Today, the Supreme Court issued its decision in Impression Products v. Lexmark Int’l that draws a bright line for triggering the patent exhaustion doctrine when products are sold and leaves post-sale activity restrictions subject to any contractual rights between the parties, not patent law.  This decision is sure to have patent owners and licensees reviewing their existing licensing agreements and tweaking future ones.   The decision also provides another reason why patent owners may license their patents at an end product level, rather than a component level, to ensure that they have direct patent law remedies against the end product manufacturer that otherwise may be exhausted and unavailable if the patent is licensed at a component level.

The Supreme Court summarized its decision as follows:

This case presents two questions about the scope of the patent exhaustion doctrine:

First, whether a patentee that sells an item under an express restriction on the purchaser’s rights to reuse or resell the product may enforce that restriction through an infringement lawsuit.

And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.

We conclude that a patentee’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.

Importantly, the decision focuses on whether patent rights exist after an authorized sale.  The decision does not mean that the sale extinguishes other non-patent law remedies that a patent owner may have after the sale, such as remedies under contract law.


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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.
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Last week, the Federal Circuit en banc ruled 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.  Further, the Federal Circuit 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 right to exclude resale or reuse of that product.  The Federal Circuit summarized its ruling as follows:

We hold that, when a patentee sells a patented article under otherwise-proper restrictions on resale and reuse communicated to the buyer at the time of the sale, the patentee does not confer authority on the buyer to engage in the prohibited resale or reuse.  The patentee does not exhaust its § 271 rights to charge the buyer who engages in those acts–or downstream buyers having knowledge of the restrictions–with infringement.  We also hold that a foreign sale of a U.S.-patented article, when made by or with the approval of the U.S. patentee, does not exhaust the patentee’s U.S. patent rights in the article sold, even when no reservation of rights accompanies the sale.  Loss of U.S. patent rights based on a foreign sale remains a matter of express or implied license.

This is a lengthy decision that provides insight into the Federal Circuit’s view of not only the patent exhaustion doctrine, but the fundamental patent right to exclude and extraterritorial limits that preclude U.S. law from reaching into other countries and, importantly, that precludes laws of other country’s from limiting U.S. patent rights.
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When Judge Robart issued his summary judgment order last week in the Microsoft-Motorola case, we noted that he ordered the parties to submit further briefing on Microsoft’s allegation that Motorola breached its RAND obligations to Microsoft (at least in part) by failing to offer a RAND license to Microsoft’s WiFi chip supplier, Marvell Semiconductor:

As the court understands it, Microsoft will argue to the jury that Motorola failed to grant a license to Marvell, and if Motorola had granted such a license, Motorola would then be precluded from seeking a license from Microsoft for the SEPs at issue. This argument requires a legal basis. The argument is premised on the notion that, legally, Motorola’s ability to seek a license from Microsoft would be exhausted by granting a license to Marvell. This issue is not explored in the parties’ summary judgment briefing. Thus, the parties may provide three-page letter briefs no later than August 16, 2013, on the legal grounds for Microsoft’s assertion that a Motorola-Marvell license would preclude Motorola from seeking a license from Microsoft. Additionally, no later than August 16, 2013, the parties may propose jury instructions on this issue.

On Friday, the parties submitted letter briefs in response to this order (links below).  As we alluded to in last week’s post, this issue raises some interesting questions on what types of behavior and licensing restrictions are proper during FRAND licensing negotiations — questions that we’ll get into after the jump.


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