Federal Circuit Reaffirms its Patent Exhaustion Doctrine Decisions

On February 12, 2016, the en banc Federal Circuit, in a 10-2 decision in Lexmark Int’l, Inc. v. Impression Prods., Inc., reaffirmed its long-standing rules that: (1) the exhaustion doctrine does not apply to patented articles sold subject to single-use/no-resale restrictions that were communicated to the buyer at the time of sale; and (2) the exhaustion doctrine does not apply to the sale of patented goods outside of the U.S.

This case addressed Lexmark’s patents covering sale of its ink cartridges, some abroad and some in the U.S., at a discount and subject to an express single-use/no-resale restriction. Defendant Impression would then acquire Lexmark’s empty cartridges at issue from buyers, both domestically and from abroad, in order to resell them in the U.S. – without Lexmark’s consent. Thus, Lexmark sued Impression for infringement under 35 U.S.C. § 251.

In its decision, the Federal Circuit first addressed “whether a sale, even though accompanied by a clearly communicated and otherwise-lawful denial of such authority, nonetheless has the legal effect of conferring such authority.” The Court held: “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.” Accordingly, “a patentee may preserve its patent rights by otherwise-proper restrictions when it makes and sells patented articles itself and not only when it contracts out manufacturing and sales.”

Second, the Federal Circuit addressed whether a foreign sale conferred authority on its buyers, and derivatively Impression, to import cartridges into and sell them in the United States. Again, the court affirmed its prior precedent and stated: “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.” In doing so, the court declined to extend Supreme Court’s ruling in Kirtsaeng v. John Wiley & Sons, Inc., because the foreign protections for copyrights differ from patents, in that, under the Berne Conventions, authors of copyrighted works are automatically conferred foreign copyright protection.

Christopher H. Strate is a Director in the Gibbons Intellectual Property Department.
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