Impression Products, Inc. v. Lexmark International, Inc.

Impression Products v. Lexmark International, decided May 30th, 2017. In an opinion by Chief Justice Roberts, the Supreme Court reversed the en banc Federal Circuit and held that a patentee's decision to sell a product exhausts all of its patent rights in that item — regardless of any post-sale restrictions the patentee purports to impose, and regardless of whether the sale occurred inside or outside the United States. Here's the brief.

Lexmark International designs, manufactures, and sells toner cartridges, and owns patents covering the cartridges and the manner in which they are used. It sold cartridges two ways: at full price with no restrictions, or at a discount through its Return Program. Return Program buyers signed a contract agreeing to use the cartridge only once and to return it to Lexmark — never to transfer it to anyone else.

Companies known as remanufacturers acquired spent Lexmark cartridges — including Return Program cartridges — refilled them, and resold them. They did the same with Lexmark cartridges sold abroad and then imported into the United States. Lexmark sued a number of these remanufacturers, including Impression Products, for infringement over two sets of cartridges: Return Program cartridges first sold domestically, and all cartridges first sold overseas and imported.

The District Court dismissed the domestic claims but allowed the foreign ones. Sitting en banc, the Federal Circuit ruled for Lexmark on both — holding that a patentee may sell an item and still enforce lawful, clearly communicated post-sale restrictions through infringement suits, and that a foreign sale never exhausts U.S. patent rights. The Court granted certiorari.

Two questions. First, whether a patentee that sells a product under an express restriction on reuse or resale may enforce that restriction through an infringement suit. Second, whether a sale outside the United States exhausts the patentee's U.S. patent rights.

The governing doctrine is patent exhaustion. For over 160 years, the rule has been that once a patentee sells an item, that item leaves the patent monopoly and becomes the purchaser's private property; the sale, as the Court put it in Univis and Quanta, terminates all patent rights to that item. Exhaustion marks the point where patent rights yield to the common law's refusal to permit restraints on the alienation of chattels. On the international question, the Court turned to the parallel first-sale doctrine in copyright — and to its 2013 decision in Kirtsaeng, which held that a lawful sale abroad exhausts U.S. copyright.

On the first question, the Court held that the domestic Return Program cartridges were exhausted.

The restrictions might bind under contract law, but they could not be enforced through the patent laws.

Exhaustion, the Court reasoned, is not a presumption about the authority conveyed in a particular sale — the Federal Circuit's view — but an automatic consequence of the sale itself, rooted in the common law's hostility to restraints on alienation. The same rule governs sales by a licensee: so long as the licensee sells within the scope of its license, that sale exhausts the patentee's rights, and any post-sale restriction is a matter of contract, not patent.

On the second question, the Court held that a foreign sale exhausts U.S. patent rights just as a domestic one does.

Drawing on Kirtsaeng, the Court reasoned that exhaustion springs from the sale itself, not from any protection U.S. law affords abroad, and that nothing in the Patent Act's text or history supports a geographic limit.

Justice Ginsburg concurred in the domestic holding but dissented from the international one. Patent law, she wrote, is territorial; a foreign sale operates outside the U.S. patent system and should not exhaust U.S. rights. Justice Gorsuch took no part.

Impression Products establishes a strong, uniform rule of patent exhaustion. A patentee's first authorized sale extinguishes its patent rights in that item completely — whatever restrictions it attaches, and wherever in the world the sale occurs. Post-sale limits on use or resale did not disappear; they moved out of patent law and into contract, where their reach depends on ordinary contract principles and privity. The decision rejected the Federal Circuit's authority-based framework, aligned patent exhaustion with the copyright first-sale rule of Kirtsaeng, and confirmed exhaustion as a limit on the patent grant that the patentee cannot contract around through the patent laws.

Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. 360, decided May 30th, 2017. I'm John Goodhue. Thanks for watching.