Lingering In Lexmark's Wake, Uncertainty About The Limits Of Patent Exhaustion

Introduction

According to ten judges of the Federal Circuit, a patent owner's right to sue for infringement in the United States is not exhausted by sales of products abroad or by sales subject to valid post-sale contractual restrictions on use. See Lexmark Int'l, Inc. v. Impression Prods, Inc., Nos. 2014-1617, slip op. (Fed. Cir. Feb. 12, 2016). In a 10-2 en banc decision which affirmed in part and reversed in part the lower court's decision, the Circuit court held that U.S. patent rights need not be expressly reserved in foreign sales transactions to preserve the right to sue for infringement if the goods enter the United States downstream of the point of sale. The court further held that patent holders can enforce—under patent law—post-sale use restrictions imposed at the point of first sale not only against the buyer under contract law, but also against the buyer or a subsequent third party purchaser. A dissenting opinion authored by Judge Timothy Dyk and joined by Judge Hughes strongly disagreed with the majority's opinion on both issues, cautioning that the majority's decision cannot be reconciled with prior Supreme Court case law, sharply adding that "[w]e exceed our role as a subordinate court by declining to follow the explicit domestic exhaustion rule announced by the Supreme Court." Lexmark Int'l, at __ (dissenting opinion) (slip op. at 2).1The dissent also urged that presumptive exhaustion should apply to foreign sales, exhausting patent rights where those rights are not expressly reserved.

Facts and Procedural Posture

Lexmark makes and sells printers and cartridges, and owns patents that cover its cartridges and their use. It is undisputed that the cartridges at issue were first sold by Lexmark, some abroad and some in the United States. The domestic cartridges at issue were sold at a discounted price but encumbered by a single-use/no-resale restriction at the point of sale. Impression Products is a reseller of Lexmark cartridges. Impression acquired both foreign-sold cartridges and restricted use domestic cartridges after a third party modified those cartridges in violation of the single-use/no-resale restriction and sold them to third parties. Lexmark sued Impression for patent infringement under 35 U.S.C. §§ 271(a) and (c).

Impression responded to Lexmark's infringement suit with two motions to dismiss, arguing that although the cartridges it sells are covered by Lexmark's patents, and those patents are valid, Lexmark's right to sue is exhausted by Lexmark's initial sale of the goods. The district court granted Impression's motion to dismiss as to its sales of Lexmark's cartridges that were sold in the United States, finding that Quanta overruled Mallinckrodt, and that post-sale restrictions did not prevent Lexmark's patent rights from exhaustion after the first authorized sale of the cartridges. However, the district court found that patent exhaustion did not apply to Lexmark's cartridges sold abroad...