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Federal government recommends grant in patent exhaustion case

The justices could be on the verge of adding another patent case to their merits docket for this term. Last week the federal government recommended that the court grant review in Impression Products v. Lexmark International, a case involving the scope of the “patent exhaustion” doctrine. Although the federal government’s advice is not dispositive, studies have shown that the justices generally give it significant weight.

The case centers on the toner cartridges used in laser printers. Lexmark International has several patents relating to the cartridges, which it sells at costs that can approach hundreds of dollars. Lexmark sells all of its cartridges in the United States, and some overseas, subject to a restriction that bars buyers from either reusing the cartridges after the toner runs out or transferring the empty cartridges to anyone other than Lexmark. Notwithstanding that restriction, Impression Products buys the empty cartridges, refurbishes them, and then sells them. That led Lexmark to sue Impression, alleging that its sales of refurbished cartridges infringe on Lexmark’s patents.

As a general rule, someone who holds a patent has the exclusive right to make or sell the patented item in the United States. The patent exhaustion doctrine narrows that right, by providing that the patent holder’s rights are valid only for the first sale of the patented product. Impression describes the doctrine as an important principle that allows someone who buys a car or a lawnmower to later resell it without being held liable for patent infringement.

The first question that Impression has asked the justices to consider is whether a patent holder can bypass the exhaustion doctrine by placing specific restrictions on how the buyer can use or resell the patented product. The U.S. Court of Appeals for the Federal Circuit – which hears patent appeals – agreed with Lexmark that it could. The second question is whether the sale of a patented product outside the United States exhausts the patent holder’s rights. Here the Federal Circuit again agreed with Lexmark, ruling that it does not. Impression filed a petition seeking Supreme Court review, and in June the justices asked the U.S. solicitor general to weigh in.

In his brief on behalf of the federal government, Acting Solicitor General Ian Gershengorn urges the court to take on both of the questions presented by Impression’s petition. First, the government’s brief contends, the Supreme Court has long held that when a patent holder sells (or authorizes the sale of) a patented product in the United States, the patent laws do not restrict the subsequent sale of the product. This is true, the government argues, even if – as here – a patent holder like Lexmark has put limitations on the post-sale use or resale of the product as part of the terms of the sale. The Federal Circuit’s decision to the contrary, the government tells the justices, “would substantially erode the exhaustion doctrine.”

As for the second question in the case, the federal government asserts that the Federal Circuit was wrong to hold that an overseas sale never exhausts U.S. patent rights in the patented product. But Impression’s argument that an authorized overseas sale always exhausts U.S. patent rights is equally erroneous, the government continues. Review is warranted, the government argues, because the correct rule is that U.S. patent rights are presumptively exhausted unless the terms of the foreign sale specifically provide otherwise.

Lexmark will have the chance to file a brief addressing the government’s arguments. The justices are likely to consider Impression’s petition at a conference in mid-November; if they opt to grant review, the case could be argued and decided during the current term.

Recommended Citation: Amy Howe, Federal government recommends grant in patent exhaustion case, SCOTUSblog (Oct. 17, 2016, 9:09 AM),