Most people know that inkjet printers are pretty cheap; the real money is in the ink cartridges. Not surprisingly, printer/cartridge manufacturers often want to stop the resale of used ink cartridges (which can be refilled by third-party ink companies). In the past, some manufacturers have relied on patent law (many cartridges are patented) to do so. Their position has raised two questions: can patent law support resale/reuse restrictions in the U.S., and do foreign sales allow the buyer to import the product and sell it in the United States without infringing on the patent(s)?
I previously covered this issue here. The en banc Federal Circuit recently took up the issue in Lexmark Int’l, Inc. v. Impression Products, Inc., No. 2014-1617, ___ F.3d ____ (Fed. Cir. Feb. 12, 2016) (en banc). The ABA’s Journal has a good summary of the case and issues (written just before the en banc decision).
In short(*), the Federal Circuit held a seller can use its patent rights to block both resale and reuse of a product. According to the majority:
First, we adhere to the holding of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that a patentee, when selling a patented article subject to a
single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. Under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles; Mallinckrodt held that there is no sound legal basis for denying the same ability to the patentee that makes and sells the articles itself. We find Mallinckrodt’s principle to remain sound after the Supreme Court’s decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), in which the Court did not have before it or address a patentee sale at all, let alone one made subject to a restriction, but a sale made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.
While a “naked” sale means that the product is free and clear of restrictions, a patentee can restrict reuse or resale by imposing express license restrictions on the first sale.
The Court also held that authorized sales of a product abroad does not exhaust the U.S. patent rights associated with that product.
Second, we adhere to the holding of Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), that a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. Jazz Photo’s no-exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise-infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.
The non-exhaustion rule effectively allows patentees to price discriminate, i.e., to charge lower prices abroad and higher prices in the U.S. Some have argued that the position now adopted by the Federal Circuit helps consumers in low-income countries, perhaps at the expense of U.S. consumers.
Given the stakes here — as noted in the ABA Journal article — a Supreme Court petition for certiorari is almost certain, and the chances of it being granted may be reasonably high.
(*) The Federal Circuit’s decision is over 90 pages long. So an “in short” discussion is good, but obviously omits some of the details.