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Supreme Court Decision Limits Post-Sale Restrictions by Patent Owners

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The United States Supreme Court today held in Impression Products, Inc. v. Lexmark International, Inc. that the doctrine of patent exhaustion limits post-sale restrictions by patent owners and that patent rights are exhausted once a product is sold domestically or internationally. Partially continuing the recent theme of unanimous intellectual property decisions (see here and here), the Supreme Court held 8-0 that domestic sales — even restricted sales — exhaust patent rights, and 7-1 that international sales also exhaust patent rights.

Under its “Return Program,” Lexmark allowed customers to purchase a reduced-price toner cartridge if the customer agreed to use the cartridge only once and to not transfer the cartridge to other companies. Impression Products acquired empty Lexmark toner cartridges, including those from the Return Program, and refilled and resold them in the United States and internationally.  Lexmark sued Impression Products for patent infringement, arguing that, because it prohibited reuse and resale of the cartridges through the Return Program, Impression Products infringed the applicable patents by refurbishing and reselling them. Impression Products argued that Lexmark’s sales exhausted its patent rights in the cartridges, so it was free to refill and resell the cartridges.  The Federal Circuit disagreed with Impression Products, holding that Lexmark’s sales (both domestically and internationally) did not exhaust its patent rights because Impression Products knew about the Return Program restrictions and because the restrictions did not violate any laws.

The Supreme Court unanimously reversed the Federal Circuit on this point and held that Lexmark exhausted its patent rights in the Return Program toner cartridges that were sold in the United States. The Court held 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 distinguished exhausted patent rights from rights that can still be enforced under contract law. A majority of the Court held that an authorized sale outside of the United States also exhausts patent rights.  The Court noted that it reached a similar conclusion with regard to the exhaustion of copyright in Kirtsaeng v. John Wiley & Sons, Inc., and that reaching a different conclusion for patent law would make little sense.  Justice Ginsberg dissented both in Kirtsaeng and in this case.

In rendering its decision in Impression Products, the Court has reaffirmed the doctrine of patent exhaustion. Patent owners seeking to pursue greater control over the subsequent sale of their products may need to look at contract alternatives instead of relying on patent law for a cause of action and associated remedy.  The Court noted as much: “The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.”