No international exhaustion for US patents

On February 12 2016 the Federal Circuit ruling en banc in Lexmark International, Inc v Impression Products, Inc generally rejected the extension of the uncodified doctrine of patent exhaustion to foreign sales of patented products. The court held that the no international exhaustion principle is still sound despite the Supreme Court's 2013 decision in Kirtsaeng v John Wiley & Sons, Inc establishing a regime of international copyright exhaustion. As a result, the application of patent exhaustion rules in the United States remains unchanged.

Under the doctrine of patent exhaustion, also called the 'first sale' doctrine, the sale of a patented article, when made or authorised by the patent owner, provides the buyer the authority to engage in certain acts involving the article (eg, a resale) that would otherwise be considered infringing acts. There are limitations to the doctrine, two of which were addressed in Lexmark:

  • The doctrine does not apply if a patented article is sold subject to a single-use or no-resale restriction that is lawful and clearly communicated to the purchaser.
  • Merely selling or authorising the sale of a US-patented article overseas does not authorise the purchaser to import the article and sell or use it in the United States. A foreign sale may trigger the doctrine, but only if there is an express or implied licence based on patentee communications or other circumstances of the sale.

In the case at hand Lexmark International owned a number of patents for toner cartridges for its printers. The cartridges at issue were sold by Lexmark in the United States and abroad. Some of the foreign-sold cartridges and all the US-sold cartridges were sold at a discount and subject to an express single-use or no-resale restriction. Impression Products had acquired the cartridges to resell them in the United States, the restricted one being physically modified to enable re-use. Impression maintained that Lexmark had exhausted its patent rights in the cartridges by its initial sale. 

The Federal Circuit sua sponte took the case en banc after oral argument before the initial three-judge panel. With only two dissenters, the full court held that Lexmark's single-use or no-resale restriction was lawful and clearly communicated to purchasers, and that the importation and sale of cartridges sold overseas were not covered by the doctrine of patent exhaustion, regardless of whether those cartridges were subject to the single-use or no-resale restriction. The Federal Circuit distinguished Kirtsaeng on the basis that the doctrine of copyright exhaustion was codified in the Copyright Act, while the doctrine of patent exhaustion was non-statutory.

At present, little has changed for US patent owners as the patent exhaustion rules previously applied remain in effect. However, this may change if the Supreme Court decides to take Lexmark up on appeal.

The Federal Circuit has rejected a challenge to the constitutionality of the new inter partes review proceedings conducted by the Patent Trial and Appeals Board (PTAB) at the US Patent and Trademark Office. Inter partes review proceedings and the related post-grant review and covered business method proceedings, which were introduced as part of patent reform under the America Invents Act, have proven to be a popular route for attacking the validity of issued patents. 

MCM Portfolio LLC had appealed the PTAB final decision invalidating a flash memory patent in an inter partes review initiated by Hewlett-Packard Co. MCM argued that the new PTAB review proceedings were unconstitutional because they deprived owners of the right to a jury trial on the issue of the validity of their patent. On December 2 2015 the three-judge panel in MCM Portfolio LLC v Hewlett-Packard Co upheld the constitutionality of PTAB review. It held that Congress had authority under Article III of the Constitution to delegate disputes over the public rights inherent in the granted patent to the same administrative agency that granted those public rights in the first place, and thus did not run afoul of the Seventh Amendment. The panel also affirmed the PTAB decision invalidating the patent claims as being obvious.

The decision effectively removes one possible – albeit unlikely – defence that patent owners may have had to fight off an inter partes review or other proceeding before the PTAB. These proceedings have proven to be a powerful and popular tool for patent infringement defendants to use against claims of patent infringement, and their use is expected to increase.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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