IP Newsflash - February 19, 2016

FEDERAL CIRCUIT CASES

Federal Circuit Affirms its pre-Quanta and Kirtsaeng Precedent on Patent Exhaustion for Restricted Domestic Sales and Foreign Sales

In a long-awaited en banc decision, the Federal Circuit ruled that the patent exhaustion doctrine does not apply to (1) initial sales with a single-use/no-resale restriction, or (2) foreign sales, whether restricted or not. In doing so, the court found that the Supreme Court's Quanta and Kirtsaeng decisions did not overrule Federal Circuit precedent.

Lexmark sold its printer cartridges in the U.S. and abroad. Some of the foreign-sold cartridges and all of the U.S.-sold cartridges were sold subject to a "single-use/no-resale restriction." Impression acquired and modified Lexmark's cartridges for resale in violation of the Lexmark restriction. Impression not only resold the U.S. cartridges but imported the foreign-sold Lexmark cartridges for resale in the U.S.

In the face of a patent infringement claim, Impression contested liability on the basis that Lexmark had exhausted its U.S. patent rights in the cartridges by its initial sales of them. Impression also argued that the Supreme Court's recent decisions had made Mallinckrodt and Jazz Photo no longer good law. See Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992) (rejecting exhaustion defense where a patentee sold a patented article subject to an otherwise-unobjectionable single-use restriction); Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094 (Fed. Cir. 2001) (holding that an initial authorized sale of a patented product outside the U.S. would not exhaust the patent rights of the patent holder).

On the first issue, the court held that "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." (Slip Op. at 38.) The court found that under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles.

On the second issue, the court held that "[a] U.S. patentee, simply by making or authorizing a foreign sale of an article, does not waive its U.S. rights to exclude regarding that article, either conclusively (no matter how clear the reservation of U.S. rights) or only presumptively (subject to sufficiently clear preservation of U.S. rights)." (Slip Op. at 71.) The court found that the...