 546 (2016). On May 30, 2017, the Supreme Court unanimously ruled that “a patentee’s decision to sell a product will exhaust all of his or her patent rights in that item, regardless of any restrictions the patentee may impose or the place of sale.” Slip op. at 2 o’clock.

A contract does not replace patent rights in the United States

In a letter to the majority, Judge Roberts examined the “historical pedigree” of the patent creation doctrine and concluded that it lifts all post-sale restrictions. ID card around 1527. The Court relied on the judgment in Quanta Computer, Inc. v LG Electronics, Inc., 553 US 617 (2008) to support its conclusion that Lexmark was unable to bring a patent infringement suit against Impression Products related to domestic sales under legal contracts. Lexmark argued that it retained the patent rights as the restrictions in the cartridge return agreements signed by the cartridges’ buyers were disclosed.

The Supreme Court rejected this argument. The Supreme Court relied on the 2013 decision to Kirtsaeng v. John Wiley & Sonsto apply the “first sale doctrine” to patent law. Impression Products, Inc. v Lexmark Intern., Inc. 137 S.Kt. 1523 (2017), Kirtsaeng v John Wiley & Sons, Inc., 568 US 519,525 (2013). In Kirtsaeng, the court found that the doctrine of copyright exhaustion applies after the item is first sold. Kirtsaeng, 568 U.S. 519. In Impression prods.the court concluded that patent exhaustion and copyright exhaustion doctrine should be equated because the doctrines display a “strong similarity and identity of purpose,” dismissing Lexmark’s argument that their patent rights do not exhaust on domestic sales. Impression Products, Inc. v Lexmark Intern., Inc. 137 S.Kt. 1523 (2017), Boston Store by Chicago versus American Graphophone Co.246 US 8 (1918), USA v Univis Lens Co. 316 US 249 (1938).

Less licensing restrictions

In reviewing the Federal Supreme Court’s decision, the Supreme Court also rejected the long-standing notion that patent exhaustion does not apply to licenses. In a letter for the majority, Judge Roberts stated that “patent exhaustion is uniform and automatic”. Impression Products, Inc. v Lexmark Intern., Inc. 137 S.Kt. 1523 (2017). He went on to explain that as soon as a patentee decides to sell, regardless of whether it is a license, that sale exhausts the rights of the patentee. If the patent holder “exchanges rights and not goods, he is free to give up only part of his patent protection bundle” since the exchange does not affect free trade like restrictions after sales. ID card around 1538.

For example, if an inventor licenses a patent to a manufacturing company, the inventor can impose restrictions on who the manufacturer can sell to. This can lead to three possible scenarios for an inventor:

(1) If the manufacturer complies with the license when selling the thing, the patent holder has approved the sale. As a result, the exchange is treated like a normal sale in terms of patent exhaustion. Therefore, the rights of the patent holder are exhausted and the only legal recourse would be contract law.

(2) If the manufacturer sells the product to a buyer who refuses to adhere to the restrictions specified in the license, the sale would nevertheless exhaust all patent rights and the licensee would only have the right to contract.

(3) If the inventor has not given the manufacturer a sales authorization in any other case, this sale cannot exhaust the rights of the patent owner under the Patent Act.

In summary, although post-sale restrictions do not apply to certain licenses, the inventor retains his or her rights if an inventor does not authorize the manufacturer to sell. This distinction allows licenses to remain a viable option for maintaining control over a licensed patent.

Location does not replace patent rights in international transactions

The court then examined whether an authorized sale outside of the United States had the same effect of exhausting all patent rights. Lexmark alleged that it can sue infringement lawsuits on foreign sales, since foreign sales do not trigger patent exhaustion unless the patentee assigns or licenses their rights expressly or tacitly. In addition, the Federal Circuit cited longstanding case law to suggest that patent holders can retain patent rights when selling overseas. The Federal Circuit concluded that the relevant case law does not suggest that patent owners can maintain patent rights on foreign sales. Lexmark Intern., Inc. v Impression Products, Inc. 816 F. 3d 721 (Fed. Cir. 2016). However, the Supreme Court found that “there is more at stake in patents than just the traffic between the parties” and restrictions and locations on the sale of patented goods are irrelevant, what matters is the decision of the patentee to make the sale. Impression Products, Inc. v Lexmark Intern., Inc. 137 S.Kt. 1523 (2017)

Judge Ginsburg’s dissent

In a letter for dissent, Judge Ginsburg suggests that an international sale does not exhaust US patent rights. Imprint Prod., at 1539. The dissent is based on the principle that a US inventor on board will not be granted protection if he is granted a US patent. ID card. This suggests that selling a patented item overseas is independent of the US patent system and should not be subject to exhaustion. ID card. Judge Ginsburg refers to her disagreement Kirtsaeng concluded that overseas sales should not exhaust US copyright laws and that copyright and patent laws are not “identical twins.” Imprint Art.-No., around 1539 (quote Sony Corp. of America v Universal City Studios, Inc., 464 U.S. 417 (1984)). Consequently, patents in connection with a foreign sale should be given a higher level of protection. Imprint Art.-No., around 1539.

effects

The ruling of the Supreme Court sheds light on the future of patent law. The first holding raised the long-standing precedent in. on Mallinckrodot, Inc. v Medipart, Inc. and the second holding was canceled Jazz Photo Corp v International Trade Commission. This result will determine the way patented goods are sold in the United States. It affects the way companies sell goods that are subject to US patent protection and goods that are intended for the US market. It is therefore important to determine the patent owner in an international context.

More recently, several consumer-facing organizations have understood the decision to strengthen the “right to repair” for consumers and industries based on product remanufacturing. In the majority opinion, Judge Roberts argues that “the smooth flow of trade would stutter” if property rights extended beyond the initial sale. Impression Prod., 1532. In response, licensing agreements to restrict products that protect inventions are likely to increase. Historically, the patent creation doctrine has had a much narrower scope, and this judgment confirms that it is much broader than previously thought.

The case was referred back for further proceeding in accordance with the opinion. There is no fixed date for pre-trial detention.

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