By Jason Rantanen
Lexmark International, Inc. v. Impression Products (Fed. Cir. 2016) (en banc) Download Opinion
Majority opinion authored by Judge Taranto, with Judge Dyk dissenting (joined by Judge Hughes)
This morning the Federal Circuit issued its en banc opinion in the closely watched Lexmark case. In a behemoth 92 page opinion by Judge Taranto, the court held that the limitations on the exhaustion doctrine set out in its 1992 Mallinkrodt and 2001 Jazz Photo opinions remain good law, notwithstanding the Supreme Court’s intervening decisions in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008) and Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013).
From the majority opinion:
First, we adhere to the holding of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that a patentee, when selling a patented article subject to a
single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. Under Supreme Court precedent, a patentee may preserve its § 271 rights through such restrictions when licensing others to make and sell patented articles; Mallinckrodt held that there is no sound legal basis for denying the same ability to the patentee that makes and sells the articles itself. We find Mallinckrodt’s principle to remain sound after the Supreme Court’s decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), in which the Court did not have before it or address a patentee sale at all, let alone one made subject to a restriction, but a sale made by a separate manufacturer under a patentee-granted license conferring unrestricted authority to sell.
Second, we adhere to the holding of Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), that a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. Jazz Photo’s no-exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. We conclude that Jazz Photo’s no-exhaustion principle remains sound after the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), in which the Court did not address patent law or whether a foreign sale should be viewed as conferring authority to engage in otherwise-infringing domestic acts. Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.
Judge Dyk, joined by Judge Hughes, disagreed:
I agree with the government that Mallinckrodt was wrong when decided, and in any event cannot be reconciled with the Supreme Court’s recent decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). We exceed our role as a subordinate court by declining to follow the explicit domestic exhaustion rule announced by the Supreme Court.
They also would take a presumption-based approach to international exhaustion that would treat exhaustion as a default rule:
Second, I would retain Jazz Photo insofar as it holds that a foreign sale does not in all circumstances lead to exhaustion of United States patent rights. But, in my view, a foreign sale does result in exhaustion if an authorized seller has not explicitly reserved the United States patent rights.
My sense is that Supreme Court review is likely given the tensions between Quanta and the Mallinkrodt rule that Judge Dyk and others have identified. In my view, Judges Dyk and Hughes have the better reading of the pre-Mallinkrodt Supreme Court decisions and the effect of Quanta. And given the Supreme Court’s tendency to look to patent law statutes when deciding non-statutory issues in copyright law (such as in MGM v. Grokster), I’m not convinced that, should it grant cert, the Supreme Court is going to feel as strongly that patent law’s exhaustion doctrine is different because it is non-statutory while copyright law’s is statutory.