This case involved printer cartridges sold in the U.S. by Lexmark with the explicit restriction that they were for single use only and could only be returned to Lexmark and printer cartridges sold in a foreign country without restrictions. Impression obtained both types of cartridges, refilled them with ink, and re-sold them in the United States. Impression admitted that its resale of the refilled cartridges would meet the limitations of the claims, but argued that Lexmark had exhausted its rights in its cartridges when it sold them both in the US and elsewhere. The district court agreed with Impression on the US sales, holding that the Federal Circuit’s Mallinckrodt decision (which held that conditional sales would not cause exhaustion) should be overruled in light of the Supreme Court’s Quanta decision regarding exhaustion. With respect to the foreign sales, the district court disagreed with Impression, holding that exhaustion did not apply under the Federal Circuit’s Jazz Photo decision, and rejecting Impressions contention that the Supreme Court’s Kirtsaeng decision overruled Jazz Photo.
In this en banc decision, the Federal Circuit addressed both of these issues. First, as to the Mallinckrodt/Quanta issue, the court recognized that the Congressional authority for patent infringement is found in 35 U.S.C. § 271, which turns on the whether or not the patentee has given its “authority” to perform the enumerated acts. Thus, the court held that Mallinckrodt is good law and therefore: “A sale made under a clearly communicated, otherwise-lawful restriction as to post-sale use or resale does not confer on the buyer and a subsequent purchaser the ‘authority’ to engage in the use or resale that the restriction precludes. And there is no sound reason, and no Supreme Court precedent, requiring a distinction that gives less control to a practicing-entity patentee that makes and sells its own product than to a non-practicing-entity patentee that licenses others to make and sell the product.” The court held that Quanta did not apply, because it did not involve the issues presented by this case, namely there were no patentee sales, and there were no restrictions on the sales made by the licensee.
Thus, “a patentee may preserve its § 271 rights when itself selling a patented article, through clearly communicated, otherwise-lawful restrictions, as it may do when contracting out the manufacturing and sale.”
As to the issue of the foreign sales, and whether Kirtsaeng overruled Jazz Photo, the court affirmed the district court, i.e., that Jazz Photo remains good law and therefore the foreign sale did not exhaust the patentees rights in the U.S. to enforce its patent against products bought elsewhere and then brought into the U.S. Kirtsaeng involved copyrights and the court held that Kirtsaeng, which did not address these issues for patents, does not undermine the no-exhaustion conclusion of Jazz Photo. Thus, “a foreign sale of a U.S.-patented article, when made by or with the approval of the U.S. patentee, does not exhaust the patentee’s U.S. patent rights in the article sold, even when no reservation of rights accompanies the sale. Loss of U.S. patent rights based on a foreign sale remains a matter of express or implied license.”
Lexmark International, Inc. v. Impression Products, Inc., Case Nos. 2014-1617, -1619 (February 12, 2016); Opinion by: En banc, majority opinion by Taranto, joined by Prost, Newman, Lourie, Moore, O’Malley, Reyna, Wallach, Chen, and Stoll; dissenting opinion by Dyk, joined by Hughes; Appealed From: United States District Court for the Southern District of Ohio, Barrett, J. Read the full opinion here.