Federal Circuit takes on En Banc Patent Exhaustion Case to Examine Impact of Kirtsaeng and Quanta

Lexmark Int’l. v.  Impression Prod. (Fed. Cir. 2015) (en banc)

Acting sua sponte, the Federal Circuit has ordered en banc briefing on the issue of international patent exhaustion.

As I have previously written, current Federal Circuit precedent on international exhaustion is in direct tension with the Supreme Court’s teaching – albeit in the copyright context.  Compare Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2012) with Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001).  The basic international exhaustion situation occurs when the patentee authorizes a the manufacture/sale of a patented product in a foreign country. And the exhaustion question is whether the U.S. patent is exhausted by that international authorization or instead can the patentee block importation of hte product into the U.S. based upon the U.S. patent.  Kirtsaeng says that the foreign action exhausts the U.S. copyright while in Jazz Photo the Federal Circuit held that the foreign action does not exhaust a U.S. patent.

The patent exhaustion doctrine has also been complicated by the largely impenetrable Quanta and Mallinckrodt decisions.  What types of servitudes can a patentee place on a patented product and how do those restrictions and obligations impact exhaustion?

The en banc order presents the following two questions:

(a) Should this court overrule Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001)?

(b) The case involves (i) sales of patented articles to end users under a restriction that they use the articles once and then return them and (ii) sales of the same patented articles to resellers under a restriction that resales take place under the single-use-and-return restriction. Do any of those sales give rise to patent exhaustion? In light of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion?

Briefs favoring a change in the law (supporting Impression) are due within 45-days and briefs supporting the status quo will be due within 30-days  following.  The Federal Circuit has indicated that briefs of amici curiae may be filed without consent or leave of the court “but otherwise must comply with Federal Rule of Appellate Procedure 29 and Federal Circuit Rule 29.”

About Dennis Crouch

Law Professor at the University of Missouri School of Law. Co-director of the Center for Intellectual Property and Entrepreneurship.

15 thoughts on “Federal Circuit takes on En Banc Patent Exhaustion Case to Examine Impact of Kirtsaeng and Quanta

  1. Dennis: Are you sure amicus briefs are due the same date as the party briefs? FRAP 29(e) says amicus briefs are due 7 days after the briefs of the parties being supported, and I don’t think anything in the court’s order changed that.

  2. General Talking Pictures: field of use restrictions on a license to make and sell are not patent misuse.

    Quanta: post sale restrictions on use even with notice of restrictions on use are unlawful.

    Mallinkrodt appears to have been overruled.

    1. Mallinkrodt: Manufacturer/patentee sale of an item (by definition an authorized sale) + condition on use of the item =/ exhaust the patent if condition is breached

      Quanta: Authorized unconditional sale by licensee = exhausts the patent. I don’t see where Quanta said post-sale restrictions are unlawful. In fact they said that contract law could be used to remedy breach of those restrictions.

      That said, I agree that Mallinkrodt is dead simply from the Court’s multiple statements that an authorized sale exhausts the patent.

      In other words, pre-Quanta it’s arguable that a manufacturer/patentee could impose downstream restrictions on sales of its patented goods, but now I’d imagine that all bets are off after the first sale and that the manufacturer/patentee needs to rely on contracts to extract some type of $$.

  3. I haven’t read the details yet, but is the only issue:

    “What types of servitudes can a patentee place on a patented product and how do those restrictions and obligations impact exhaustion?”

    Or also,

    “What scope of US patent license rights are obtained by purchasing a product overseas?”

    That is, for example, if Product X is covered by US patent but not by any Chinese patent and Product X is sold in China to Buyer, can Buyer import or sell or use in US?

    In any event, patent owners should be able to limit license rights for product sales, particularly when properly labeled.

  4. Because of conventions, copyright is universal and without formalities. Patents, not so much so.

    I do not see an overrule of Jazz Products.

    As to Mallinckrodt, there is tension between repair/reconstruction and single use restrictions. To the extent a single use requires a reconstruction, there should be no problem with Quanta, as exhaustion does not implicate the right to make. See, Monsanto v. Bowman.

    1. …so the Point of Novelty in Bowman being intimately tied to the very use of the product for the the natural purpose of the invention does not give you pause (yet), Ned?

    2. I agree with your first two paragraphs (I don’t have an opinion on the third).
      Patents can differ substantially in coverage in different countries because of differences in the laws of the different countries. So, the considerations for “patent exhaustion” are different from “copyright exhaustion.”

  5. sales under a restriction

    Should this be tied [pun intended] to the recent discussion on patent misuse? (the Kimble v Marvel ability to contract theme)

    1. I think it already is. Under Mallinckrodt, if the restriction is “within the scope of the patent grant,” then no exhaustion and no misuse. So if the agreed-to restriction relates to “use” of a patented article, then it is within the scope of the patent grant since “use” of a patented article is infringing. If the agreed-to provision is, for example, a requirement to purchase a non-patented product, or to pay royalties after the expiration of the patent, then it is not within the scope of the patent grant and may be misuse.

        1. Not directly, no. If what the accused infringer is doing is analogized to reconstruction, then the accused infringer is liable for infringement, regardless of whether there is a contractual “single use only” restriction. Cf. Sandvik Aktiebolag v. E.J. Co., 121 F.3d 669 (Fed. Cir. 1997) (retipping patented drill comprises infringing reconstruction). It seems the enforceability of the contractual use restriction only comes into play if the accused activity is not “reconstruction” per se. Mallinckrodt has a discussion of this point.

          1. Pilgrim, what bothers me after reading the District Court opinion was that Lexmark sells full price cartridges without any restriction on resale or refurbishing. As you said, if the refurbishing were reconstruction, Lexmark could sue refurbishers of full price cartridges. But it does not. This indicates that Lexmark does not consider refurbishing to be reconstruction, but only repair.

            1. See Hewlett-Packard v. Repeat-O-Type, 123 F.3d 1445 (Fed. Cir. 1997), where altering non-refillable printer cartridges to make them refillable was “more akin to permissible ‘repair’ than impermissible ‘reconstruction.'” The HP case did not involve contractual use restrictions.

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