On May 30, the Supreme Court issued one of the biggest patent infringement decisions of 2017. Contrary to Federal Circuit precedent, the Supreme Court’s decision in Impression Products v. Lexmark has companies everywhere reforming their patent strategies to account for new limitations on their ability to enforce restrictions placed on their patented products once those products have been sold.
The facts of Impression are relatively straightforward. Lexmark is the manufacturer and seller of printers and printer cartridges in the United States and internationally. They reuse many of the printer cartridges they sell, and, in order to ensure a greater return of Lexmark cartridges to Lexmark, they sold many of their patented printer cartridges subject to a restriction that a cartridge buyer would not be allowed to transfer or sell their Lexmark cartridges to anyone other than Lexmark. After catching wind that part of Impression Products’ business model is to collect Lexmark-patented printer cartridges, refill them, and then resell them, Lexmark filed suit against Impression Products alleging that the resale of Lexmark cartridges infringed Lexmark’s U.S. patents.
As anticipated by many, the Federal Circuit sided with Lexmark – then Impression Products took the matter to the Supreme Court.
The Federal Circuit had reaffirmed precedent that left post-sale restrictions of a patented invention up to a patent owner. Under a “bundle of sticks” theory, a patent owner can give away only some or all of its patent rights (the “sticks”) when selling a patent product. Thus, a patent owner could retain the right to sell the product and, consequently, sue any buyer who violated the patent owner’s remaining patent rights by reselling the product to a third party for patent infringement.
In Impression Products, the Supreme Court supported its ruling using other well-established legal theories and principles. The Court grounded their 8-0 decision by expansively interpreting the doctrine of “patent exhaustion,” which, “reflects the principle that, when an item passes into commerce, it should not be shaded by a legal cloud on title as it moves through the marketplace.” The ultimate conclusion being that “patent exhaustion is uniform and automatic,” and “once a patentee decides to sell — whether on its own or through a license — that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee purposes to impose, either directly or through a license.”
What is clear from the Impression Products decision is that, a patent owner who sells their patented invention to one party, will no longer be able to sue that party for patent infringement should that party turn around and sell the patented invention to a third party. In order to maintain control over the sale of their product, a patent owner now must take care to license their rights with attached restrictions (opposed to selling the patented product), or enter into a contractual agreement with a purchasing party that limits the ability to resell the invention.
While this decision does allow patent owners to restrict and enforce against sales under a contract theory, many patent owners find lawsuits for breach of contract much less favorable than for patent infringement. Patent owners fear that they will no longer have access to federal courts when suing on state-law-determined contracts; they fear that the offending party may not be in privity with the contract owner, and they express concern that remedies for contract claims fall far short of the statutory awards available in patent law.
While Impression Products has clarified the post-sale rights of a patent owner, the need for additional clarification on the difference between a sale and a license, and the question of how patent owners can most effectively protect their inventions in light of this decision is left to be determined.