May 30, 2017

Supreme Court Decides Impression Products, Inc. v. Lexmark Int'l, Inc.

On May 30, 2017, the U.S. Supreme Court decided Impression Products, Inc. v. Lexmark Int’l, Inc., No. 15-1189, holding that a patentee’s sale of a product, whether domestically or abroad, exhausts all of its patent rights in that item, regardless of any contractual restrictions the patentee imposes on the purchaser’s right to use or resell the item.

Lexmark International, Inc. (Lexmark) owns a number of patents covering components of toner cartridges that the company designs, manufactures, and sells to consumers in the United States and abroad. Lexmark offers consumers a choice: buy a cartridge at full price, which the customer can refill with toner; or alternatively receive a discounted price through Lexmark’s “Return Program,” which requires consumers to sign a contract agreeing to use the cartridge only once and to refrain from transferring the cartridge to anyone but Lexmark.

This litigation arises out of the sale of Lexmark toner cartridges by companies known as remanufacturers, which acquire empty Lexmark toner cartridges from purchasers, refill them with toner, and resell them. Lexmark brought claims against one such remanufacturer, Impression Products, Inc., for patent infringement with respect to two groups of cartridges: (1) Return Program cartridges that Lexmark sold within the United States with express contractual prohibitions on reuse and resale; and (2) all toner cartridges that Lexmark sold abroad and that Impression Products imported into the country.

Impression Products moved to dismiss under the doctrine of patent exhaustion, which provides that when a patentee sells one of its products, it can no longer control that item through patent law. The district court granted the motion to dismiss as to the domestic Return Program cartridges but denied the motion as to the cartridges sold abroad. On appeal, the Federal Circuit ruled for Lexmark with respect to both groups of cartridges. The Supreme Court reversed.

First, the Supreme Court held that Lexmark exhausted its patent rights in the Return Program cartridges that it sold in the United States, reasoning 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. The Court noted that a patentee is free to negotiate contracts with purchasers restricting the purchaser’s right to use or resell the item, but the patentee must rely on contract law to enforce those restrictions, not patent law.

Second, the Supreme Court held that Lexmark had also exhausted its patent rights in the toner cartridges that it sold abroad, reasoning that an “authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.” According to the Court, nothing in the text or history of the Patent Act indicates that Congress intended to confine patent exhaustion to domestic sales. Nor do the territorial limits on patent rights provide any basis to exempt foreign sales from patent exhaustion, despite the fact that the Patent Act does not give patentees exclusionary powers abroad. This is because “[e]xhaustion is a separate limit on the patent grant” and does not depend on the premium a patentee may receive for selling its product in the American market, where it has exclusionary powers.

Chief Justice Roberts delivered the opinion of the Court, in which Justices Kennedy, Thomas, Breyer, Alito, Sotomayor, and Kagan joined. Justice Ginsburg filed an opinion concurring in part and dissenting in part. Justice Gorsuch took no part in the consideration or decision of the case.

Download Opinion of the Court

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