Justices Rule Patent Law Can’t Stop Product Resale

(CN) – The Supreme Court ruled Tuesday that a patent holder’s decision to sell a product in the United States and abroad extinguishes its right to sue for infringement over the product’s resale.

Generally, the buyer of a patented product has the right to resell that product to a third party, but the case at issue stems from printer cartridges that Lexmark International sold on the condition that they not be resold.

Lexmark brought a federal complaint in Ohio several years ago, alleging Impression Products had acquired its spent cartridges abroad, refilled them and resold them.

The cartridges that Impression imported into the United States were priced cheaper than what Lexmark charged.

Ruling on an appeal of the case in February 2016, the en banc Federal Circuit upheld Lexmark’s sale conditions and said that the foreign sale of a U.S.-patented product does not exhaust patent rights.

“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,” the 99-page lead opinion says.

Divided on this issue 10-2, the Federal Circuit majority said its ruling does not conflict with the 2013 U.S. Supreme Court ruling in Kirtsaeng v. John Wiley & Sons Inc., due to the existence of an exemption in copyright law that is not mirrored in the Patent Act.

In Kirtsaeng, the high court ruled that there is an exemption of copyright law for the import and sale of foreign-edition textbooks in the United States.

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,” U.S. Circuit Judge Richard Taranto had said, writing for the Federal Circuit majority. “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 Obama administration urged the Supreme Court to review the Federal Circuit’s ruling, saying it was a mistake.

“For more than 150 years, this court has held that, once a particular patented article has been sold in the United States by the patentee or with his authorization, the patent laws do not constrain the subsequent use or resale of that article,” the Justice Department told the high court.

On Tuesday, the Supreme Court agreed and reversed the Federal Circuit, finding that Lexmark cannot sue Impression Products for infringement over the toner cartridges Lexmark sold abroad.

“An authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act,” Chief Justice John Roberts wrote for the high court’s majority.

The court found that restrictions in Lexmark’s contracts with its customers do not entitle the company to retain patent rights in an item it chose to sell.

“We conclude 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 or the location of the sale,” Roberts wrote.

Chief Justice Roberts was joined in the majority by Justices Anthony Kennedy, Clarence Thomas, Stephen Breyer, Samuel Alito, Sonia Sotomayor and Elena Kagan.

Justice Ruth Bader Ginsburg filed a separate opinion concurring with the majority’s decision on exhaustion of patent infringement claims for product sales in the U.S., but dissenting from the majority’s holding on international exhaustion.

“Because a sale abroad operates independently of the U. S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U. S. patent rights,” Ginsburg wrote. “U. S. patent protection accompanies none of a U. S. patentee’s sales abroad—a competitor could sell the same patented product abroad with no U. S.-patent-law consequence. Accordingly, the foreign sale should not diminish the protections of U. S. law in the United States.”

Justice Neil Gorsuch, the high court’s newest member, took no part in the consideration or decision of the case.

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