AIPLA 2017: Confusion reigns after Lexmark and TC Heartland
AIPLA’s 120th Annual Meeting heard about an uncertain picture on patent exhaustion and venue following two US Supreme Court decisions.
“I believe that the [ Impression Products v Lexmark Holdings] decision is wrong,” said Brian Gray, senior partner at Norton Rose Fulbright.
Specifically, he underlined what he sees as a fundamental problem with the Supreme Court’s decision, which seems to allow someone who buys a patented product from an overseas licensee of that patent to acquire more rights in terms of patent exhaustion than the licensee themselves had.
Lexmark sells printers and toners. The case arose out of the company’s return programme, which limited the use of the purchaser’s toner cartridge to a single use. This allowed Lexmark to take advantage of exclusively refilling the toner cartridges, and there was a microchip in each cartridge that needed to be navigated in order for someone else to refurbish the cartridge.
Many companies offered services refurbishing Lexmark’s cartridges, and Lexmark sued. While most businesses settled, Impression Products did not, leading ultimately to the Supreme Court ruling on the matter.
The Supreme Court found that there was patent exhaustion in the US after a domestic sale, and indeed that international sales also gave rise to patent exhaustion in the US.
Gray underlined the problem as he saw it, raising the doctrine of nemo dat quod non habet, which says that no one can confer something they don’t have on someone else. He suggested that the decision in Lexmark raises exactly that possibility, because a purchase even from a restricted licensee overseas seems to exhaust patent rights in the US, even though the licensee itself is restricted further than that.
Kenneth Parker, partner at HaynesBoone, suggested strategies to deal with the decision’s implications. He said the case was “really a re-use/repair case”, and that if you can show that “someone’s remanufacturing something rather than repairing it, then you’ve got a ballgame” for a possible infringement action.
He also suggested that companies may look to leasing arrangements in order to avoid patent exhaustion, and finally that if you have a patent on the consumable piece of the product (in the Lexmark case, the toner) then that will greatly strengthen your position.
Venue
Jeffrey Lewis, partner at Fried Frank Harris Shriver & Jacobson, looked into the Supreme Court’s ruling in TC Heartland v Kraft Foods Group Brands, suggesting that it leaves the US District Court for the Eastern District of Texas with “a real problem”, since it tightens venue rules to clarify that companies can sue based on the place of the defendant’s incorporation.
The Texas court has long been a popular venue for patent cases based on a wider definition of ‘residence’ for the purposes of litigation.
Lewis provided a history of venue questions at the Supreme and lower courts, and looked at how district courts have interpreted the TC Heartland ruling, highlighting divergence on how courts are judging ‘residence’.
Courts have disagreed on exactly what constitutes residence, and further, there is no consensus on “who has the burden of discovery” on venue.
The panel, titled “A Shifting Impression on Infringement in the Heartland: Foundational Changes to Exhaustion and Venue Shopping”, was moderated by Hetal Kushwaha, partner at Marks & Clerk in Ottawa.
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