Impression Products v. Lexmark: The Patent Exhaustion Doctrine both at Home and Abroad

Author: Conor McElroy

On May 30, 2017, the U.S. Supreme Court held that patent rights in a product are exhausted by the sale of that product, regardless of any restrictions imposed by the patent holder or where the sale occurred. The case, Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. ___ (2017), involved the domestic and international refurbishing and resale of patented toner cartridges in violation of contractual restrictions agreed upon by initial purchasers. Chief Justice John Roberts authored the opinion and was joined by all of the Justices besides Justice Ginsburg (concurring in part and dissenting in part) and Justice Gorsuch (who took no part in the consideration or decision of the case).

According to 35 U.S.C. § 154(a), a patent holder has a twenty year period to “exclude others from making, using, offering for sale, or selling [its] invention throughout the United States or importing the invention into the United States.” Anyone who violates these rights “without authority” may be liable for patent infringement under 35 U.S.C. § 271(a). Yet, this liability does not apply when a patent holder’s rights “exhaust” through a sale of the patented product. The new owner of the product and all subsequent owners are no longer potentially liable for patent infringement.

In this case, Lexmark, a seller of printer toner cartridges, incorporated explicit restrictions in the sales contracts for cartridges as part of its Return Program that limited buyers of the cartridges to using the cartridges once and then transferring the empty cartridge back to Lexmark. Impression Products, a remanufacturer of empty toner cartridges, bought empty Lexmark Return Program cartridges from U.S. and non-U.S. purchasers in order to refill them with toner and then resell them. As an owner of several patents in these cartridges, Lexmark argued that Impression Products infringed their patents by refurbishing and reselling the cartridges despite the unambiguous prohibition of reuse and resale. Furthermore, Lexmark claimed that Impression Products’ importation of cartridges sold abroad into the U.S. also constituted patent infringement. The two issues before the Court were: (1) whether a patent holder’s sale of a patented product under the express restriction that the product not be reused or resold may enforce the restriction through a patent infringement lawsuit; and (2) whether a patent holder’s rights are exhausted when its product is sold abroad, where U.S. patent laws do not apply.

The Court began by analyzing the Return Program cartridges that Lexmark sold in the U.S. After citing a string of Supreme Court cases dealing with patent holder (“patentee”) rights being exhausted after an authorized sale, the Court recognized that it “has long held that, even when a patentee sells an item under an express restriction, the patentee does not retain patent rights in that product.” For instance, in a recent case, Quanta Computer, Inc. v. LG Electronics, Inc. 553 U.S. 617 (2008), the Court found that a patentee’s use restrictions included in sales of microprocessors could not be invoked to allege patent infringement. With the well-settled line of precedent, the Court had no problem concluding that “[o]nce sold, the Return Program cartridges passed outside of the patent monopoly, and whatever rights Lexmark retained are a matter of the contracts with is purchasers, not the patent law.” The Court also rejected the Federal Circuit’s holding that patent exhaustion is a default rule but a patentee can withhold the authority to use and sell an item, which then allows enforcement of the restriction through patent infringement lawsuits. The Court explained that “the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is a limit on the scope of the patentee’s rights.” When customers purchase products, they purchase the rights associated with ownership (the right to use, sell, or import the product) not the patentee’s authority to exercise those rights.

As for Lexmark’s other claim that Impression Products’ importation of Lexmark’s patented cartridges into the United States made it liable for patent infringement, the Court determined that there was no reason not to apply patent exhaustion to foreign sales. Lexmark argued that the Patent Act specifically limits patent holders’ monopoly on the making, using, selling, and importing of its products to acts that occur in the United States. Since the U.S. Patent Act does not apply to acts that occur outside the United States, Lexmark argued that there could not be patent exhaustion from its sales since there were no patent rights abroad to exhaust. The Court disagreed. First, the Court noted that the “first sale doctrine” of copyright law, which cuts off copyright owners’ power to restrict the ability of a purchaser of a copy of the copyrighted work from selling or otherwise disposing of that particular copy, applied equally to copies made and sold in the U.S. and those made and sold internationally. See Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013) (holding that the first sale doctrine applied equally to domestic and international sales of copies of textbooks). Since copyright law and patent law share a strong similarity and purpose, “differentiating the patent exhaustion and copyright first sale doctrines would make little theoretical or practical sense.” Furthermore, nothing in the history of the Patent Act indicated that there should be a deviation from the borderless common law principal that restraints on alienation are to be avoided. Thus, the Court ruled that “restrictions and location are irrelevant; what matters is the patentee’s decision to make a sale.”

A copy of the Court’s slip opinion is available here.

TC Heartland v. Kraft Foods: “Residency” in Patent Infringement Suits

Author: Conor McElroy

On May 22, 2017, the U.S. Supreme Court ruled that residency for domestic corporations is determined by its state of incorporation for venue purposes in patent infringement suits. The unanimous decision (from which Justice Neil Gorsuch abstained) reversed the Federal Circuit’s finding that the general venue statute, 28 U.S.C. § 1391(c), and its requirements for residency, applied to patent infringement suits. Instead, the Court ruled that the patent venue statute, 28 U.S.C. §1400(b), is the exclusive statute governing venue in patent infringement actions.

The case, TC Heartland LLC v. Kraft Foods Group Brands LLC, 581 U.S. ____ (2017) involved Kraft Foods (“Respondent”), organized under Delaware law with a principal place of business in Illinois, filing a patent infringement suit against TC Heartland (“Petitioner”), which is headquartered in Indiana and organized under Indiana Law, in the District Court for the District of Delaware. Petitioner argued venue was improper in Delaware since it did not meet the definition of “resid[e]” as set forth in §1400(b) and interpreted in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957).  The Federal Circuit upheld the District Court’s rejection of Petitioner’s argument based on amendments to 28 U.S.C. §1391 which deem a defendant to have “residency” if it is subject to personal jurisdiction, a test which was met here based on Petitioner’s shipments of allegedly infringing products into Delaware.

In reversing, the Supreme Court analyzed §1400(b), past and present versions of §1391, and case law interpreting the statutes.  According to § 1400(b), “[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business.” For the definition of “resides,” the Court looked to Fourco, which determined “resides” for purposes of §1400(b) only includes the state of incorporation. The inquiry could not end there however. According to the Federal Circuit, subsequent amendments to §1391 have made it applicable to patent infringement cases. Section 1391(c) now provides that, “[f]or all venue purposes,” entities, “whether or not incorporated, shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” Therefore, as concluded by the Federal Circuit, §1391(c), not Fourco, provides the definition of “resides” in §1400(b). To bolster this conclusion, the Federal Circuit cited VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (1990), which ruled that similar earlier amendments to §1391 affected the meaning of §1400(b).

The Supreme Court held that the Fourco interpretation of §1400(b) is still the authority. “The current version of §1391 does not contain any indication that Congress intended to alter the meaning of §1400(b) as interpreted in Fourco,” Justice Clarence Thomas wrote in the opinion of the unanimous Court. According to the Court, Congress customarily provides a clear indication that it intends to make a change of that kind in the text of the amended provision. With no such indication present here, it was clear to the Court that §1400(b) was not altered by changes to §1391. Furthermore, the Court also noted that the 2011 change to §1391 includes a savings clause stating that it does not apply when “otherwise provided by law.” As a result, the Court held that §1391 “expressly contemplates that certain venue statutes may retain definitions of ‘resides’ that conflict with its default definition.” Therefore, the venue provision found in §1400(b), and the definition of “resides” found in Fourco, apply to patent infringement suits.

A copy of the Court’s slip opinion can be found here.