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22 March 2017Patents

Impression v Lexmark: SCOTUS questions patent exhaustion rules

The US Supreme Court has questioned patent exhaustion rules during oral arguments in the Impression Products v Lexmark dispute.

Yesterday, March 21, justices heard the first day of oral arguments between two US-based cartridge sellers.

The Supreme Court agreed to hear the case in December last year.

The court will provide guidance on “whether a ‘conditional sale’ that transfers title to the patented item while specifying post-sale restrictions on the article’s use or re-sale avoids application of the patent exhaustion doctrine and therefore permits the enforcement of such post-sale restrictions through the patent law’s infringement remedy”.

Lexmark, a seller of print cartridges, sued Impression at the US District Court for the Southern District of Ohio for patent infringement over the sale of modified products that were obtained abroad before being imported to and sold in the US.

The company had sold refillable printer cartridges in the US and internationally.

Impression counterclaimed, arguing that Lexmark’s patent rights had been exhausted and that Lexmark’s original sale had made Impression’s resale and importation non-infringing under the doctrine of exhaustion.

The Ohio court handed down a mixed ruling and both companies appealed against the decision to the US Court of Appeals for the Federal Circuit.

An en banc Federal Circuit decision handed down in February last year sided with Lexmark.

Impression filed a writ of certiorari in March last year.

During the arguments, Justice Alito questioned why “none” of the briefs in the case addressed extraterritoriality.

He asked: “Where is the clear statement that the exhaustion rule applies outside of the borders of the US?”

Andrew Pincus, partner at law firm Mayer Brown and the lawyer acting on behalf of Impression, responded that “the question here is whether the patentee’s acts outside the US have an impact on its ability to enforce its rights within the US”.

Constantine Trela, Jr, partner at law firm Sidley Austin and the lawyer acting on behalf of Lexmark, said that “we agree with the government, at least in one sense, and that is that Judge Taranto’s opinion for the Federal Circuit properly looked to the statute to find the origins and limits on the exhaustion doctrine”.

He added that the Federal Circuit had “properly looked to the statute to find the origins and limits on the exhaustion doctrine”.

Trela argued that the Patent Act defines how patent rights can be acquired and what they cover, as well as the role of authorised sales in exhausting patent rights.

Christopher Loh, partner at law firm Fitzpatrick, Cella, Harper & Scinto, told WIPR: “On the foreign sales question, Alito seemed to favour a no-exhaustion position.”

According to Loh, Alito noted that in recent years the Supreme Court has said that a statute does not apply outside the US “unless the statute says otherwise”.

He asked Impression—somewhat rhetorically, Loh thought—to explain “why that shouldn’t be the same for a common-law rule like the rule here”.

Robert Gerstein, partner at Marshall, Gerstein & Borun, added that the argument probably did “little to change the uphill battle that Lexmark faces in defending the Federal Circuit’s decision”.

Gerstein said the most “ominous” development of the day from Lexmark’s perspective might be the Supreme Court’s ruling yesterday, March 22, in SCA Hygiene Products v First Quality Baby Products.

WIPR reported on the decision, which held that laches cannot be used as a defence to infringement that allegedly occurred within the relevant statutory six-year period.

This is “analogous to Impression’s position that the copyright exhaustion decision in Kirtsaeng should be applied to patent exhaustion for foreign sales”, said Gerstein.

A spokesperson for Lexmark told WIPR that the company had no comment.

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20 March 2017   The US Supreme Court is due to hear oral arguments tomorrow in the Impression Products v Lexmark dispute, which centres on patent exhaustion.
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22 March 2017   The US Supreme Court decided yesterday that laches cannot be used as a defence to infringement that allegedly occurred within the relevant statutory six-year period.
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