Recently, the Supreme Court ruled that patent owners cannot impose restrictions on how patented items can be used or sold in the United States after they have been initially sold in Impressions Products Inc. v. Lexmark International Inc. This decision has a significant impact on how patented goods are sold in the U.S. market, particularly for products that can be re-used.
The court said that extending patent rights beyond the first sale “would clog the channels of commerce, with little benefit from the extra control that the patentees retain,” making this decision favorable for the resale market. The court also ruled that U.S. patent rights remain in place if a product is first sold in another country. It concluded that once a patentee decides to make a sale, the patent rights are exhausted by any sale, regardless of where it takes place.
Hanson Bridgett’s Robert McFarlane recently sat down with Inside Counsel to discuss the case’s decision, its significance and its impact on domestic and foreign patent rights and business.
McFarlane disagrees with the Supreme Court’s conclusion that allowing reasonable restrictions on the doctrine of patent exhaustion would “clog the channels of commerce.” Determining the appropriate scope of patent rights involves balancing the interests of the patentee with those of the public.
“By permitting the kind of post-sale restrictions that were negated in Impression Products, the balance weighs slightly in favor of the patentee,” he said. “The patentee could thus set the prices of patented products recognizing the enforceability of post-sale restrictions. Impression Products denies that right to the patentee and, in so doing, deprives the purchaser of the right to bargain for a lower price in return for its agreement to restrictions on reselling the patented product.”
The Supreme Court forcefully held that patent exhaustion is uniform and automatic. So, once a patentee decides to sell, that sale exhausts its patent rights, regardless of any post-sale restriction the patentee purports to impose, either directly or through a license.
“This holding greatly favors the resale market because patentees will no longer be able to place restrictions on post-sale activities, and downstream companies will not have to worry as much about patent infringement lawsuits initiated by companies who have attempted to impose restrictions on subsequent sales of their patented products,” McFarlane explained.
Prior to the court’s ruling, patentees could sell patented products in less affluent markets for prices that are much lower than in the U.S. This was possible because, according to McFarlane, if those foreign-sold products were subsequently imported into the U.S., the patentee would have a claim for infringement because the foreign sale did not affect patent rights within the U.S.
In the other hand, the act of importing the patented product into this country would constitute infringement. Following Impression Products, however, the foreign sale exhausts rights in the U.S. patent and, once a product is sold overseas, it can be imported into the U.S. without creating a claim for patent infringement.
He said, “This change in law undermines the ability of companies to sell products at significantly lower prices in less affluent jurisdictions because those products may then be imported into the U.S., undermining the patentee’s price structure here.”
This case is just the latest chapter in a recent line of Supreme Court cases that limit patent rights. For example, eBay Inc. v. MercExchange LLC. 547 U.S. 388 (2006), made it more difficult for patentees to get injunctions prohibiting further infringement even after district courts enter judgment of infringement; KSR International Co. v. Teleflex Inc., 55o U.S. 398 (2007), made it easier for accused infringers to demonstrate patents are invalid because the claimed invention was obvious; and Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014), undermined the patentability of thousands of patents covering business methods and software.
“While Impression Products may not limit the enforcement of as many patents as some of the Supreme Court’s other recent decisions, the case demonstrates that the pendulum is still swinging toward limiting the scope of patent protection,” McFarlane explained.
Impression Products will have a significant impact on companies that sell patented products at lower prices in less affluent jurisdictions and those that sell patented products with post-sale restrictions or with use restrictions such as for research only. Moving forward, companies must reevaluate the pricing for products in previously restricted transactions and will, in some cases, be forced to discontinue their practices of offering discounts, rebates or price concessions to parties who agree to abide by restrictions.