When a Sale is an Authorized Sale: Impression Products v. Lexmark International

Adrienne Naumann recently spoke for our United States Federal Intellectual Property Developments 2018-2019 Webinar, offering her expertise on the Federal Defend Trade Secrets Act and recent relevant cases. She established her own practice in 1996, exclusively focusing on intellectual property law. We’re so glad to be able to share her article here!

In Impression Products, Inc. v. Lexmark International, Inc., 137 S. Ct. 1523 (2017) [hereinafter ‘Impression Products’ and ‘Lexmark’] the United States Supreme Court [hereinafter ‘the Court’] held that a patent owner’s voluntary transfer of a U.S. patented item for value is the only requirement for an authorized sale of that item. The Court also held that a purchaser’s non-compliance with post sale restrictions does not result in this sale becoming unauthorized. Authorization is critical, because without it the patent owner retains patent rights in the item and a purchaser’s activity may result in patent infringement. In contrast, with an authorized sale a consumer receives a product of a patented technology free and clear of these patent rights.

Lexmark sold its U.S. patented toner cartridges to Impression Products under a sales agreement which prohibited the purchaser’s reuse and resale. Subsequently, Lexmark filed a U.S. patent infringement suit based upon Impression Products’ sales of toner cartridges initially sold in (i) the United States and (ii) other countries and then imported into the United States. The trial court dismissed the infringement suit for U.S. sales based upon patent exhaustion, but it did not dismiss the lawsuit based upon foreign sales and patent exhaustion.[1]

The en banc U.S. Court of Appeals for the Federal Circuit [hereinafter ‘the Federal Circuit’] held that for the patent owner’s sales occurring in the United States, Lexmark’s lawful post-sale restrictions, with adequate notice, prevents patent exhaustion. For Lexmark’s initial international sales, the Federal Circuit held that a U.S. patent owner does not forfeit the right to prevent infringing products from entering the U.S. The Federal Circuit did not follow Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013) [hereinafter ‘Kirtsaeng] which held that that a U.S. copyright owner does not retain rights to tangible items containing copyright if the owner voluntarily sells these items outside the United States.

The Court reversed the Federal Circuit and held that a U.S. patentee’s voluntary sale of patented items in the United States is authorized and exhausts all U.S. patent rights in those products. It further held that a sale is authorized even if there is non-compliance with contractual post-sale restrictions. The Court relied in part upon Quanta Computers, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) which held that a patentee’s authorized sale through its licensee removed products from patent protection. The Court stated that extending U.S. patent rights beyond the first sale adversely affects business, especially in transactions with used products. However, the Court further stated that a breach of contract lawsuit for non-compliance with post-sale restrictions was a possible remedy.

For international sales, the Court found Kirtsaeng controlling, and so a patentee’s authorized sale of a product item anywhere in the world also exhausts patent rights. In sum, post-sale restrictions and sale location do not result in patent infringement by the purchaser, because the only relevant inquiry is whether the patentee voluntarily transferred an item of patented technology for a one-time financial reward.

 

[1] Patent exhaustion is defined as the absence of patent rights in a product after a patentee’s voluntary sale of a product, and where that product is a tangible representation of a U.S. patented technology. A licensee in the present context is defined as those rights transferred to another by a patent owner to use, sell or create the patented technology, but without transferring ownership of the patented technology.
Sarah

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