Lexmark: Can Patent Rights Overwhelm Traditional Notions of Title?

Impression Products, Inc. v. Lexmark Int’l, Inc. (Supreme Court 2016)

I see the dispute between Impression and Lexmark as more of a property law issue than one focusing on patent law.  Of course, the Federal Circuit sees it differently.  In its en banc opinion, the Federal Circuit reaffirmed (1) that a seller can use its patent rights to block both downstream resale and downstream reuse of a product (here used printer ink cartridges) and (2) that sales of a product abroad presumptively do not exhaust the US patent rights associated with that product, even when the US patent holder expressly authorizes those foreign sales.  Both of these holdings turn on the fact that the goods in question are covered by patent rights.  For unpatented goods, these covenants and restrictions generally do not bind subsequent bona fide purchasers.

Impression raises the following questions in its newly filed petition for writ of certiorari:

1. Whether a “conditional sale” that transfers title to the patented item while specifying post-sale restrictions on the article’s use or resale avoids application of the patent exhaustion doctrine and therefore permits the enforcement of such post-sale restrictions through the patent law’s infringement remedy.
2. Whether, in light of this Court’s holding in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 1363 (2013), that the common law doctrine barring restraints on alienation that is the basis of exhaustion doctrine “makes no geographical distinctions,” a sale of a patented article—authorized by the U.S. patentee—that takes place outside of the United States exhausts the U.S. patent rights in that article.

I see the Federal Circuit’s decision as dangerous in the way that it undercuts the notion of ownership and transfer-of-title.  Restrictions on use and resale of goods have traditionally been unenforceable against downstream owners as a mechanism for facilitating a robust market economy.

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About Dennis Crouch

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

77 thoughts on “Lexmark: Can Patent Rights Overwhelm Traditional Notions of Title?

  1. So you buy a car and obtain title from Mr. Smith. The next thing you know, you are sued for patent infringement by Monsanto because you obtained gasoline from not from a Monsanto filing station. The complaint said that Monsanto sold its cars, including the one to Mr. Smith, with a discount provided that the customer exclusively used Monsanto car filing stations. It could tell you did not use the services because the car communicated the “violation” to Monsanto when you filled up at an non Monsanto station.

    How do you answer this complaint?

    1. You laugh at Monsanto and wonder why their “smart chip” didn’t just make your car inoperative until you agreed to pay the “operate with illicit fuel” charge…

      😉

      1. Agreed, anon. One wonders that the Justice does not simply sue “Monsanto” for illegal tying.

        In the meantime, the Federal Circuit is off its rocker.

  2. Guess I am just too ‘old school’ to accept this new, improved – let’s make up new law – because we act like this issue is one of first impression – CAFC. The holding and the Holmes dissent in Motion Picture Patent Corp., 243 US 502 and Justice Taft’s collecting cases in US v. GE, 272 US 476 provides the answer. True that Monsanto is a case of first impression, but we now have that answer. Of course, the exhaustion doctrine, at this point, is just another judicial conceit. The entire judicial logic of exhaustion rests on the holding of Continental Paper Bag (ya’ know patents are a property right and equity commands an injunction). Just refuse the injunction under Merc v. eBay and the exhaustion issue takes care of itself.

    1. iwasthere, indeed the Federal Circuit is a court seriously out of control. Congress needs to fix this. The Supreme Court perhaps needs to make a quiet recommendation.

      1. Once again Ned – your “umbrage” is just too selective.

        Don’t you know yet that the CAFC is trying to follow the Supreme’s example?

                1. Ned,

                  Such strong arm “scare” tactics only proves my point:

                  As I have asked of you in the past, check your state bar oath, and let me know if you swore to the Constitution or if you placed the Court ABOVE the Constitution.

                  Realize as well that we have an ethical duty to NOT agree with the Court if the Court is out of line. Our special responsibility for the quality of justice demands that we do NOT kowtow under threat of “suffer[ing] impairment.”

                  Clearly, this forum is a bit more brusque than holding attendance with the Court – but make no mistake, being more brusque here – and conversely, more polite there – changes not one iota the CONTENT of the discussions. Do not let the form overpower the content and do NOT place the Court on a pedestal that they do not deserve.

                  Your view of the Court as lacking ANY possibility of doing wrong is – in itself – not only wrong, but recklessly, dangerously, and even unethically wrong.

  3. Ned – C.J. Roberts recused himself from MCM’s challenge?

    If so, you need to pull this and let Cooper take the lead.

    Feb 18 2016 Application (15A872) to extend the time to file a petition for a writ of certiorari from March 1, 2016 to March 31, 2016, submitted to Justice Kennedy (The Chief Justice is recused).

        1. Awesome – thanks for the link.

          How do you see the Justices lining up?

          I also saw (over on that other blog) a piece about Garland’s supposed proclivities which would indicate that Ned would be better off NOT waiting ( link to ipwatchdog.com ).

          1. It is hard to predict how the Justices might line up, but C.J. Roberts is “the” public rights expert on the Court. It would be 100% m.o.r.o.n.i.c. to move forward without him.

              1. How so? There is nothing preventing the Court from reaching the constitutional question in Cooper should it want to.

                Don’t believe everything the DOJ tells you.

                1. It is not the “reaching the question” that I balk at – it is what he suggests the Court to do that will not work.

                2. Well that concern merely reflects your agenda of not wanting to be banned when the AIA does not tank.

                  If MCM disagrees with the proposed remedy, it can raise an alternative as amicus.

                  I’m interested in Ned’s explanation as to why pursuing this without Roberts is a good idea.

                3. LOL – not at all.

                  If the AIA does not tank when a portion is found to be unconstitutinal, I look forward to a meaningful discussion on just how that is implemented – as of yet, there have been ZERO cognitive offerings that have survived any level of scrutiny.

                  Feel free to be the first.

                4. Also, if being “wrong” on something was enough to get a person “banned,” Malcolm and the Echoes would have been banned LONG ago.

                  😉

                5. anony,

                  Why are you turning around and looking for Ned – I asked if YOU had a cogent offering.

                  Do you have one?

                6. Obviously not – I want you to provide your own cogent offering of how the item wanted would allow the AIA to NOT tank if a portion is found to be unconstitutional and the Court acts as if the plain and undeniable truth that Congress rejected separability for this law and went ahead and rewrote the law to put into effect the very item that Congress rejected.

                  Explicitly, this is NOT whether the Court does such a thing but much more to the point how such a thing squares with what Congress actually did with this law.

    1. I guess when a petitioner’s arguments are really cr@ppy, the game playing takes center stage.

      I hear that the Justices prefer striped ties to solid ties, and Pratt knots over Windsor knots. It could make all the difference!

      LOL

      1. MM, in addition to the Article III issue, we also raised the Jury Trial issue and we have grounds and will raise whether a decision on 315(b) may be appealed.

    2. If the court takes cert., Roberts will probably hear the case because it has become the practice of the court to sell their stock so that all the justices can hear every case.

  4. A patentee can get a royalty or consideration only on the first sale of an patented article. Attempts to collect a royalty on a second sale, in my humble opinion, no matter how attempted, is patent misuse.

    A patentee may lease a machine so that it remains his property and not that of the lessee. In that case, the lessee has nothing to sell. But if the article is sold, it is the law of property and the patent law that the buyer takes free of any further restrictions on use or sale.

    That said, there is the issue of reconstruction vs. repair.

      1. IIT, two inventions? Well I would file for a reissue for the sole purpose of having the patent reissued in divisions.

        ’til then. Just one royalty.

        Guys who like traversing restrictions are not doing their clients favors.

        1. I’d call claims directed to a client-side method and claims directed to server-side hardware being two separate things. I’m not sure if sale of a client-side application program should necessarily exhaust all claims of the patent.

            1. Exactly – I believe that this is or was common practice at Intel – i.e., present claims at all stages of the supply chain to provide multiple bites at the apple.

        2. Nobody likes doing it. It is just a ritual to hold the Examiner’s fee to the fire and make sure that a divisional can’t be challenged for double patenting. It can save money though.

            1. Ned,

              I cannot. It is not essential to traverse. My comment was a bit glib but based on the principal that a voluntary divisional is not covered by the safe harbor. OK, if 121 works without traversals, then why traverse since it rarely succeeds anyway? I will have to get back to you on that.

              1. Troubled,

                The reason why “with traverse” is used is because it preserves the options for later.

                Acting without traverse just does not buy you any options whatsoever.

                Options are a good thing.

            2. Ned and Anon,

              Sorry for the delay. What do you think of this?

              Anon is right that a traverse is required to preserve the right to petition later. Similarly, if the examiner first telephones asking for an election, one must reserve the right to traverse on the phone or ask for a written restriction before any elections. Without a traverse, the examiner can cancel the non-elected claims when issuing a notice of allowability. I don’t know if this creates a problem for a timely divisional.

              Traversals should not argue that the inventions are not patently distinct, but concentrate on the examiner’s lack of burden.

              I did a search on Google Scholar for CAFC cases having” “Double Patenting” AND Traverse. Only two were useful. In Bristol-Meyers v. Pharmachemie, 361 F. 3d 1342, (CAFC 2004) the district court judge was impressed with applicants repeated attempts to traverse, but to no avail. Newman’s dissent in her second section is interesting: “The applicant then selects the aspect to be examined, and usually also “traverses” the requirement, a formality grounded in administrative protocols.”

              In GD Searle v. Lupin, 790 F. 3d 1132, (CAFC 2015), the patentee filed a CIP instead of a divisional and later tried to fix double patenting by filing a reissue. Failure to file a divisional after restriction is not the sort of error correctable under 35 U.S.C. 251, but they found enough other errors to convince the examiner to go forward. Too complex to explain, but the Reissue did not work in court. So, discovering that there are two inventions in an issued patent may not get two separate patents as a result of a Reissue application.

              100 plus cases are concerned with double patenting. For the 121 safe harbor to apply, there must be consonance between the restriction requirement and the issued claims. Claims in a divisional can be amended, but one must be careful. Quite often, applicants are confused about what the restriction requirement entails or even if one is in effect, especially when more than one examiner is involved. Traversals could be used to clarify this for the record.

              Lastly, the odds are that clients will at most break even on the cost of prosecution and maintenance fees. Avoiding a divisional may be in their best interests. Of course, they could win the lottery and regret not having one in some cases.

              1. Troubled – just a quick note (for now): sometimes that “admission” by the Office in a restriction requirement of “patentably distinct” works in your client’s favor.

                1. Anon,

                  Yes it can. That’s why one never argues that the restriction is improper because the two sets of claims are obvious over each other.

              2. Troubled, I really do not look at this from a cost viewpoint. I look at enforcement. What is better: two patents on two inventions with two royalties or one patent on two inventions with one royalty?

                1. Ned,

                  I think there are some quibbles but if you put it like that, it is hard to argue. However, since divisional claims expire with the claims of the parent 20 years after the earliest priority date, one would think they would be filed nearly simultaneously with any election but I don’t see this happening very often. What is your impression?

                2. one would think they would be filed nearly simultaneously with any election but I don’t see this happening very often.

                  That’s a false presumption.

                  Yes, there is a “tie back” to the filing date, but there is also a fair degree of latitude** as to when those items are pursued (not to mention that with certain conditions, the PTA can “dis-associate” the actual coverage time span).

                  ** the degree of latitude may be akin to other strategic considerations, such as those that support having a string of “live” continuations.

                3. Personally, I like to keep my powder dry. So, unless there is a present need for patent enforcement for the non elected claims, I delay prosecution for the usual reasons.

    1. One thing I do not recall seeing mentioned in any of the Professors’ posts on this case or in any of the prior comments to those posts is the idea of “you get what you pay for.”

      Lexmark’s customers had the option of obtaining additional use rights by purchasing an unrestricted cartridge. For the cartridges at issue here, the customers instead chose to buy a cartridge at a 20% discount, but those discounted cartridges came with use restrictions as a condition of that discounted sale. If they really wanted the cartridges to be free and clear of patent rights so they could refill and reuse the cartridges, they could have paid for that.

      1. A bit of a red herring, Pilgrim.

        The customers also bought OTHER cartridges.

        It is not (directly) the customers’ purchasing habits in the cross hairs, as much as it is the third party suppliers to those customers.

      2. Pilgrim, the suit is not against Lexmark’s customers, but to people to purchased/obtained cartridges from Lexmark customers who did the refilling and then sold the refilled cartridges to Lexmark customers.

        1. Right, but only refilling the restricted use cartridges (not the unrestricted cartridges) was charged as an infringement. And, the refillers knew they were refilling restricted use cartridges because they had to modify the microchip to get the refilled cartridge to work. I didn’t think a purchaser could get more rights via the purchase than the seller had to begin with.

          1. Pilgrim, one obtains the right to use and to sell with title. That is the law.

            One buys a car. I assume one obtains the right to refuel a car that one buys.

            Now I think the proper question is whether adding ink is reconstruction — like adding fuel to a car reconstructs the car allowing “Monsanto” to sue in the other example I gave.

            1. Adding ink is most definitely NOT reconstruction – the ink is designed to be a replenishable item.

              How did you keep a straight face and float that question?

            2. Hewlett Packard v. Repeat-O-Type held that refilling ink cartridges was akin to repair, not reconstruction, even where the caps on the ink reservoirs had to be removed and replaced.

                1. Ned,
                  I believe any “tying” theory is foreclosed by the Supreme Court’s decision in Eastman Kodak v. Image Technical Services and the Circuit court decisions (not just the CAFC) applying that decision. If the customers knew of the restrictions at the time of the initial sale, there is no separate “aftermarket” (i.e., aftermarket ink refilling) that could be subject to tying.

                  “Misuse” was already addressed and in B. Braun v. Abbott Labs. Under that case, use restrictions are not per se patent misuse.

                2. Pilgrim, Eastman found no tying absent market power. However, fn. 28 said that market power can be found when a patent is used to coerce tying.

                  Braun found no patent misuse because of Mallinckrodt. Since Mallinckrodt was always inconsistent with the law, particularly with Quanta, Braun is not good precedent.

                  Tying using the power of patent infringement is classic misuse and an antitrust violation: see Motion Pictures Patents and Ethyl Gasoline and Univis Lens as just three examples.

                  I think the antitrust violation is manifest. Justice needs to sue if only to clarify the law.

  5. Nice one anon.

    Is there any reason, on the basis of some theory of rights, that any patent rights, or change in the status thereof, would somehow interfere with independent contractual rights, or a right to free speech, a title to land?

    Confining this to patents and contracts, suppose you have the right to exclude me from doing certain things, and that bundle of rights are identified as patent rights, but suppose you and I have contracts under which you and I have separate rights and obligations. What sort of theory of rights would hold that an invalidation, or expiration, or enforcement of, specifically the rights arising from patents would affect our separate rights and obligations arising out of our contract? Certainly we could irrationally set up our contract to directly contravene the patent rights, but that would just mean a more complicated accounting of damages or remedy. On the other hand of a contract were about terms completely unaffected by the patent rights, for example if they were to expire, then does patent law have ANYTHING to do with the rights and obligation which solely arise from an independent contract?

    1. Anon2, the patent laws do not recognize the right of a patentee to sue for patent infringement the seller of a patented article who has received legal title to that article from the patentee. Neither do the patent laws recognize the right of a patentee to sue for infringement the legal owner of patented article for its use having received title from the patentee. Any such attempt by the patent owner to use the patent laws to extract patent damages from a lawful owner is, IMHO, patent misuse and potentially, an antitrust violation.

      Not only do I support the government position here, I think they need to open an anti-trust investigation to get the issue out of the hands of a particularly ignorant or flagrantly arrogant (you pick) Federal Circuit.

        1. Kennedy and all who voted with him in Bilski are on by S list, anon. Scalia was right. The law is about rules, and they need to be clear, not a balance of factors so that one cannot know right from wrong until the judge decides.

    1. Sure, when people start planting their printer cartridges in the ground and growing new ones.

      From Monsanto: “Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any sub­sequent owner, a right to use or resell that article. Such a sale, however, does not allow the purchaser to make new copies of the patented invention.”

      I don’t think making new copies is an issue in this case.

      1. As I have pointed out on a number of occasions, the particular use that Monsanto contemplated (because the invention is critically tied to this use) is the known and expected use of planting.

        It is beyond obtuse to not see this (after it has been pointed out), and to then take the take away from what the Court said in that case as it pertains to items that a patentee sets loose into the stream of commerce and does NOT draw up a contract with enough controls and protections for itself on a replicating – or here, a refilling – basis.

        That you want to clench tight your eyes is one thing. That you want to try to obscure this point for others who may not want to clench tight their eyes is quite another.

        1. It must be frustrating to be completely unable to articulate a logical argument. I recommend outlining your arguments first, rather than just cutting loose with a stream of consciousness and word associations.

          the take away from what the Court said in that case as it pertains to items that a patentee sets loose into the stream of commerce and does NOT draw up a contract with enough controls and protections for itself on a replicating – or here, a refilling – basis.

          Like that.

          1. You are projecting.

            My statement is clear and is not your supposed “unable to articulate,” so there can not be the possibility of the “must be frustrating” emotive projection.

            Maybe you should spend more time trying to come up with an on point legally cogent reply instead of your usual muckraking…

            1. My statement is clear and is not your supposed “unable to articulate,” so there can not be the possibility of the “must be frustrating” emotive projection.

              You never cease to amuse, anon.

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