A Lasting Impression: Federal Circuit Credits Own Precedent More Than Recent Supreme Court Authority

In Lexmark International, Inc. v. Impression Products, Inc.,1 the Federal Circuit declined to follow the Supreme Court’s recent decisions in Quanta Computer, Inc. v. LG Electronics, Inc.2 and Kirtsaeng v. John Wiley & Sons, Inc.,3 but instead affirmed its long-standing precedent allowing limits on the post-sale use or resale of patented goods and held foreign sales of patented goods do not exhaust the patentee’s rights in the United States.

These questions arose in a dispute between Lexmark, the manufacturer of printers and ink cartridges, and Impression Products, the operator of a refurbished ink cartridge business. Lexmark manufacturers and sells two types of ink cartridges, a full-priced model that includes no use restrictions and a discounted model that limits the consumer’s right to refill and reuse the cartridge. Impression collects the used cartridges—both full-priced and discounted models—and modifies the hardware, allowing them to be reused, then imports and resells them in the United States.

1. Post-Sale Use Limits

In the first portion of its opinion, the Federal Circuit held a patentee’s single-use or no-resale restrictions were permissible limitations on the otherwise presumptive “patent exhaustion” doctrine.4 Specifically, the Court allowed the sales, so long as they were “made under a clearly communicated, otherwise-lawful restriction[.]”5 The Federal Circuit relied heavily on its decision in Mallinckrodt, Inc. v. Medipart, Inc.,6 which paved the way for patentee “single use” restrictions, in part because of the Patent Act’s explicitly grant of a “right to exclude.”7

In reaching its conclusion, the Federal Circuit also declined to follow the Supreme Court’s decision in Quanta.8 The Court noted that Quanta only addressed the sale of patented goods by a manufacturing licensee, not sales by the patentee, “[a]nd the patentee’s authorization to the licensee to make (the first) sales was not subject to any conditions, much less conditions to be embodied in those sales.”9 As such, it did not address a situation where, as here, the sale as made subject to a use restriction. Accordingly, Quanta did not hold an “authorized sale” exhausted patent rights because it, in fact, did not involve any limitations on the buyer’s use. The Quanta decision also implicitly rejected petitioner and amici’s requests that Mallinckrodt be overturned.10

Ultimately, the Federal Circuit rejected the notion that any sale, even when rights are expressly restricted, qualifies as an “authorized sale of a patented item terminat[ing] all patent rights to that item.”11

2. Foreign Sales and U.S. Patent Rights

Next, the Federal Circuit moved to square its decades-old decision in Jazz Photo v. ITC12 with the Supreme Court’s recent decision in Kirtsaeng, and decide if Lexmark’s foreign sales—made without an explicit reservation of U.S. patent rights—granted authorization to import and sell those goods in the United States.13 At the outset, the Court was clear to acknowledge that Jazz Photo held U.S. patent rights are exhausted by a first sale, but only when that initial sale is in the United States.14 Thus, the present situation—where disputed products were sold outside the United States, modified, then imported and sold in the U.S.—was not covered.

The focus then turned to reconciling Kirtsaeng, with the Federal Circuit first noting how patent rights are necessarily different from those granted by copyright.15 The Patent Act, for example, specifically grants a patentee the exclusive right to make, use, sell, or import goods covered by the patent, while no such exclusive right exists the copyright. Therefore, Kirtsaeng was limited because it relied, quite explicitly, on the text of the Copyright Act.16 Although the Copyright Act allows certain actions “without the authority of the copyright owner,” a patent grants its owner broad rights “to exclude.” Accordingly, the Federal Circuit strictly construed the decision, determining “Kirtsaeng is not controlling in this case.”17

Ultimately, patent exhaustion is territorial because “what the statute expressly provides to a U.S. patentee is the reward available from the right to exclude ‘in the United States.’”18 In support of this textual anchor, the Court explained how “American markets differ substantially from markets in many other countries” and, thus, foreign sales of patented goods are inherently different from their domestic counterparts.19 The unauthorized importation of patented articles sold abroad therefore constitutes infringement, because foreign sales do not amount to authority for “the buyer to import the article and sell and use it in the United States.”

3. Implications

Initially, it will behoove all patentees looking to implement post-sale restrictions to use explicit language, but the limitations will only apply to their domestic sales. Next, patentees are urged to keep globalization considerations in mind, but only in so far as foreign customers may be looking to import patented goods purchased abroad. In this regard, other factors may strongly influence the discussion, such as where the first sale actually occurred (i.e. was it domestic or abroad). Finally, caution is warranted for those engaged in foreign transactions because, despite the comprehensive analysis, the Federal Circuit did not address the question of whether U.S. rights may be exhausted by a licensed foreign sale as there was no such licensee before the Court.


1 Nos. 14-1617, 14-1619, 2016 U.S. App. LEXIS 2452 (Fed. Cir. Feb. 12, 2016)
2 553 U.S. 617 (2008)
3 133 S. Ct. 1351 (2013)
4 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *31-32.
5 Id. at *32.
6 976 F.2d 700 (Fed. Cir. 1992)
7 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *31-40.
8 Id. at *36-40.
9 Id. at *37 (citing Quanta Comp., Inc., 553 U.S. at 636-37) (emphasis in original).
10 Id. at *40.
11 Id. at *41-42.
12 264 F.3d 1094 (Fed. Cir. 2001)
13 Lexmark Int’l, Inc., 2016 U.S. App. LEXIS 3452, at *80-82.
14 Id. at *82-85.
15 Id. at *86-89.
16 Id. at *89 (quoting Kirtsaeng, 133 S. Ct. at 1370) (noting the Supreme Court “stressed that it was determining ‘the best reading of [15 U.S.C.] § 109(a).”) (emphasis in original).
17 Id. at *98.
18 Id. at *98 (quoting 35 U.S.C. §§ 154(a)(1), 271(a)).
19 Id. at *100-03.

A Functional Claim Language Warning From the Federal Circuit

While at times commonplace in the patent prosecution world, the U.S. Court of Appeals for the Federal Circuit (CAFC) recently sent a harsh reminder to applicants regarding use of claim language that could be construed as functional.

In Oct. 14’s Bosch, LLC v. Snap-On Inc., the court held that “program recognition device” and “program loading device” were means-plus-function terms requiring the corresponding structure to be described in the specification.  This continues a recent CAFC trend to broadly construe certain functional claims terms under 35 U.S.C. §112, ¶ 6. (See Superior Industries v. Masaba where then-CAFC Chief Judge Randall Rader, in a concurring opinion, set forth that “a system claim generally covers what the system is, not what the system does” with reference to commonly used terms such as “configured”)

While functional claim language is permissible, its use generally is employed carefully and in limited situations.  This is because adoption of functional language can remove a claim from its broadest reasonable interpretation to limiting claim scope to corresponding structure in the specification directed toward the functional claim language.  This is significant at least because it provides competitors’ options to design around and clear avenues to invalidate a patent based on insufficiently described structure.

That is exactly what happened in Bosch, a patent infringement lawsuit where the patentee of U.S. Pat. No. 6,782,313 (the ’313 patent) claimed a diagnostic tester that analyzed whether a control system in a car needed reprogramming.  The claimed tester comprised “a program recognition device” and “a program loading device.”  Unfortunately, the claim itself lacked any further structural limitations as to either “a program recognition device” and “a program loading device.”   This was a problem such that these terms were found to invoke 35 U.S.C. §112, ¶ 6 because the defendant was able to show that no corresponding structure was in fact disclosed.

While conventional terms such as “means for” or “steps for” weren’t used in the claims, the court did discuss whether simple use of the word “means” was enough to invoke §112, ¶ 6 holding that this alone was insufficient to invoke the presumption.  However, this can be overcome if it is demonstrated “that the claim term fails to recite sufficiently definite structure or else recites function without reciting sufficient structure for performing that function.”

In fact, there were no figures in the ’313 patent.  The patentee argued that plain language of the terms “program recognition device” and “program loading device” sufficiently described physical structures with physical connections to other components that were described in the ’313 patent.  While describing how a feature interconnects or interacts with other components is useful, in actuality it was likely dispositive that the specification failed to provide even a single reference to structure for either of “program recognition device” or “program loading device.”  Moreover, the patentee was unable to cure these deficiencies through expert statements during trial.

Accordingly, these two terms failed to provide sufficiently definite structure.  Further, because no structure was sufficiently provided in the specification, the claims were held invalid.

The lessons here are clear.  First, Bosch reinforces the principle that functional claim language should be used with the utmost care.  Typically, functional language is recognized in means/steps for claim terms.  But with this recent upturn in additional language invoking “means-plus-function” claim construction rules, applicants have no choice but to err on the side of caution and adopt language directed towards structural features versus functional language where possible.  Doing so will avoid unfortunate and narrowing §112, ¶ 6 claim constructions later on.  If the applicant in Bosch had included even one structural limitation in its independent claim, that may have been enough to avoid §112, ¶ 6 and ultimately a defense of invalidity.

To that end, practitioners must be certain that all claimed structure is sufficiently disclosed in the application at the time of filing.  For example, if the applicant here had included just one figure illustrating “a program recognition device” or “program loading device” in some level of detail, §112, ¶ 6 or invalidity could have been avoided.  While functional claim language may be necessary to overcome an art reference during prosecution, Bosch is a reminder that the rules of claim drafting are always changing.  Unfortunately, one cannot predict whether the terms that may be acceptable today will elicit functional suspicions tomorrow.  At a minimum, all known structure related to claim elements should be described in the specification.  Providing this level of detail in an application drafting will cure the sting of a particular claim feature being construed as a functional term during enforcement since sufficient structure to correspond to the claimed feature will be available as a fallback (in the event a term is found to invoke §112, ¶ 6).

Routine Patent Litigation Giving Rise to Antitrust Liability

On Aug. 6, in Tyco Healthcare Group LP v. Mut. Pharm. Co., Case No. 2013-1386, the Federal Circuit looked at whether antitrust liability can arise from routine patent litigation and suggested that a patent owner can face antitrust liability resulting from bringing patent infringement claims and administrative petitions.

In Tyco, the patent owner of a drug, Tyco Healthcare Group, filed a claim for patent infringement against a generic drug manufacturer, Mutual Pharmaceutical Co., after Mutual filed an application with the Food and Drug Administration (FDA) to manufacture and sell a generic version of Tyco’s drug.  In response, Mutual filed antitrust counterclaims against Tyco.

In 2009, the district court entered a judgment of non-infringement and the following day, Tyco filed a Citizen Petition with the FDA urging the FDA to change the criteria for evaluating the bioequivalence of the proposed generic product to ensure therapeutic equivalence of the generic drug to the brand name drug.  Ultimately, the FDA approved Mutual’s application to manufacture and sell the generic drug and denied Tyco’s Citizen Petition.

Mutual moved for summary judgment on its antitrust counterclaims against Tyco, arguing Tyco was not immune from liability.  The district court held Tyco was not liable for antitrust violations as alleged by Mutual, however, on appeal, the Federal Circuit vacated the district court’s ruling in part and remanded it for further consideration as to whether Tyco’s patent infringement claim and Citizen Petition were shams.

Ordinarily, a party is exempt from antitrust liability for bringing a lawsuit against a competitor under the Noerr-Pennington doctrine.  This doctrine is not limited to just lawsuits, but can also apply to administrative petitions.  There is an exception to immunity for sham litigation.  In determining whether litigation is a “sham,” a court will look at objective and subjective elements: (1) the litigation must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits; and (2) the litigation must be motivated by a desire to interfere directly with the business relationships of a competitor.

In its decision, the Federal Circuit concluded that Tyco may not be immune from antitrust liability because there are issues of factual dispute as to whether Tyco’s patent infringement claim was objectively baseless and whether the Citizen Petition was objectively baseless and intended to interfere with the FDA approving Mutual’s application to manufacture and sell the drug.

So what does this mean for patent enforcement?  There is concern that the Federal Circuit has inserted antitrust liability into patent litigation, which could result in antitrust penalties for routine patent enforcement.  Further, the case could have a possible chilling effect on patentees’ communications with administrative agencies, such as the filing of a Citizen Petition with the FDA.  However, because the Noerr-Pennington doctrine continues to live, patentees are still protected unless the party alleging antitrust violations can present facts to show the litigation activity was a sham.

Federal Circuit Weighs In on Step One of Two-Step Inter Partes Review Procedure

In St. Jude Medical, Cardiology Div. v. Volcano Corp., 749 F.3d 1373, 110 U.S.P.Q.2D (BNA) 1777 (Fed. Cir. Apr. 24, 2014), the Federal Circuit, almost predictably, declined to consider a denied petition to institute an inter partes review (IPR) filed by St. Jude Medical.  In rendering its decision, the Federal Circuit followed the language of 35 U.S.C. § 314(d), which states that “[t]he determination by the Director whether to institute an inter partes review under this section shall be final and nonappealable.”

While Section 314(d) might have been the only reasoning needed to decide the case, the Federal Circuit included additional discussion regarding the two-step nature of IPRs: step one comprising the U.S. Patent and Trademark Office Director’s decision whether to institute the IPR; and step two comprising a decision under § 318(a) by the Patent and Trial Appeal Board regarding patentability after conducting the IPR proceeding (i.e., a final written decision).  See, e.g., Belkin Int’l, Inc. v. Kappos, 696 F.3d 1379, 104 U.S.P.Q.2D (BNA) 1348 (Fed. Cir. 2012). (It may be noteworthy that Belkin involved an inter partes re-examination, yet the Federal Circuit used this case as the basis for the two-step nature of IPR.)

Under 35 U.S.C. § 319, the Board’s decision under § 318(a) (i.e., after the Director’s decision and the IPR is in motion) is appealable.  It appears that the Federal Circuit included this discussion to highlight its view that the Director’s decision whether to institute an IPR is not considered to be a “final written decision” of the Board under § 318(a).  Moreover, to clear up any confusion, the court observed that 28 U.S.C. § 1295(a)(4)(A) (jurisdiction of the Federal Circuit after appeal from, inter alia, IPR) did not provide jurisdiction to review the Director’s decision.  Rather, § 1295(a)(4)(A), similar to 35 U.S.C. § 319, refers to final Board decisions under 35 U.S.C. § 318(a), according to the court.

The court was careful to point out that its decision followed the Director’s decision regarding a formality issue of a late IPR petition, but would likely apply to all decisions of the Director on whether to institute an IPR.

Interestingly, on the same day, the Federal Circuit also denied petitions for mandamus related to the Director’s decisions regarding IPR requests by two different parties – Dominion Dealer Solutions, and Procter & Gamble Co.  Dominion sought review of the Director’s decision not to institute several of its IPR requests.  See In re Dominion Dealer Solutions, LLC, 749 F.3d 1379, 110 U.S.P.Q.2D (BNA) 1780 (Fed. Cir. Apr. 24, 2014).  Conversely, Procter & Gamble, as patent owner, sought mandamus for review of the Director’s decision to institute an IPR request.  See In re Procter & Gamble Co., 749 F.3d 1376, 110 U.S.P.Q.2D (BNA) 1782 (Fed. Cir. Apr. 24, 2014).  In its denial of mandamus of these cases, the Federal Circuit cited similar reasoning as was set forth in the St. Jude Medical decision.  It is noteworthy that Dominion Dealer Solutions had concurrently sought review of the Director’s decision not to institute an IPR in the Eastern District of Virginia in addition to its mandamus petitions.  See Dominion Dealer Solutions, LLC v. Lee, 2014 U.S. Dist. LEXIS 54350 (E.D. Va. April 18, 2014).  This District Court action failed as well.

In light of the St. Jude Medical decision, it is important to ensure that IPR petitions are timely filed, complete and accurate, and meet § 314(a) subject matter threshold limitations (i.e., “a reasonable likelihood” of prevailing on at least one of the challenged claims).  A variety of guidance is available on threshold issues in the form of representative Board decisions to institute IPR proceedings, though detailed discussion of this guidance is beyond the scope of this article.  See, e.g., Microsoft Corp. v. Proxyconn, Inc., IPR2012-00026 Decision to Institute, Paper 17, Dec. 21, 2012; Garmin Int’l, Inc. v. Cuozzo Speed Techs LLC, IPR2012-00001 Decision to Institute, Paper 15, Jan. 9, 2013; Microstrategy, Inc. v. Zillow, Inc., IPR2013-00034 Decision to Institute, Paper 22, Apr. 22, 2013.

St. Jude Medical carries special significance for parties currently accused of infringing a patent in a District Court that are deciding whether to file an IPR request.  In particular, 35 U.S.C. § 315(b) prohibits IPR requests beyond one year after an infringement complaint, including counterclaims alleging infringement.  See St. Jude Medical, Cardiology Division, Inc. v. Volcano Corp., IPR2013-00258 (PTAB 2013); Accord Healthcare v. Eli Lilly and Co., IPR2013-00356 (PTAB 2013).  Passing beyond that one-year threshold is a basis for the Director denying the institution of an IPR; which decision is unappealable.

Accordingly, if you are approaching the § 315(b) deadline for filing an IPR petition, you should carefully craft your petition so that it meets the § 314(a) threshold, and it isn’t determined to be defective due to informalities.  In certain cases a defective petition can be fixed to address formalities, while the filing date of the original petition is accorded.  See, e.g., Macauto U.S.A. v. Baumeister & Ostler GmbH & Co., IPR2012-00004, Notice of Defective Petition, Paper 6, Sept. 21, 2012.  In other situations, where the defect may affect the substance of the petition, a new petition filing date may be accorded when the defect is corrected.  See Ariosa Diagnostics v. Isis Innovation Ltd., IPR2012-00022, Notice of Incomplete Petition, Paper 5, Sept. 27, 2012 (requiring correction of Exhibits).