En Banc Court Reaffirms Patentees’ Right to Place Lawful Restrictions on Sales of Patented Articles and International Sales Constitute Infringement When Imported Into the United States

The doctrine of patent exhaustion limits a patentee’s ability to control the use of patented articles after an authorized sale of those articles. In Lexmark International, Inc. v. Impression Products, Inc., Nos. 14-1617, -1619 (Fed. Cir. Feb. 12, 2016), a majority of the en banc Federal Circuit reaffirmed its prior decisions in Mallinckrodt v. Medipart, 976 F.2d 700 (Fed. Cir. 1992) and Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001) on two issues of patent exhaustion: post-sale limits on use and resale and whether foreign sales exhaust a patentee’s U.S. rights.

Post-sale limits on use and resale

In reaffirming Mallinckrodt, the court held that a patentee may preserve its right to allege infringement when selling a patented article through “clearly communicated, otherwise-lawful restrictions.” Specifically, the court upheld that a patentee has the ability to “sell[] a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser” without exhausting the patentee’s rights in that item.

The court rejected Impression’s and the government’s argument that any sale by a patentee automatically exhausts the patentee’s rights to the article sold. Rather, the court analogized the issue to a licensor limiting the rights of a licensee, and explained that patent rights were not exhausted “simply because [the patentee] sold the [patented articles] itself..., rather than having left the manufacture and sale to others under [a] license.” The court also distinguished the Supreme Court’s holding in Quanta v. LG Electronics, 553 U.S. 617 (2008), because Quanta decided the issue of an unrestricted sale that was not subject to any conditions, but “did not involve a patentee’s sale” or single-use/no-resale restriction applied by Lexmark. Examining the “longstanding Supreme Court precedent” that a patentee may preserve its patent rights against downstream buyers through lawful restrictions on licensees, the court concluded that “the law does not forbid the patentee to do the same when making and selling the articles itself.”

Foreign sales and exhaustion a patentee’s U.S. rights

In reaffirming Jazz Photo, the court also held that importing patented articles sold abroad constitutes infringement, unless the patentee has authorized the importation, because foreign sales do “not authorize the buyer to import the article and sell and use it in the United States.”

Distinguishing the Supreme Court’s recent decision in Kirtsaeng v. John Wiley & Sons, 133 S. Ct. 1351 (2013), which analyzed foreign sales under section 109 of the Copyright Act, the Federal Circuit determined that Kirtsaeng “does not answer the question presented under the Patent Act.” In particular, the court considered the distinctions between the Patent Act and the Copyright Act, such as a patentee’s right to exclude another’s “use,” which a copyright holder does not have. The court distinguished the statutory text analyzed in Kirtsaeng as referring the location of manufacture, but not “whether a foreign sale...is properly treated as conferring on the buyer...the authority to resell” the article. After concluding that Kirtsaeng did not control the outcome, the court held that a patentee does not waive its U.S. rights to a patented article “simply by making or authorizing a foreign sale of an article.” The court explained, however, that U.S. patent rights may be exhausted by a foreign sale under an express or implied license, but that that question was not presented here.

Dissenting opinion

Judge Dyk, joined by Judge Hughes, dissented and would have found that Mallinckrodt “was wrongly decided” and “cannot be reconciled with [Quanta],” and that foreign sales would “result in exhaustion if an authorized seller has not explicitly reserved the United States patent rights.”