Patent Exhaustion at the Supreme Court: Industry Reaction to Impression Products v. Lexmark

On May 30, 2017, the Supreme Court issued its decision in Impression Products v. Lexmark International, determining that when a patent owner sells a product, the sale exhausts all patent rights in the item being sold both domestically and internationally. IP Watchdog reached to Finnegan partner D. Brian Kacedon for his thoughts on the case.

Kacedon said:

The decision today from the Supreme Court in Impression Products, Inc. v. Lexmark International, Inc., while not wholly unexpected, places some real limitations on a patent holder’s ability to control the use of a patented product after it is sold. In rejecting the enforceability of post-sale restrictions under the patent laws, the Court has effectively limited a patent holder to using the tools available under state contract law to impose restrictions on its customers. In some cases, however, those tools will not be up to the task. Often, imposing contractual conditions throughout the stream of commerce will be difficult, if not impossible. And even if one can impose such conditions, it will often be impractical to actually sue these customers for any breach of those conditions. As a result, companies may need to rethink the manner and the terms on which their products are sold. On the other hand, in reaffirming where patent rights must, as the Court put it, "yield to the common law principle against restraints on alienation," the Court has removed a potential burden on consumers who might be purchasing products subject to conditions of which they are unaware.

Similarly, in holding that U.S. patent rights can be exhausted by sales outside the U.S., the Court also restricted a patent owner’s ability to set different terms of sale in different countries. In particular, the ability to price products differently based on the territory in which they are sold becomes substantially more difficult as one may now more easily purchase a product at a lower price outside the U.S. and bring it into the U.S. for resale. Again, this is likely to cause some companies to reconsider how they sell their products and on what terms. In some cases, companies may reconsider whether to sell in certain territories at all if they cannot command a high enough price. On the other hand, as the Court noted, the patent laws do not guarantee the patent holder a right to price discriminate. In this way, the ruling may prove beneficial to consumers in some circumstances. So, overall, while the decision of the Court is clear, dealing with the impact of the decision, for at least some patent holders, will be much less so.