By John H. Brainard
On Tuesday March 21, The Supreme Court will hear oral arguments for the case of Impression Products v. Lexmark International. The Court will settle once and for all; whether Lexmark can avoid the exhaustion doctrine and prohibit companies from refilling printer and toner cartridges with clearly communicated post-sale restrictions, and whether such restrictions are enforceable through patent infringement.
The patent exhaustion doctrine, more commonly known as the first-sale doctrine, refers to a Patent owner’s loss of rights to control a patented item after the initial “authorized sale.” A golf club inventor, for example, who patents a new pitching wedge can prevent other companies from producing this type of wedge. But, once the inventor manufactures the wedge and makes an authorized sale to a sporting goods store, the patent rights are exhausted and the sporting goods store obtains the rights to use and control. The store can then determine whether to sell to third parties in a set, or market it individually.
The Lexmark case began when Lexmark International (“Lexmark”) filed a lawsuit against Impression for patent infringement. Lexmark produces patented toner cartridges through a conditional sale subject to a post-sale restriction (no refilling and reselling cartridges). Impression Products (“Impression”) is a company that purchased depleted Lexmark toner cartridges so they could be refurbished and resold. When the infringement action reached the appellate court, the court affirmed Lexmark’s argument that the exhaustion doctrine does not apply when a sale is made subject to a post-sale restrictions, and was thus enforceable under patent law’s infringement remedy.
The majority opinion, written by Judge Richard Taranto, cited Mallinckrodt Inc. v. Medipart Inc., 970 F.2d. 700 (Fed. Cir. 1992), a case which held patented items sold subject to a restriction, that is clearly communicated at the time of the authorized purchase, does not provide the purchaser authority to that which was express restricted. Conversely, the dissenting opinion found Mallinckrodt to have been overruled by the supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008). The decision limited the Quanta rule to facts where there are no restrictions but defendants exceed the scope of the licensing agreement. The decision distinguished the facts from Quanta due to the clearly communicated restriction on which the sale was conditioned.
Quanta was the Supreme Court’s most recent opinion issued on patent exhaustion. The litigants in Quanta were LG Electronics, the original plaintiff who sued for patent infringement, and Quanta Computers who despite notice combined an intel microprocessors with non-intel products (exceeding the scope of Intel’s license agreement with LG by combining licensed products with non-Intel third-party components).
Impression argued unsuccessfully that Lexmark was overlooking the Supreme Court’s Quanta decision. Impression contended that Quanta overruled Mallinckrodt, if not explicitly, by broadly affirming patent exhaustion after the initial authorized sale of a patented item.
Lexmark continued to argue in their respondent’s brief to the Supreme Court, that the facts were distinguishable because “Quanta was “at least two steps removed from the present case”: “[t]here were no patentee sales, and there were no restrictions on the sales made by the licensee”
For the matter of analysis, we turn to Lexmark’s policy argument: that enforcing the exhaustion doctrine in these situations would put patent owners at a severe disadvantage unless they choose to sell through licenses. However, even without infringement as a remedy, patent holders could certainly enforce control through contractual mechanism, comparable to the control offered through a licensing agreement.
Impression argues that the appellate court’s decision effectively invalidates the exhaustion doctrine and overlooks the Quanta rule. Patent law affords the rights owners the ability to exclude and restrict others from use, and Quanta could be read narrowly enough as to limit the rule to patent owners who license others to manufacture and sell a product, but it seems unreasonable to interpret Quanta and restrict the exhaustion doctrine to such limited parameters.
It seems likely the Supreme Court will apply the Quanta rule and preserve the exhaustion doctrine, otherwise they risk imposing an alternate standard for non-licensing patentees; incentivizing excessive use sales conditional to post-sale restrictions to the point where they become ubiquitous; and providing a mechanism to essentially nullify the patent exhaustion doctrine.
While patent experts would love to see a decisive finding one way or the other, at the very least Lexmark will serve as a vital clarification to the scope of the Quanta decision.
Bio: John is a Staff Member of the Journal of High Technology Law. He is currently a 3L at Suffolk University Law School with a concentration in Trial and Appellate Advocacy. He earned his Undergraduate Degree from Boston College with a major in Corporate Systems.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.