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Supreme Court to Consider Patent Exhaustion for International Sales

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Last Friday, the U.S. Supreme Court granted certiorari in the patent exhaustion case, Impression Products, Inc. v. Lexmark International, Inc., Docket No. 15-1189.  The Supreme Court’s decision in this case could significantly affect patent and patent-related transactions both domestically and internationally.

Generally speaking, under the “patent exhaustion” doctrine, also known as the “first sale” doctrine, a patent holder’s rights in a patented item exhaust or terminate with the initial authorized sale of that patented item.  In other words, once a patented item is sold, the patent holder cannot control the resale, use, or other disposition of that item.

Currently, however, exhaustion is limited by the “conditional sale” doctrine, which allows the patent holder to preserve his or her rights by contracting with the buyer to create a single-use or no-resale restriction.  These restrictions contractually limit the buyer’s ability to use, resell, or modify the patented item, and allow the patent holder to retain his or her ability to sue for infringement, effectively avoiding exhaustion.  Furthermore, while a domestic sale of a patented item alone triggers exhaustion, a mere international sale is not sufficient to trigger exhaustion.  Instead, the analysis turns on whether the patent holder conferred an express or implied license to import the patented item into the United States.

Impression Products presents two questions for the Supreme Court regarding patent exhaustion.  First, Impression Products asks the Court to overturn precedent setting forth the conditional sale doctrine.  Impression Products argues that the conditional sale doctrine, by allowing post-sale restrictions, is inconsistent with the first sale doctrine, which “terminates all patent rights possessed by the seller”—leaving is no legal basis for post-sale restrictions.

Second, Impression Products asks the Court to decide that the common law underlying exhaustion makes no geographic distinction.  Under this theory, the authorized sale of a patented article outside of the United States—without consideration as to the existence an express or implied license to import—would trigger exhaustion.

Impression Products relies on the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), a copyright decision holding that 17 U.S.C. § 109(a), which allows the owner of a copy of copyrighted material to sell or otherwise dispose of that copy without the copyright holder’s permission, regardless of where the copy was manufactured, so long as the manufacturer had permission to make the copy.  The Federal Circuit expressly rejected this argument, citing differences between copyright and patent law.

You can find the Supreme Court’s docket for Impression Products, Inc. v. Lexmark International, Inc. here.