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By Peter Leung
The U.S. Supreme Court explored whether consumers would be more vulnerable to lawsuits if patent owners are allowed to limit how their products are used after they’re sold.
The justices’ comments came during oral argument March 21, in a case involving printer cartridges. Impression Products Inc. appealed to the high court after a federal appeals court ruled that it was infringing patents by selling refilled printer cartridges originally manufactured by Lexmark International Inc.
Impression got the cartridges from Lexmark customers who agreed to a contract barring them from reselling them ( Impression Prods. Inc. v. Lexmark Int’l Inc., U.S., No. 15-1189, 3/21/17 ).
The outcome may have a big impact on companies that depend on global supply chains to manufacture products potentially covered by hundreds of patents. Those companies warn that they will be subject to countless infringement lawsuits if Lexmark is allowed to hold downstream buyers of its cartridges liable.
The case turns on the question of when the first-sale doctrine ends a patent holder’s rights. Under the first-sale doctrine, patent rights are exhausted after the first sale to a customer. Impression sold printer cartridges made from used Lexmark cartridges it bought from U.S. users, and also from users abroad.
Lexmark said it should be allowed to sell its printer cartridges with restrictions and enforce its patents, because Section 154 of the Patent Act describes several different rights, such as the right to exclude use and the right to exclude from selling. This means that when it sells its cartridges, it kept the right to sell from the buyer, and by extension Impression.
Impression argued that patents embody just a single right—once an item is sold, the buyer is free to do what he or she wants with it without having to worry about patent infringement.
Lexmark also argued that international sales do not exhaust U.S. patent rights in an item, because U.S. patents only have effect domestically.
Justice Stephen Breyer sounded skeptical of Lexmark’s position. It’s implausible that regular consumers using products like pens or printer cartridges would understand the details of complex deals made between patent owners and their business partners, which would essentially open them up to patent infringement claims, he said.
Breyer also directed his hypothetical at whether international sales exhausted U.S. patent rights, noting that Americans often buy products abroad with little thought of IP implications.
Lexmark said it’s unlikely that companies would sue their own end users. However, Impression said that patent assertion entities have in fact sued the end users of allegedly infringing products, such as scanners.
The justices also explored arguments that Lexmark’s position opens companies that use global supply chains to hundreds of patent suits. Justice Samuel Alito pointed out that Lexmark’s position on patent exhaustion and sale restrictions has been the law for 25 years, and asked whether it has caused a lot of problems. Impression suggested that patent holders have largely been advised to try to avoid using too many sale restrictions, but said that there have been problems for companies.
Lexmark argued the problem is due to the simple fact that patent law imposes strict liability. Adopting Impression’s rules on sales restrictions and international exhaustion would not address the issue.
The relationship between patent and copyright law was an important part of the case. In 2013, the court ruled in Kirtsaeng v. John Wiley & Sons, Inc., that a U.S. copyright is exhausted even if the sale took place abroad, and the justices appeared to be interested in its application to patent law as well.
Justice Sonia Sotomayor asked Lexmark why copyright and patent shouldn’t be treated the same way, and whether it isn’t unduly complicated to have different rules. Lexmark argued that treating them differently is justified because copyright law is largely harmonized among different countries. In contrast, a U.S. patent and a German patent for the same invention might cover different things and have different scopes, due in part to legal differences and the prosecution process.
Justice Anthony Kennedy may also have been probing this difference, by pointing out that the first-sale doctrine comes to patent law through judicial decisions and not from a statute like in copyright law. Kennedy suggested that because the doctrine was never codified, the court should be careful about expanding its scope. This may mean that he is hesitant to broaden it to match Kirtsaeng, although he did not say that explicitly.
On the same day, the court announced its decision in SCA Hygiene Prods. AB v. First Quality Baby Prods., LLC , U.S., No. 15-927, 3/21/17 , which said that the doctrine of laches—which punishes a rights holder for waiting too long before suing—should be treated the same in patent and copyright cases.
Andrew J. Pincus of Mayer Brown LLP argued for Impression. Constantine L. Trela of Sidley Austin LLP argued for Lexmark. Malcolm L. Stewart of the U.S. Department of Justice appeared for the government.
To contact the reporter on this story: Peter Leung in Washington at email@example.com
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