Supreme Court Holds that Any Sale of a Patented
Product Exhausts Patent Holder’s Rights
Yesterday, the Supreme Court handed down its decision in Impression Products, Inc. v. Lexmark
International, Inc.1 and ruled that a patent holder’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.”2 With this opinion, the Court rejected decades of Federal Circuit precedent that permitted patent
holders to expressly reserve the right to sue downstream users of the patented product for infringement.
While the decision will prevent patent holders from bringing patent infringement suits to enforce
restrictions on post-sale use, the Court emphasized that those restrictions can still be enforced through
contract law.
Under the doctrine of patent exhaustion (also known as the “first sale” doctrine), the initial authorized sale
of a patented product terminates all patent rights in that item. As a result, subsequent sales of the item
cannot give rise to claims of infringement by the patent holder. In Impression Products, the Supreme
Court considered two issues related to the scope of the patent exhaustion doctrine: 1) whether a patent
holder’s sale of a patented product within the U.S., where the patent holder specifies contractual postsale restrictions, exhausts its patent rights, and 2) whether a patent holder’s sale of a patented product
outside of the U.S exhausts its patent rights.
The patent holder in Impression Products – Lexmark – sold its patented laser printer toner cartridges both
domestically and internationally. For most of its domestic sales, Lexmark required buyers to agree that
they would not reuse or resell the cartridges. Despite this restriction, Impression purchased and
refurbished used Lexmark cartridges sold in the United States and abroad and resold them to customers
in the U.S. Lexmark sued Impression for patent infringement. Impression responded that the initial sales
of the cartridges by Lexmark exhausted its patent rights under the first sale doctrine. The District Court
for the Southern District of Ohio found that Lexmark’s patent rights were exhausted as to the domestically
sold cartridges, but not as to the internationally sold cartridges. In a 10-2 en banc decision, the Federal
Circuit affirmed the district court’s holding that international sales do not trigger the first sale doctrine.
The Federal Circuit, however, reversed the district court’s holding with respect to domestic sales, holding
that a patent holder can reserve its patent rights if it sells patented articles subject to post-sale use
restrictions.3
1
Impression Products, Inc. v. Lexmark International, Inc., No. 15-1189, 581 U.S. ___ (May 30, 2017), slip op. available at
https://www.supremecourt.gov/opinions/16pdf/15-1189_ebfj.pdf.
2
Id. at 1.
3
We previously analyzed the Federal Circuit’s en banc opinion in Lexmark is Much Ado About Nothing – For Now,
available at
http://www.friedfrank.com/siteFiles/Publications/Lexmark%20Is%20Much%20Ado%20About%20Nothing%20%E2%80
%94%20For%20Now.pdf.
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As to the domestically sold cartridges, the Supreme Court unanimously rejected the Federal Circuit’s
position that a patent holder can purposefully withhold/restrict resale rights when selling a patented
product. The Court focused on English common law and its own precedent extending back 160 years to
find that the limited, exclusive monopoly granted to a patent holder is completely extinguished upon the
sale of a patented product. Accordingly, Lexmark could not bring a patent infringement action against
Impression for its downstream use, despite the contractual restrictions placed on the original sale.4
Furthermore, as to the internationally sold cartridges, the Supreme Court held 7-1 that a patent holder’s
authorized international sale of a patented product should not be treated any differently than a domestic
sale. Both types of sales exhaust the patent holder’s patent rights in the product and, therefore,
Lexmark’s international sales of the patented cartridges exhausted its rights too. In support of this
holding, the Court again relied on common law principles and its recent decision in Kirtsaeng v. John
Wiley and Sons, Inc.5 holding that copyright exhaustion applies to authorized copies of a copyrighted
work sold internationally.
On its face, Impression Products shuts the door on a patent holder’s ability to mete out single “sticks”
from its patent “bundle of rights” to purchasers of its patented products. While, the Supreme Court made
clear that post-sale restrictions are still enforceable under contract law, bringing breach of contract claims
against customers who violate the post-sale restrictions will not be an attractive option for most patent
holders. As an alternative, patent holders who place post-sale restrictions on their products may consider
pursuing claims for intentional interference with contractual relations against companies like Impression
who ask the original purchasers to violate the restrictions. Patent holders who wish to retain control over
their patented products will also now have incentives to investigate licensing arrangements as an
alternative to sales. Despite the holding in Impression Products, restrictions on a licensee’s ability to use
and resell a patented product can still be enforced by way of a lawsuit for patent infringement.
Finally, in the wake of Impression Products, patent holders may consider restructuring their global pricing
practices. The decision restricts a patent holder’s ability to curb the resale of certain products in the U.S.
that were initially sold internationally at a lower price. Producers of patented drugs or medical products,
which are often sold for higher prices in the U.S. than in other parts of the world, may be particularly
vulnerable to this type of predatory reselling. Pricing schemes that mitigate the incentives for resellers to
buy patented products internationally and sell them in the U.S. will thus have increased importance going
forward.
4
Impression Products can be viewed as the natural extension of the Supreme Court’s reasoning in Quanta Computer,
Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), which held that an authorized licensees’ sale of a patented product
subject to a post-sale restriction still exhausted the patent holder’s rights. In view of Impression Products and Quanta
Computer, the Supreme Court has made it abundantly clear that any authorized sale of a patented product, regardless
of circumstances or purported constraints, exhausts a patent holder’s rights.
5
568 U.S. 519 (2013).
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Fried Frank Intellectual Property Client Alert™
Authors:
Scott W. Doyle
Robert M. Masters
Jonathan R. DeFosse
Jeffrey I.D. Lewis
Ted M. Nissly
This memorandum is not intended to provide legal advice, and no legal or business decision should be
based on its content. If you have any questions about the contents of this memorandum, please call your
regular Fried Frank contact or the attorneys listed below:
Contacts:
Washington, D.C.
Scott W. Doyle
+1.202.639.7326
[email protected]
Robert M. Masters
+1.202.639.7370
[email protected]
Jonathan R. DeFosse
+1.202.639.7277
[email protected]
+1.212.859.8987
[email protected]
New York
Jeffrey I.D. Lewis
Fried Frank Intellectual Property Client Alert™ No 17/05/31
05/31/17
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