Today the U.S. Supreme Court decided to review the Federal Circuit’s decision regarding international patent exhaustion in Impression Products, Inc. v. Lexmark Int’l, Inc. Things to look for in whatever decision the Supreme Court ultimately reaches in this case is not only the mechanical aspect of applying the patent exhaustion doctrine generally, but whether the Supreme Court agrees with, strengthens or weakens the Federal Circuit’s en banc view that there are extraterritorial limits on the ability of foreign countries to control U.S. patents and access to U.S. markets.
Federal Circuit Decision Below
The Federal Circuit ruled en banc that the sale of a product abroad by a U.S. patent holder (or others) does not exhaust the patent owner’s U.S. patent rights, such as the right to exclude sale or importation of that product within the United States. The Federal Circuit also ruled that, when a U.S. patent holder sells a product with expressed restrictions on resale or reuse of that product, the patent exhaustion doctrine does not preclude the patent owner from exercising its rights to exclude resale or reuse of that product.
An important policy driving the international-aspect of the Federal Circuit’s decision is the concept that the extraterritorial limits that preclude U.S. law from reaching into other countries also precludes laws of other country’s from limiting U.S. patent rights. U.S. patent rights concern access to the U.S. markets governed by U.S. laws based on the specific economic and other policy considerations that the U.S. has chosen for its patent system. Thus, for example, if another country required a patent holder to enter certain patent licensing terms when conducting business in that country, those forced licensing terms might govern patents obtained in that country and access to its markets, but those forced terms may not control that patent holder’s U.S. patents and access to U.S. markets. We refer you to our February 16, 2016 post for a more detailed discussion of the Federal Circuit decision.
Supreme Court Review
The questions presented for the Supreme Court’s review were as follows:
The “patent exhaustion doctrine”–also know as the “first sale doctrine”–holds that “the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008). This case presents two questions of great practical significance regarding the scope of this doctrine on which the en banc Federal Circuit divided below:
1. Whether a “conditional sale” that transfers title to the patented item while specificying post-sale restrictions on the article’s use or resale avoids application of the patent exhaustion doctrine and therefore permits the enforcement of such post-sale restrictions through the patent law’s infringement remedy.
2. Whether, in light of this Court’s holding in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 1363 (2013) [applying the first sale doctrine to copies of copyrighted works lawfully made abroad], that the common law doctrine barring restraints on alienation that is the basis of exhaustion doctrine “makes no geographical distinctions,” a sale of a patented article–authorized by the U.S. patentee–that takes place outside of the United States exhausts the U.S. patent rights in that article.
The Supreme Court’s grant of review will consider both questions presented. You can find the petition stage filings (including amicus briefs) as well as future filings and other information in the case at the SCOTUSblog.