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Be Careful What You Sell, the Patent Exhaustion Doctrine is Expanded to Cover All Products Sold By a Patentee

June 21, 2017 – The Supreme Court expanded the doctrine of Patent Exhaustion in Impression Products, Inc. v Lexmark International Inc. No. 15-1189. The Supreme Court held that where a patentee sells a product, that product is no longer within the limits of a patent monopoly, independent of where the product is sold and independent of post-sale restrictions. The product becomes the private property of the purchaser and the patentee can no longer control that product through the patent laws. The patent rights in a product sold by a patentee are said to be exhausted such that the purchaser of the product and subsequent owners are free to use or resell the product without fear of an infringement suit.

Patent exhaustion was found to result even where the patentee expressly restricts the purchaser's right to use and resell the product sold. Any restriction on the right to use or sell the product was said to be enforced through contract law, not through a patent infringement suit.

Patent exhaustion was also found to result where the patentee sells the product outside the United States without the benefit of the American patent laws.

The infringement suit from which the ruling arose was brought by Lexmark. Lexmark sold toner cartridges in the US and overseas covered by a number of patents. Some cartridges were sold at a discount through a "return program" where the customer contractually agrees to use the cartridge only once. The defendant, Impression Products Inc., is a remanufacturer of toner cartridges and acquired empty Lexmark toner cartridges for resale from purchasers in the US under the "return program" and from purchasers overseas. The defendant filed a motion to dismiss the infringement suit based on patent exhaustion, which was denied. The Federal Circuit found that Lexmark’s restrictions on post–sale use were lawful and that Lexmark could retain the right to enforce these restrictions through patent infringement lawsuits. As to the sales overseas, the Federal Circuit found that they occurred without the protection offered by the US patents to bolster the price and as a result, Lexmark was free to exercise its patent rights over the foreign sold cartridges brought into the US.

The Supreme Court reversed finding the Federal Circuit "got off on the wrong foot" by interpreting the exhaustion doctrine through the infringement statute, which prohibits anyone from using or selling a patented article "without authority" from the patentee. The Court indicated the exhaustion doctrine is not based on the authority that comes along with a sale of a patented item but is instead a direct limit on the right to exclude. Exhaustion based on the sale of a product was found to extinguish all rights to exclude under the patent laws for that product, independent of restrictions on post-sale use.

With regard to sales overseas, the Court found no reason to impose geographic limits on the exhaustion doctrine finding that it is a limitation on the patent grant that does not depend on the patentee receiving a premium for selling the right to access the American market. The Court reasoned a purchaser buys an item, not patent rights, and exhaustion is triggered by the patentee’s decision to give that item up and receive whatever fee the patentee decides is appropriate.

A review of business models and patent portfolios for patented products is appropriate following this decision, particularly for those patented products which can be reconditioned once used.

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