Impression Products, Inc. v. Lexmark Inc.: will International Patent Exhaustion bring Free Trade in Patented Goods?

Guest post by Professor Sarah R. Wasserman Rajec*

In Impression Products, Inc. v. Lexmark Inc., decided Tuesday, the Supreme Court held that the authorized sale of a patented product, anywhere in the world, exhausts the patent-holder’s rights in that product. The Court overturned Federal Circuit case law holding that post-sale restrictions and foreign sales preserve a U.S. patent-holder’s right to sue for infringement. As a result, Impression Products was not liable for patent infringement when it bought used Lexmark toner cartridges abroad from lawful purchasers, refilled them, and then imported and sold them in the United States, nor did the post-sale restrictions Lexmark placed on its goods give rise to patent infringement liability. Jason Rantanen has written about the decision’s impact on post-sale use restrictions. I will focus on the ruling as regards international patent exhaustion.

The decision that an authorized sale anywhere in the world exhausts a patentee’s rights brings patent law doctrine in line with copyright law and the Court’s 2013 decision in Kirtsaeng v. John Wiley & Sons, Inc.. In that case, the Court held that textbooks lawfully made and sold in Thailand could be imported and sold in the United States without infringing U.S. copyright. Kirtsaeng was not controlling because it involved statutory interpretation as opposed to the purely doctrinal nature of exhaustion in patent law, but many of the policy arguments for copyright apply in the patent context, and many goods are covered by both types of protection. The greater impact of an international patent exhaustion rule, as I have previously argued, is that it makes U.S. patent law more consistent with free trade principles and is likely to increase competition by lowering barriers to trade in patented goods. Companies will no longer be able to use patent rights (without further strategizing, see below) to engage in geographic price discrimination between U.S. and foreign markets, and supply-chain-participants, resellers, and consumers will not be subject to the information costs associated with determining the provenance and travels of all articles of commerce they purchase. These Court makes clear that the third party benefits that ease the flow of commerce were important in coming to its decision, colorfully explaining that:

More is at stake when it comes to patents than simply the dealings between the parties, which can be addressed through contract law. Instead, exhaustion occurs because, in a sale, the patentee elects to give up title to an item in exchange for payment. Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principle against restraints on alienation.

Even after looking up “remora,” the opinion leaves open some questions about international trade in patented goods. Some are legal and will likely spur further litigation (e.g., whose authorization is required for an “authorized sale abroad” to occur?) while others are empirical and still speculative (e.g., with geographic price discrimination off the table, what other methods will businesses pursue for price discrimination and control of downstream sales? And, what will the effect of this ruling be on access to medicine?).

First, the legal question: What is an authorized sale abroad?

Who needs to authorize the sale? Will companies be able to get around exhaustion by structuring businesses so that foreign sales are not authorized by the U.S. patent holder?

In its opinion, the Court stated that “a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose on the location of the sale.” And, more to the point, “[a]n authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.” However, an authorized sale is not the same as a lawful sale—it requires an entity capable of authorization in the United States, and requires that this entity grants authorization in the foreign market. The Court addressed the issue of what will count as an authorized sale in its discussion of Boesch v. Graff, an 1890 case in which the Court ruled that U.S. patent rights were not exhausted by lawful manufacture and sale in Germany. However, in that case, the manufacturer was entitled to make and sell the products under a prior user right in the German patent law which allowed those who were preparing to produce a patented article at the time the patent was filed to do so without authorization. Thus, the Court in Impression Products explained that Boesch merely illustrates “that a sale abroad does not exhaust a patentee’s rights when the patentee had nothing to do with the transaction.”

However, there is a lot of room between Boesch, where the patentee had “nothing to do with” the manufacture and sales and Impression Products, where Lexmark had patent rights in multiple countries and authorized sales abroad. The question remains whether a company structured such that subsidiaries in different countries own the various patent rights will be subject to exhaustion of its U.S. patents for foreign sales made by a foreign subsidiary. The Court seems to imply not, explaining that “only the patentee can decide whether to make a sale that exhausts its patent rights in an item,” and later, “what matters is the patentee’s decision to make a sale.” Yet if it is really the case that only authorization by the U.S. patent-holder will result in exhaustion through foreign sales, the Court has left open a way for patent holders to opt out of international exhaustion. And while courts may interpret “authorized sale” more broadly, to include sales by related entities, the contours of any rule will take some time to be settled.

With geographic price discrimination off the table, what other methods will businesses pursue for price discrimination and control of downstream sales?

I have previously discussed the economic argument for price discrimination, explaining that

The standard economic argument against international exhaustion draws on the potential gains to patent holders and to consumers in low-income countries from geographic price discrimination. This argument describes the current rule as allowing patent holders to market goods worldwide, adjusting prices for countries with lower purchasing power while continuing to reap rewards in high-income countries. An international exhaustion regime, according to this view, will push patent holders either to restrict sales to high-income markets or to offer goods at a globally uniform price, to the detriment of consumers in low-income countries. However, geographical price discrimination is but one of many options for identifying and marketing to populations with differing abilities to pay; many goods, regardless of patent protection, are available in different versions at different prices worldwide. Geographic price discrimination is desirable to firms because of its effectiveness at preventing arbitrage and because enforcement costs are shared by states through customs enforcement. It may not be the most desirable form of price discrimination for consumers, however, because it is imprecise in identifying differing demand curves. This is particularly true for countries with large or growing income disparities. A shift to international exhaustion would likely result in changes in how firms market goods, but would not necessarily entail the wholesale welfare losses that the standard argument suggests, because that argument compares geographic price discrimination with no price discrimination at all.

In other words, the useful comparison is not between geographic price discrimination and no price discrimination, but between geographic price discrimination and the other methods that companies will increasingly turn to following this ruling. If instead of choosing not to sell abroad under the new rule, a company chooses to sell a costly and a cheaper version of a good, the availability of that cheaper version may be a boon to consumers inside the United States that otherwise could not afford the costly version.

Many have suggested that this ruling will lead to more licensing and fewer sales and I generally agree, where that is technologically possible and privity can be maintained. However, one thought I’ve had is that this move towards licensing goods when possible is not isolated to the patent context in any way. That is, licensing of goods may allow companies to price discriminate and control (or stop) downstream sales, and it generally runs counter to the law’s abhorrence for restraints on alienation, but it was on the rise before this case and would be just as desirable (to companies and some consumers) or undesirable (to other consumers and resellers) for goods not covered by patents as for those that are. So while I agree that we’ll see more action in this area as a result of the case, and that the dividing line between licenses and sales is incredibly important to our understanding of ownership and use of modern and emerging technologies, it is not an issue of patent law qua patent law.

What will the effect of this ruling be on access to medicine?

International patent exhaustion presents particular concerns for the advocates of global access to medicines and for the pharmaceutical industry. Because versioning or licensing do not easily apply to the sale of drugs, there is a concern that pharmaceutical companies will refuse to sell medicines at low prices in lower-income markets because of a fear of arbitrage. As a result, patients in lower-income countries would suffer without access to medicine and pharmaceutical companies may reap lower profits to invest back into research and development of new drugs. There are reasons, however, to think that the immediate effect on the pharmaceutical industry and patients worldwide will not and need not be so dire. There are also solid policy reasons to expand the regulatory means of curbing parallel imports in this industry.

Currently, the Food & Drug Administration must approve drugs before they are sold in the United States—both the chemical composition of the drug and its manufacture. The registration of drugs and approval of production processes mean that the FDA serves as a gatekeeper for all who wish to sell drugs in the U.S. market, and an expansion in this role to exclude drugs first sold in least developed countries would not exceed the scope of the agency’s current expertise. And while generally there are good reasons to apply patent law equally to different technology areas, the drug industry may be appropriate for special treatment because it is subject to price controls in so many countries. Thus, while a patent-holding pharmaceutical company may have a choice whether to sell its drug in foreign markets, they have less control over the price than in the United States, which does not have a single-payer system allowing for the strong bargaining power that many countries have. In addition, because the WTO agreement on Intellectual Property, the TRIPS Agreement, allows for countries to issue a compulsory license for patented goods in certain circumstances, drug companies may face foreign sales that they have not authorized. Under these circumstances, the free trade concerns that drive some of the arguments for international exhaustion simply do not apply in that industry. Combined with the highly-regulated nature of drug sales in the United States, this provides a strong argument for treating drugs differently in order to maintain access for foreign patient populations.

Concluding thoughts

Despite the Court’s suggestion that a rule of international exhaustion is consistent with prior doctrine, it is a change in the law as announced by the Federal Circuit and as understood by practitioners and academics. (The historical claim has been challenged for both copyrights and patents.) On the domestic side, we can expect to see even more attempts to structure transactions as licenses rather than sales, while on the international side, I expect that the question of patent-holder authorization will dominate in the near future.

= = = = =

* Assistant Professor of Law, William & Mary Marshall-Wythe School of Law.

 

Impression v. Lexmark: Patent Rights Exhausted by Sale, Domestic or Abroad

 

Dennis Crouch

About Dennis Crouch

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

193 thoughts on “Impression Products, Inc. v. Lexmark Inc.: will International Patent Exhaustion bring Free Trade in Patented Goods?

  1. One thing that seems to often get overlooked in discussions of cases like this is that nearly half of all U.S. patent applications are filed by foreign entities.

    1. Thanks Paul.

      How do you think that such folds into the dialogue?

      Does this not all the more focus the spotlight on the rather plain fact that exhaustion (far from being some type of ‘bumper sticker’ treatment) does NOT include a “where sold” aspect, and that it is an arbitrary attempt to insert an inconsistent “where sold” plank into the meaning of exhaustion that needs to be showcased?

      1. How do you think that such folds into the dialogue?

        Looks to me like Paul was starting a dialogue and not attempting to “fold into” any particular dialogue.

        Does this not all the more focus the spotlight on the rather plain fact that exhaustion (far from being some type of ‘bumper sticker’ treatment) does NOT include a “where sold” aspect

        The “plain fact” is actually just a Supreme Court holding. Ginsberg didn’t find anything “plain” about it.

        Do you really want to talk about “plain facts”, “anon”? LOL

        Of course you don’t.

        1. In case you did not notice (and of course you did not), I added to Paul’s start with the cogent observation that the word “exhaustion” in the everyday or in the legal sense simply does not carry with it the notion of “where sold.”

          But of course, you are in way too much of a hurry to try to say something smarmy in return.

          Is that too a part of your “grown up”-ness?

          And as far as your innuendo about “Do you really want to talk about “plain facts”, “anon”? LOL Of course you don’t.” – why would I not want to? Clearly, in our exchanges, it is you rather than I that have failed to talk plainly – that is, in an inte11ectually honest manner.

          Your innuendo falls short of anything but (yet another) Malcolm #1 meme of Accuse Others Of That Which Malcolm Is/Does…

          11 years of the same old same old….

          1. “Do you really want to talk about “plain facts”, “anon”? LOL Of course you don’t.” – why would I not want to?

            LOL

            Remember, folks: this is the guy who denies that software is logic and who spent many consecutive years pretending not to understand how limiting a “new” ineligible method to a prior art context effectively takes that ineligible method out of the public domain.

            But he’s a very serious person! Totally not just a simpering tr0ll with his own self interests mind. Nope. Not him.

            LOL

            1. who denies that software is logic

              How is you project to copyright logic coming along?

              “Remember folk”… indeed.

              What a putz.

              1. How is you project to copyright logic coming along?

                There is no such project and nobody has any idea what your mewling about. See above re: “plain facts” and your inability to come to terms with them.

                1. Of course there is no such project, because any such project would quickly show your dissembling.

                  See above re: that is, in an inte11ectually honest manner.

                  It is your inability to “come to terms with them” and your inability to recognize the simple fact that software is not logic.

    2. I don’t overlook that Paul. I am trying to get others to think about the bigger picture and that we allow foreign inventors to file in the US only because we want to have them to let us obtain patents in their territories.

      This regime certainly benefits the US to the extent that the US has strong R&D. But allowing foreign entities to patent in the US is a burden on the US economy, a price we pay for access to their markets protected by US generated IP.

      1. I do not agree that allowing foreign entities to patent in the US is a burden. For the economy, there is little difference between a foreign entity that gets patents and commercializes patented products in the US and a US entity that does the same. So maybe there could be an issue with giving lost profits to a patentee that imports its product, but that’s about it.

          1. I guess I do not quite understand this response. If Congress were to decide that we are not collecting enough taxes from ex-U.S. patentees, why would they respond by preventing ex-U.S. entities from acquiring U.S. patents? Why would they not simply raise taxes on ex-U.S. patentees?

        1. But, US companies cannot make the patented invention in the US costing us jobs.

          Some benefit. Some do not. The US as a whole is poorer.

          1. Ned,

            I am not sure that I can agree with you that the negative right that is a patent should be so strongly correlated to the “jobs” angle.

            Related?

            Yes, perhaps.

            As you seem to want to drive?

            No.

            I see the fingerprints of Efficient Infringement when I see the “jobs” angle, in part because I see the “must make” tied to the “jobs” and “must make” so often accompanies the Efficient Infringer obscurement of what a patent is and what the actual Quid Pro Quo is about.

      2. we allow foreign inventors to file in the US only because we want to have them to let us obtain patents in their territories

        Is the ability to file patents in other countries the only benefit the US obtains from the granting of that permission? I don’t think so.

        1. OK, MM, the why did our founding fathers limit patents to US citizens if they did not believe, on balance, that granting patents to inventors from abroad was not in the interests of the US?

        2. Definitely not, but there are folks out there (and not just a few) who would sooner swallow hot coals than concede as much.

          1. Not sure which folks you are referring to…

            Ned perhaps?

            As far as I can tell, he seems to be the only one bent out of shape on the issue.

        1. You’d have to be pretty young, from the other side of the world, or amazingly culturally ignorant to not know who Leonard Cohen is.

  2. Let me know if my memory is wrong, but did not the Tokyo High Court more than ten years ago make this same decision re Japanese patents?

    1. Given the comparative stagnation of the Japanese economy relative to the U.S. economy, I am not sure that we really want to be copying their public policy choices too slavishly.

      1. Or even making an unsubstantiated statement that implies that the stagnant Japanese economy is due to the decision under discussion?

        Talk about slavish….

        😉

      2. I would also note that given the differences between: (1) the size of our economy and the size of the Japanese economy; and (2) the age-demographics of our two populations, it is unlikely that many of the benefits that accrue to Japan from their international exhaustion rule would accrue to us.

        1. Greg,

          Your logic suffers yet again.

          First, at 15.2, you want to make up some direct causal relation where no such relation is in evidence, then at 15.2.2, you want to lock in other factors as if those other factors are determinative of any benefit that might slide through your first logic error.

          It seems that there is no rock you will not overturn to hide under in your defense of a business model predicated on controlling a natural secondary market that employs an inconsistent view of exhaustion through the actions of double-dipping.

          1. To clarify: the phrase “that employs an inconsistent view of exhaustion through the actions of double-dipping” is meant to describe “business model” – not “natural secondary market.”

  3. Suppose that sales authorized by the patent holder outside the US did not exhaust patent rights.

    Let Zootcomm be a telecommunications business in Zootland that also has a facility for manufacturing semiconductor chips there. Zootcomm is granted a U.S. patent on a technology embodied in its chips that is essential for mobile networks operating the 8G standard. Maybe the subject matter of the patent does not even satisfy patent eligibility requirements outside the U.S. Because sales outside the U.S. do not exhaust Zootcomm’s patent rights in the U.S., Zootcomm can can use its exclusive rights to prevent arbitrage, thereby ensuring that U.S. residents pay a much higher price for 8G-enabled mobile devices than consumers in the rest of the world. And it can seek to ensure that Zootcomm’s chips, manufactured in Zootland, displace chips produced by other manufacturers. Throughout the rest of the world, where Zootcomm does not have patents, the price of mobile devices is significantly lower.

    Would the U.S. economy benefit? If so, how?

    1. Zootcomm can can use its exclusive rights to prevent arbitrage, thereby ensuring that U.S. residents pay a much higher price for 8G-enabled mobile devices than consumers in the rest of the world.

      Correct. It is in the nature of patents that a patentee may use the patent to charge higher prices that would be possible without the patent. That is the whole point. If you find this problematic, you really have a problem with patents, not with domestic exhaustion.

      Would the U.S. economy benefit? If so, how?

      Yes, U.S. the economy benefits from a domestic exhaustion rule. The reason why it benefits is because the ability to charge rents on the patented good incentivizes innovation, disclosure, and commercialization. The U.S. economy benefits from that increased innovation/disclosure/commercialization more than it loses by paying those rents.

      1. “higher prices that would be possible…”

        Er, sorry for the typo. “higher prices than would be possible…”

      2. “It is in the nature of patents that a patentee may use the patent to charge higher prices than would be possible without the patent.”

        Just to be more clear, please allow me to rephrase this statement:

        “It is in the nature of U.S. patents that a U.S. patentee may use the patent to charge U.S. consumers higher prices than would be possible without the patent.”

        1. That part is the part that you got right.

          That’s the first dip.

          But no one is arguing against that first dip.

          It’s the second dip that people are arguing against.

      3. that’s some nice half truths there (and an avoidance of the gist of the question).

        You forgot to address the double-dipping aspect, though.

      4. If Zootcomm’s “invention” is not a truly useful dislosure, then hardly anybody in the US other than those employed in Zootland’s distribution chain in the US benefits from Zootland’s patent grant.

        So let us stipulate that Zootland’s invention is meritorious, deserving the protection typically afforded by patent laws worldwide.

        So Zootcomm’s exploitation of its patents ensure a healthy, prosperous and technologically creative ecosystem in Silikifjord, Zootland, where Zootcomm manufacturing facility is based. U.S. consumers can buy expensive goods exported from Zootland by Zootcomm priced so as to extract from the U.S. market the maximum that the U.S. market will bear.

        In practice, U.S. semiconductor businesses may have their own patents that they can assert against Zootcomm in Zootland and elsewhere in the world. This of course depends on the configuration of patent rights worldwide, that the U.S. can only influence through international treaty obligations and assertion of national interests. But Zootcomm is in the position to say that it can get enough return from sales outside the U.S. that the U.S. market, though valuable, is not critical to its business. Therefore it has no need to offer licenses on FRAND terms, or participate in any U.S. patent pool. It would argue that if Zootcomm cannot sell G8 mobile technology in the U.S. then nobody can do so.

        Thus the stupendous innovation that hugely benefits the Zootland economy is not likely to raise boats in the U.S. to nearly the same extent.

        The commercialization seems to me in this scenario to benefit Zootland far more than it benefits the U.S.

        Coming to disclosure, the incentives of patent system’s have surely done their work if sufficient to induce disclosure that would otherwise occur. For this to happen, the is no logical necessity for understanding the bargain as giving the patentee, in return for the disclosure of useful ideas, the assistance of the courts and the executive in exploiting all consumers in all markets worldwide to obtain the maximum return that economies can bear. An alternative perspective: if one wants to establish a plantation of oak trees by planting acorns or young saplings, it may be necessary in the early years to clear away weeds to enable the young plants to establish themselves. But one only needs to weed to a sufficient extent to allow the saplings to survive to the point where they can flourish without labour on the part of the forester. Thus if an inventor has a useful idea (which we characterize as a principle, not in itself an invention), the inventor can obtain a patent monopoly on those modes of applying that principle to obtain results of the sort that the patent laws are designed to protect. The invention is then the genus consisting of those modes of applying the principle in a practical fashion that have been described and enabled. If the consequences of the patent monopoly provide sufficient incentives that the patentee is significantly better off by disclosing and either commercializing herself or licensing others to commercialize, then the patent system has achieved its objective with respect to the invention in question. It may be that the patentee can receive larger returns than are necessary to induce disclosure, but in such circumstances it may be considered as practicable or desirable to seek to regulate to limit rents extracted by the patentee.

        Returning to Zootcomm. Presumably Zootcomm would aim to establish its business in the local market. It could accordingly take at a Zootland patent for its invention. This would require disclosure, and U.S. industries could take advantage of this disclosure, irrespective of whether Zootcomm is entitled to a U.S. patent.
        Given the affluence of the U.S., Zootcomm also has an incentive to take out a U.S. patent to obtain a patent monopoly in the U.S. market, and accordingly would disclose within the U.S. patent system.

        So, presuming international non-exhaustion, if Zootcomm can use U.S. patent laws to extract higher rents from U.S. consumers by preventing the establishment of a grey market in Zootcomm phones sold by Zootcomm, or with Zootcomm’s authorization, in Zootland, India, China or Brazil.

        It seems to me that any indirect benefits to the U.S. in building the Zootland economy would not be sufficient to offset the higher rents that Zootcomm can extract from U.S. consumers through differential pricing.

        This seems to suggest to me that international non-exhaustion might be a two-edged sword, and that, rather than relying on Article III courts in the U.S. to establish rulings that cannot credibly be tailored and adjusted, it would be more appropriate to Congress to legislate, if necessary and appropriate, probably empowering some agency to determine the detailed application of the regulations – with disputes perhaps referred to an Article I court.

        1. It comes down to double dipping and the ability to control secondary markets.

          The consistent application of exhaustion – in what the term itself means – simply has no room for any arbitrary domestic/foreign insertion of inconsistent application.

        2. The only explanation that I have for a situation like that, is that the U.S. government grants patent rights and provides protection from the courts to Zootcomm in exchange for Zootland granting the equivalent patent rights and providing similar protection from the Zootland courts to U.S. entities. That was the calculation behind the TRIPS agreements. But I agree with you that the TRIPS agreements, which ensure equal treatment of domestic and foreign entities (where the good is produced is a more critical question), may in general disadvantage people living in countries having a trade deficit in parented products (high tech).

          1. Treaties that require less developed countries to develop patent systems exist for the benefit of high tech countries, obviously.

            1. Ned,

              Countries are not high tech.

              Entirely domestic companies within a country may be high tech.

              Somewhat similar (but in important aspects, different), trans-national companies may be high tech.

              But rest assured, trans-nationals owe NO allegiance to ANY single country.

              There is a reason why juristic persons should be treated with a shorter leash than true citizens.

        3. You assume, but do not prove, Distant, that the ability to patent Zoolander inventions in the US promotes invention in Zooland.

        4. Thus the stupendous innovation that hugely benefits the Zootland economy is not likely to raise boats in the U.S. to nearly the same extent.

          Whoa there. You are moving the goalposts now. First you ask about benefits to the U.S. Then, you shift to benefiting “to… the same extent.”

          I have no idea whether the benefits of the Zoolander invention benefit the U.S. to the same extent that it benefits Zoolander. It is typically difficult bordering on impossible to gauge relative benefits from innovation.

          In any event, the gains from trade need not be symmetrical to be gains on both sides. To insist that we do not want Zoolanders to partake of the incentives provided by our patent system would be to cut our noses to spite our faces.

          1. Well, the longwinded Zootland narrative was prompted by the expectation that those in the U.S. patent community controlling or employed by U.S. firms would instinctively look at exhaustion from the perspective of where the interests and legitimate expectations of their firms would lie. Therefore make the point, at length, that U.S. patent holders might well be businesses based and manufacturing in China, India, Korea, Nigeria, Argentina, Finland etc. (Also bouncing off a position to the effect that, in return for disclosure of an invention, the inventor or her assignee is entitled to expect that the laws will be interpreted by the courts so as to maximize returns in all markets.)

            So of course reciprocity makes sense: allow U.S.-based firms to patent in Europe and Australia, whilst allowing European firms and Australian firms to patent in the U.S. There is a symmetry.

            But there is asymmetry when international non-exhaustion is brought into the picture. If the patented product commands a price of $160 euro in the U.S. and $100 euro in Zootland, then there is an incentive to import lawfully-sold patent-exhausted goods from Zootland to the U.S., but no corresponding incentive in the other direction.

            ==

            So ultimately I arrive at the following propositions.

            If patents were unavailable outside the U.S. then there might be a clear argument for the U.S. to apply a consistent policy of international non-exhaustion.

            If patent rights were equivalent internationally, and market prices comparable, then international non-exhaustion, like domestic non-exhaustion, would be “double dipping”. It should be remembered that the patent exhaustion arose at a time when it was common for patent rights to be assigned to assignees for particular geographic regions of the U.S.

            This would suggest to me that, were some degree of international non-exhaustion desirable on policy grounds, then it should be targeted towards particular products and countries, and a target remedy for incompatibility of patent rights.

            But suppose that the competitive market price for the product would be $120 in the U.S. and $60 in Zootland, whereas, with exclusive patent rights, the product could sell for $160 in the U.S. and $100 in Zootland, then the patentee (or assignee) receives a premium of $40 from the authorized first sale, whether that first sale takes place in the U.S. or in Zootland, and thus the patentee has received the “liberal reward” that the patent laws are intended to provide. If tariff walls do not protect the producers of commodities or staples of commerce from legal grey markets, then I see no reason why patent rights derived from small incremental innovation should automatically provide the patentee with rights to shut down grey markets arising from disparities in living costs, social customs and expectations etc.

            1. U.S. firms would instinctively look at exhaustion from the perspective of where the interests and legitimate expectations of their firms would lie.

              Let us bracket the issue of what is a “U.S. firm” (the term is meaningless as far as I can tell). Even if we pretend that there exists a category called “U.S. firms,” none of them has one set of interests for all of time. Every firm has different interests at different times and in different places. It is not possible, therefore, to set U.S. patent policy according to the preferences of the (so-called) category of “U.S. firms.” The best one can do is to ask what policies will work best for U.S. consumers and hope for the best with regard to “U.S. firms.”

              But suppose that the competitive market price for the product would be $120 in the U.S. and $60 in Zootland, whereas, with exclusive patent rights, the product could sell for $160 in the U.S. and $100 in Zootland, then the patentee (or assignee) receives a premium of $40 from the authorized first sale, whether that first sale takes place in the U.S. or in Zootland…

              Huh? This hypo makes no sense unless we are positing ex hypothesi an domestic exhaustion regime. If we are imagining an international exhaustion regime, then it is not possible for the competitive market price to be $120 in the U.S. and $60 in Zootland. The competitive market price will be arbitraged to ~$60 in both regions.

              I see no reason why patent rights derived from small incremental innovation should automatically provide the patentee with rights to shut down grey markets arising from disparities in living costs, social customs and expectations etc.

              Where did “small, incremental innovation” come into this hypo? Exhaustion law applies the same to “groundbreaking” and “incremental” innovations alike. There is not one rule for “groundbreaking” innovation and another for “incremental” innovation, for the simple enough reason that liberal arts majors judges are not at all well equipped to determine which is which.

              1. This website shows a cost-of-living index for European cities:

                link to expatistan.com

                Admittedly some of the variation may be due to house prices, rents etc. But I would still presume that teapots, dining chairs, oranges and the like were more expensive in Reykjavik, Iceland than in Timisoara, Romania.

                I assume that prices are fixed by competitive pressures within economies such as the Iceland economy.

                Maybe tariff walls are historically low, but I a am under the impression that they were significantly higher forty years ago. Maybe protectionism may make a comeback.

                But when the wording of statutes changes little, courts in the common law tradition surely need to be subtle about any changes in the manner in which they interpret the statute. It seems to me that, on the domestic exhaustion front, the Roberts court has basically just reaffirmed, hook, line and sinker, the basic principles, doctrine and justification set out by Justices Day and Clarke in particular, the latter in Motion Picture Patents v. Universal Film (1917) in particular. And because the White Court a century ago presented the principles of exhaustion on the common law rejection of servitudes on chattels (“restraints on alienation”), arguing that the mere right to exclude others from vending did not give the vendor or her licensees to convey an encumbered title to a patented item.

                But, having settled on a legal theory a century ago, which may well have accorded well with the development of antitrust law at the time, SCOTUS can hardly swap from one theory to another in tune to the rise and fall of tariff walls.

                ===

                Regarding “small, incremental innovation”, what I had in mind was those economic doctrines, widely promoted, that argue that social welfare is promoted by allowing competitive markets to establish prices. Vital ingredients in such theories are the possibilities of competition and arbitrage.

                A clean example is the Transportation Problem in linear programming. Given suppliers and consumers, with total supply equal to total demand, and given a matrix of costs for transporting a good from the suppliers to the consumers, one can apply a standard simplex method algorithm to determine how to transport the good from the suppliers to the consumers so as to minimize transport costs. There is a dual problem, which involves setting prices at which the suppliers sell and the consumers pay so as to maximize returns, subject to the constraint that the haulage firms will not transport goods at a loss. The cost-minimizing problem and the dual return-maximizing problem both yield the efficient solution. And then mainstream economists will argue that competitive markets will yield that efficient outcome.

                And of course the theory of pricing options and derivatives is built on possibilities of arbitrage.

                So economists in the tradition of Hayek, Friedman et al argue that competitive markets, arbitrage etc. is good for the economy.

                But of course every manufacturer desires a legal monopoly because monopolies allow them to extract the maximum return. Therefore there will be those that argue that, in return for disclosure of their useful ideas, inventors have an entitlement to a monopoly on practical applications of the disclosure. And such monopolies are designed to eliminate competition and arbitrage.

                Trying to cut a long story short, consider the exclusive rights (otherwise known for centuries as a “patent monopoly”) that patentees might regard as their entitlement, enable them to extract the maximum the market can bear. These types of rights, insofar as they eliminate competition and arbitrage, run directly counter to widely accepted economic doctrines regarding free markets.

                Trying to cut the story short, where the “innovation” in a patented product makes a very modest, or indeed imperceptible, contribution to technology, “progress” and the “useful arts”, it seems difficult to see how economic welfare results from insulating the exploitation of that product almost completely from the action of market forces that, under widely accepted economic theories, are beneficial to economic development.

                It seems to me that the committed free marketeer might argue that the incentives provided by the patent system just need to be strong enough to make it worthwhile on the part of the would-be patentee with a significant invention to disclose that invention in return for the grant of a patent, and that the parameters of the patent system (in terms of subject eligibility, standard of nonobviousness, standard of disclosure, exhaustion policy etc.) should be calibrated accordingly.

                OK, long, poorly-worded and probably tedious to wade through. But it doesn’t always seem easy to spell out where one is coming from.

                1. Distant, the degree to which a patented product will have a higher price depends upon demand for that product versus supply. If the improvement is marginal, there will be many alternative, but essentially equivalent, products. The market will take care of itself.

                2. I would still presume that teapots, dining chairs, oranges and the like were more expensive in Reykjavik, Iceland than in Timisoara, Romania.

                  I am sure that there is local variation, and what that tells us is that there are barriers to entry in various of those markets—i.e., the prices we are seeing are not “competitive market prices” as we are discussing above.

                  [If] a patented product makes a very… imperceptible, contribution to… “progress”…, it seems difficult to see how economic welfare results from insulating the exploitation of that product almost completely from the action of market forces that, under widely accepted economic theories, are beneficial to economic development.

                  I think that you are overthinking this. First, as you have already noticed, the instances where the patent is simply improvidently granted (i.e., the claimed invention is not really patentable, and the examiner made a mistake) are kind of uninteresting to this discussion. Of course the country does not benefit from giving a patent on an unpatentable invention. Nobody disagrees on that point, so there is nothing interesting to discuss about that circumstance.

                  If, then, we confine the discussion to genuinely patentable inventions, there are two things to say about the “genuinely patentable” invention that makes only a “very modest, or indeed imperceptible” to the state of the art.

                  (1) I think you are trying to have your cake and eat it too, here. If the advancement over the art is truly “imperceptible” (as in, no one can identify an advance), then we are not talking about a patentable invention, we are talking about an unpatentable invention, and as noted above, of course a patent granted on an unpatentable invention is a drag on the economy of the jurisdiction that grants it. In other words, the “imperceptible” advance is a red herring. You are trying to talk about unpatentable inventions as somehow sitting within the category of patentable inventions, and this is just a bald contradiction that amounts to an empty set in terms of discussion fodder.

                  (2) So, turning to “very modest” advances, I have to wonder what this term means. To the extent that the advance is genuinely useful, novel, and nonobvious, but of only slight degree, there are really only two possibilities here. I believe that these possibilities might be made more clear with a concrete example.

                  Imagine that prior art shoe polishes fade and flake off as the temperature climbs above 30°C. I invent a shoe polish that can achieve the same degree of shine and waterproofing, but which is temperature stable up to 35°C.

                  One possibility is that the degree of advance is only so slight (only a 5 C° difference) that people will prefer to continue using the (presumably cheaper) prior art shoe polish until the patent expires. How is this a drain on the economy? Presumably the economy, under this scenario, makes all of the same progress that it would have made had I never invented my improved polish.

                  The other possibility is that—slight though the improvement might seem—people really prefer it. If so, then—as I said above—the improvement experienced by the economy is that people now have the option to use the improved shoe polish if they want. The good costs more, but the fact that people are willing to buy it proves that they like it more.

                  In other words, it is really hard to contrive an example of a situation in which granting the patent serves as a drag on the economy, except where you imagine that the patent is improvidently granted by an insufficiently attentive patent office for an invention that is not genuinely patentable under the law.

            2. Distant, Exhaustion does not apply to distribution channels, but only when title passes. This is typically when the end user acquires the product. Until then, the patent owner may retain title.

              There is never going to be a large market in grey market goods purchased from end users for resale in a higher price zone. There will be some, for sure, but it will not be enough to truly reduce prices.

        5. The question remains:

          Where exactly is this protection by prevention of a grey market coming from?

          Can anyone share any patent law anywhere that contains such a protection?

          1. Can anyone share any patent law anywhere that contains such a protection?

            Er, I wonder if I am not understanding what you mean.

            Until just last week, the U.S. law provided such protection.

            To the best of anyone’s knowledge, Canadian & Australian law still do.

            E.U. law provides for protection from gray market imports, except that they define gray market differently than we do (for them, a sale anywhere in the E.U. exhausts everywhere in the E.U., but a sale outside the E.U. does not exhaust local patent rights in E.U. member nations).

            In other words, very few of our peer nations employ an international exhaustion scheme. Basically Japan and now the U.S. make up a very small club of international exhaustion nations.

            1. To the best of anyone’s knowledge, Canadian & Australian law still do. E.U. law provides for protection from gray market imports,

              Ahhhhh – finally a glimmer.

              Do you have any specific cites in mind for these sovereigns…?

              1. Goodness, it has been a few years now since I took “international intellectual property law” in law school. It is, of course, perfectly reasonable of you to ask for cites, but I hope you will be patient on this point. It will take me a while to sort through my notes and trace my way back to the actual cases and statutes.

                1. Ok, here is what I have been able to track down in my notes:

                  In the U.K., the lead cases on exhaustion in the international context are Betts v. Willmott (1870–71) LR 6 Ch. App. 239 and Manufactures de Glaces S.A. v. Tilghman’s Patent (1884) LR 25 Ch. D. 1.

                  In Betts, the patentee owned both a U.K. and a French patent. He manufactured goods in France, and when a purchaser of one of these goods tried to bring it to London, the patentee sued for infringement of his U.K. patent. The Chancery court held that the unrestricted sale in France exhausted the U.K. patent rights. However, a few years later in Tilghman’s Patent, the Chancery court clarified that this applies only in the case of unrestricted sales. If the patentee makes clear that no license is given to import the good into the U.K., then the purchaser acquires no right to bring it into the U.K. Moreover, Badische Anilin und Soda Fabrik v. Isler [1906] 1 Ch. 605 (High Court) later explained that this restriction runs with the goods. That is to say, because the first purchaser acquires a good without a right to bring it into the U.K., the buyer who acquires the good from the first purchaser similarly takes subject to this restriction (even if the second purchaser is not made aware of the restriction).

                  In practice, this means that U.K. patent owners routinely include mention of the U.K. import restriction when selling outside of the U.K. In other words, international exhaustion is the default rule, but one can (and most do) draft around it.

                  Neither Canada nor Australia have had occasion to revisit this issue since the repatriation of their respective constitutions, but it is assumed that they each still honor the Betts and Tilghman’s holdings. Nat’l. Phonograph Co. of Australia v. Menck (1911) 12 C.L.R. 15.

                  However, the European Community Convention (Art. 30) does not permit a member state to use IP rights as a reason to prevent the free movement of goods within the E.U. Merck Sharp & Dohme v. Primecrown Ltd. [1996] E.C.R. I-06285. Therefore, there is no drafting around the exhaustion effect within the E.U. of articles sold in other E.U. member states. This, of course, applies to the U.K. and Ireland (common law countries in the E.U.), but not to other common law nations outside the E.U.

      5. Greg, prove that granting patents to Zoolander citizens inventing in Zooland promotes invention in the US.

        1. Ned, you know (and I know you know) that it is impossible to prove that granting patents to anyone spurs any innovation. It makes sense that patents should spur innovation, but “proof” of this assertion is not to be had.

          As for whether it spurs innovation here or elsewhere, this is a point on which I am indifferent. Many Americans benefited greatly from penicillin, even though the inventor was Scottish.

          1. Put yourself in the shoes of an inventor. He cannot patent his invention in his homeland but can patent the invention in Afghanistan. Does the right to protect his invention in Afghanistan provide any incentive whatsoever?

            Think about venture capitalists. Would they invest in developing an invention in any country without patent protection? I don’t think so. Whether one can protect the invention here or there abroad in almost entirely irrelevant.

            On the other hand, global businesses routinely file in the many countries they do business for obvious reasons. But these businesses are not protecting innovation so much as established markets. They innovate not because of patent systems, but because of competition.

    2. Arent’t you asking the wrong question when it comes to patents?

      The question is whether the ability to profit from exclusive rights to US inventors promotes progress in the useful arts in America? Recall, from the very beginning of the US, we knew that granting Brits patents for inventions made in Britain would not advance invention in the US, it would retard such. That is why we did not allow any but US citizens to obtain US patents.

      Because this is a Zootland company inventing in Zootland, we should give these rascals no quarter, should we?

      Exhaustion.

  4. Greg: Until a few days ago, a U.S. patent entitled one to (1) set prices across international markets to maximize revenue and (2) distribute goods at different prices in different channels of U.S. commerce. The SCotUS just plucked both of those sticks from the bundles of existing U.S. patentees, and yet no compensation was paid for the “taking” of these sticks.

    To get technical for a second, those were never rights inherent to patents. The right was to exclude importation of foreign goods, even when those goods were authorized by the patent holder in the foreign country. You can leverage the right to effectively enforce price discrimination. But that was never the right itself.

    It matters because there are other ways to achieve your goal. Other policies can support price discrimination in a way that is broader than just patents, and doesn’t muck up the chain of title for imported goods with potential patent liability.

    If price discrimination is what you really want, there are better ways to go about it. Patent law is a blunt instrument not especially well adapted to that purpose.

    1. To get technical for a second, those were never rights inherent to patents. The right was to exclude importation of foreign goods, even when those goods were authorized by the patent holder in the foreign country. You can leverage the right to effectively enforce price discrimination. But that was never the right itself.

      This is a fine and worthy point. Precision in use of language is a good thing. Nothing you say here really detracts from the point I was making in the quoted text, but I thank you for troubling to correct the sloppiness of my writing.

      If price discrimination is what you really want, there are better ways to go about it. Patent law is a blunt instrument not especially well adapted to that purpose.

      If you care to expand on this, I would be interested to read what you have to say. Off the top of my head, I disagree completely. You have not really made the argument for this thesis, however, so I cannot meaningfully assess whether you are in possession of an insight that I presently lack.

  5. Isn’t it the time of day, yet, when the mod filter dumps out and lets the trapped comments post? I’m sure that there are dozens of comments waiting to post right now, as soon as the moderator gives the green light.

  6. If you ask me the SCOTUS got it wrong, completely wrong, at least as regards to the patent exhaustion issue on international sales. Their decision effectively negates much of the value and benefits of patenting.

    Scenario 1 – My company has two patents P1 and P2 that cover devices D1 an D2, respectively. Both devices do essentially the same thing, but D2 is not quite as effective and is much cheaper to make. I manufacture both D1 and D2, but elect to sell D1 in the US but not D2 and sell D2 outside the US but not D1 as I do not want D2 to cannibalize my market for D1 in the US. With this decision of the SCOTUS, my sale of D2 exhausts my patent rights under P2 such that D2 made and sold by me (or with my authorization) outside of the US can now be imported into the US destroying the market I have to D1. As a result P2 has no value or markedly less value as it takes away the very rights I was granted and for which I obtained the patent.

    Scenario 2 – I have a US patent P3 that covers device D3 which I manufacture and sell worldwide. I do not have patents outside the US. Because of the patent in the US, the market for D3 is exclusive to me. However, outside the US I have to compete with third parties. In those markets the competition forces me to reduce my price and, perhaps, even reduce the quality/efficacy of D3 in that market to compete. Prior to this decision, my patent protected my US market from the importation of the competitive goods, including my own modified lower cost version of the same good. Now, however, the SCOTUS has stripped away the very value and protections afforded me by that patent. My market is no longer protected, I can no longer reap the reward of setting price for my goods based on what the US market will bear. Rather, the SCOTUS says that I have to set a world-wide price for my product regardless of market and economic conditions around the world and regardless of the fact that I have a patent that was to protect my market in exchange for disclosing that technology to the world.

    Clearly, the SCOTUS is off on this one. What were they thinking? Certainly, they were not trying to protect the guy that purchases a US patented product overseas and brings it home as the likelihood of the patentee going after that importation is nil. Instead, they have opened the door to a new business where an entity or person can purchase huge volumes of US patented products overseas at a steep discount to the US market pricing and ship it back to the US to compete against the manufacturer’s US market. These imported products may be of a lesser quality that the consumer may not realize or even recognize the difference and now, the brand name is at risk. Must the manufacturer now increase the quality of the foreign sold product or at least bring it up to par with the US product (even though it is more costly) just to protect its US market?

    Such a mess!

    1. That is kinda the point. Price discrimination against the US market using patents is no longer endorsed by the law.

      1. Price discrimination against the US market using patents is no longer endorsed by the law.

        “Discrimination against” seems like rather loaded terminology. If a company charges a higher price in the U.S. than in Mexico, this does not reflect any sort of animus against U.S. consumers. It merely reflects the fact that a given article can command a higher price in a market where the average consumer is less price constrained.

        1. Patent holders can still try to charge whatever prices that they want to charge, Greg.

          What they cannot do is control the natural activity of secondary markets.

          THAT seems to be the crux of your problem (without you actually owning up to it).

          Why do secondary markets seem to cause you so much angst?

    2. Their decision effectively negates much of the value and benefits of patenting.

      That is absurd. In your example D1, nobody is forcing you to manufacture and sell a “cheaper less effective” alternative to your awesome commodity. Grow up and compete in the marketplace. Get a patent in the other country if you want to sell there. In the US, market your better product and use your patent to prevent importation of the “cheaper less effective” alternative.

      As for you scenario 2: I have a US patent P3 that covers device D3 which I manufacture and sell worldwide. I do not have patents outside the US.

      Problem number one.

      Because of the patent in the US, the market for D3 is exclusive to me. However, outside the US I have to compete with third parties.

      Oh noes!! Gosh forbid. It’s so unfair.

      In those markets the competition forces me to reduce my price and, perhaps, even reduce the quality/efficacy of D3 in that market to compete.

      Nobody is “forcing” you to do anything. You choose to enter the market. If you don’t want to compete, then stay out of the market. And here’s a news flash: reducing quality/efficacy in order to compete is called “racing to the bottom.” Again, that’s a choice for you to make. Those of us who aren’t born into wealth need to find an occupation if we want to do more than simply survive. You don’t have to be a b0tt0m feeder. If you look around, you can find something you are competent at and which people will pay you for. They’ll even pay more if you do a really good job! It’s true!

      SCOTUS says that I have to set a world-wide price for my product regardless of market and economic conditions around the world

      No, that’s not what they’re saying. They never said anything remotely like that. You don’t have to do anything worldwide. You have a US patent. Nobody can compete with you in the US. Make your money in the US. Why should you be both entitled to sell the same product for 5 cents in India (presumably at a profit) and charge 5 dollars in the US (presumably at a grossly inflated profit) *and* prevent people from bringing items *purchased from you* in India into the US? It’s absurd. You’re already making a distorted profit because of your US patent.

      they have opened the door to a new business where an entity or person can purchase huge volumes of US patented products overseas at a steep discount to the US market pricing and ship it back to the US to compete against the manufacturer’s US market.

      Vastly overstated to the point of absolute wrongness. The key aspect you left out is that the imported product was purchased from the manfaucturer. The manufacture has profited already from that sale. Does the manufacturer require more profits per item sold? Golly, it’s a total mystery how that could be accomplished.

      Must the manufacturer now increase the quality of the foreign sold product

      Oh, heavens, what a nightmare world! Gosh forbid.

      1. The scariest thing about this post from Malcolm is that he is merely saying things that I have previously said.

        ..and to which, he felt compelled to post meaningless ad hominem in reply to me.

        1. Yes, that irony was not lost on me. It is a very unique issue that can move MM to direct the stream of invective toward those who disagree with anon.

          1. Lol,

            You got some but not all of the points there, Greg.

            It is not just “invective towards those who disagree,” but also invective towards me, whom he then parrots.

            It that sense, it is a bit like you and the (automatic) knee-jerk response against what I post.

      1. True. The patentee always has the option not to sell at all. I expect that this will be, in many instances, the choice of many patentees going forward. This, of course, greatly diminishes the value that the patent brings to the patentee, but we in the U.S. (and especially our Supreme Court) are involved in a long term project of diminishing the value of patents, so this is hardly a surprise.

        1. This, of course, greatly diminishes the value that the patent brings to the patentee

          You seem to be confusing some positive action as being a part of the negative right that is actually the patent.

          The point that you are not inserting into your thought process is that the grey market (the secondary market) – and control thereof – has never properly been a part of the patent right.

          Not for sales in the US.
          Not for sales outside of the US.

          And by sales, I mean authorized sales, of which are the focal point of the “benefit of the bargain” first dip.

  7. The funny thing about this case is that the shrink wrap license aspect was much the more important part of the case to the two parties involved. Only a few of the units at stake in the litigation were the subject of a first sale in Canada, while all of them involved the single-use license terms. Nevertheless, international exhaustion is the part of this case that has everyone’s attention. Nearly every article that has been written in the last few days has been directed to the international exhaustion aspect. Indeed, while Prof. Wasserman says that “Jason Rantanen has written about the decision’s impact on post-sale use restrictions,”one notes that Prof. Rantanen also wrote about the international exhaustion aspect. Meanwhile, well north of 90% of the debate in the various comments sections is centered on international exhaustion.

    It appears that those in the field really care more about international price discrimination than about post-sale use restrictions. I confess, I am somewhat surprised at that.

      1. I heartily agree. Somebody has been drafting these things for the last few decades, however, and I am a bit surprised that none of those folks have wanted to defend their life’s work.

        Fair enough, I suppose. I certainly do not want the task of defending shrink wrap licenses.

        1. Here is a point that – shockingly – Malcolm, Greg, and I all agree upon.

          This deserves its own thread: sales masquerading as licenses (including shrink wrap licenses), and what should be done to properly control the evident attempts to “fiddle” with property exhanging hands.

          I am reminded of things like “company towns” and “contracts of adhesion,” and other gimmicks that seek to NOT give due course to property transactions.

      2. The last I heard, “shrink wrap” licenses were prohibited by statutes in IL and LA, but enforced in several other jurisdictions, including a widely cited 7th Cir. decision in a case from WI by everyone’s “favorite” famous 7th Cir. judge.

    1. Hmmm,

      Your “surprise” is a bit, shall we say, suspicious, given that YOU have been a vocal participant in defending a business model set on double dipping and taking advantage of the very “international exhaustion” item under discussion.

      To me, this smells of an attempt by you to deflect what is surely becoming (even to you) a losing proposition of defending the notion that a benefit of the bargain chosen to be entered into by the patent holder is somehow “not enough” oversees and yet “perfectly fine” domestically.

      And yes, Greg, you have still not provided a cogent legal defense as to why such inconsistency should be a default position in the legal notion of exhaustion.

      1. …quite in fact, Greg, according to my scans of the items held up for moderation, you personally have had the MOST posts on the topic (per log in) ALLOWED by the moderators.

        More than anyone else (again, per login), even more than me who engages (or at least attempts to engage) in detailed dialogues with more than one person.

  8. “The question remains whether a company structured such that subsidiaries in different countries own the various patent rights will be subject to exhaustion of its U.S. patents for foreign sales made by a foreign subsidiary.”

    This statement seems to confuse the question of whether or not a party owns a foreign patent with whether or not an authorized sale abroad exhausts a party’s US patent. I understand SCOTUS to be saying that if I have US patent, and ouside the US I or someone authorized by me sells a product that falls within the scope of the claims of the US patent, then irrespective of whether or not I have a patent in the country of sale, that product can now be imported into the USA and I can’t sue the importer for patent infringement. My ownership, or lack thereof, of a corresponding patent in the jurisdiction of sale is irrelevant. In the words of Justice Roberts, “An authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act”.

    1. just as one within the United States,

      Therein lies the confusion…

      Why would anyone expect a sale to not result in exhaustion?

      I “get” why people would not want to have that happen, but the underlying question is not one of “want,” but rather, one of logical expectation.

      A patent holder chooses to sell.
      A patent holder chooses the price to sell at**.
      A patent holder obtains the benefit of the bargain of their choice to sell.

      What in any of those three statements creates the distinction concerning the patent holder’s first “dip” that somehow should create a location-based exemption to the concept of exhaustion?

      What “legal logic” trick creates a second “dip” based purely on where the first benefit of the bargain, chosen by the patent holder, takes place?

      There clearly is nothing in US patent law that would create such a thing.

      And yet so many people appear to be confused with some type of expectation of (formerly) being able to double dip was some type of property stick in the bundle of property rights.

      No cogent legal explanation is given for the legal origin of this supposed “stick,” or even why one should be able to double dip.

      And then people want to think it somehow inconsistent that this “gimmie” is something that (automatically and without any critical thinking) should be “defended” because the double dip is somehow deemed to be “pro-patent.”

      The double dip has never been pro-patent.

      What it is “pro” towards is a business model that seeks to shaft US citizens with its artificial arbitrage and avoidance of a natural result of a patent holder choosing to obtain a benefit of the bargain of selling an item.

      This “action” of wanting to double dip is an anti-property notion. It is not a pro-patent notion at all.

      What has (so far) NOT been included in any of the conversations across the entire patent blogosphere is why would this anti-property notion come into being and be spun as some type of “pro-patent” item.

      Well, here is something to think about: Is exhaustion even a “thing” if patents are not property?

      If patents are deemed to be public rights, and not property, then the underlying fundamental tie of what drives a patent is divorced from the articles sold, and it would make no difference at all – not only WHERE the ‘benefit of the bargain” of selling an item occcurs – but logically whether or not an item is sold at all. Why would the sale of an item “exhaust” a non-property type of thing?

      The item not in the spotlight here in this case still has a presence in this case.

      One really does need to understand that the public rights/personal property aspect of patent rights is like a condition of pregnancy. One cannot be “a little bit pregnant.”

      Either patent rights are a personal property right type of thing (and the foundation of exhaustion is firmly set) or exhaustion must be untethered from all aspects of patent rights.

      Rather than INconsistency, one should realize that it is a consistent view of the nature of property that drives the universal treatment of exhaustion.

      1. No cogent legal explanation is given for the legal origin of this supposed “stick,” or even why one should be able to double dip.

        I cannot imagine what you mean by “supposed.” The real effect of this “stick” was tangible & definite. If you wanted to keep gray market imports of your own patented product out of the U.S. market, you could go to the ITC with your patent and they would issue an exclusion order to all customs posts. Jazz Photo Corp. v. ITC, 264 F.3d 1094, 1105 (Fed. Cut. 2001). That is about as real an effect as any patented can hope to enjoy.

        1. Jazz Photo Corp. v. ITC, 264 F.3d 1094, 1105 (Fed. Cut. 2001). That is about as real an effect as any patented can hope to enjoy.

          Blasted autocorrect.

          “Jazz Photo Corp. v. ITC, 264 F.3d 1094, 1105 (Fed. Cir. 2001). That is about as real an effect as any patentee can hope to enjoy.”

      2. “A patent holder chooses to sell.”

        1. You mean a the holder of a *US* patent chooses to sell. In the country of sale, he may not be a patent holder. To Roberts & Co., that question is immaterial.

        2. Despite an expenditure of verbiage that’s unusual for you, Anon, you still haven’t explained why a sale outside the USA *should* exhaust the rights of someone who holds a US patent. You proceed from the assumption that the default setting should be that any sale anywhere exhausts one’s patent rights, and that therefore the burden is on those believe the Federal Circuit’s rule was correct to show why such sales shouldn’t result in exhaustion, but you haven’t explained why that assumption is correct.

        1. In the country of sale, he may not be a patent holder.

          Your statement confuses the issue, and is unnecessary.

          Please return to directly what I stated.

          The seller of the item is either the patent holder is or not the patent holder. He may in fact be – holder of multiple different country’s patents, but we are only talking here of the US sovereign aspect. Roberts is not concerned, nor should he be. Why are you?

          Your point 2 is rejected. There is no such burden on me because my view is simply the consistent view and the opposite view is the inconsistent one.

          You want something inconsistent, then the burden is on you to establish why such an inconsistency should be deemed the default view.

          1. There is no such burden on me because my view is simply the consistent view and the opposite view is the inconsistent one.

            Nothing convinces like bald assertion. If anon thinks that his view is consistent, but other views are not, surely his say-so should be good enough for the rest of us, no?

            1. The “bald assertion” is a plain fact.

              Consistent versus inconsistent is self-evident.

              THAT you want to try to turn even this self evident fact into a point of contention (or even worse, to try to make it into a baseless personal ad hominem attack) says far more about you than you might care to reflect.

              Or do you need to take baby steps on what the words consistent and inconsistent mean?

              1. The problem with calling something “self evident” is that this is a predicate that—by definition—every reader is able to confirm or deny for himself or herself, usually rather quickly. There is, in other words, scant possibility that one might fool people by calling something “self evident” if it is not.

                1. That’s great.

                  My post stands correct.

                  Unless you can magically make something inconsistent be the same as something consistent….

                  Yeah, that’s what I thought.

          2. Yes, the Sup. Ct. is broadly applying the ancient law of “no restraints on the alienation of chattels” [as distinct from land]. Overruling the Jazz Photo logic and case for [ more limited] “patent exhaustion” by only U.S. sales. [Just as it did earlier to kill grey market copyrights for importation of authorized foreign sales of books.] [But note for AIA patents a foreign sale can also be prior art.] One may well not agree with this, but absent legislation it is certainly not going to get flipped by the Supremes [given there was only one liberal justice in dissent].

            1. Paul: Yes, the Sup. Ct. is broadly applying the ancient law of “no restraints on the alienation of chattels” [as distinct from land]. Overruling the Jazz Photo logic and case for [ more limited] “patent exhaustion” by only U.S. sales. [Just as it did earlier to kill grey market copyrights for importation of authorized foreign sales of books.]

              Let’s be clear: there’s still plenty of restraints on “alienation of chattels.” It depends on what the chattel is and (for US patented items) it depends on who sold it and whether it was an authorized sale.

                1. name a chattel that the owner cannot sell or dispose of as in the trash pursuant to a purely private transaction

                  Maybe things are different in the gated community where you hide from the terr0rists, Ned, but in most places there’s all kinds of restraints (<–i.e., regulations) on the sale and disposal of all kinds of "chattels" (LOL), depending on all kinds of factors. Probably there's even more such restrictions within your gated community.

        2. Dan 1. You mean a the holder of a *US* patent chooses to sell. In the country of sale, he may not be a patent holder. To Roberts & Co., that question is immaterial.

          Right. What matters is that the US patent holder authorized the sale of an item falling within the scope of the US patent, and the item was in fact sold. As a result of that sale, US patent rights are exhausted with respect to that particular item. You can’t block importation — at least not with the US patent.

          Despite an expenditure of verbiage that’s unusual for you, Anon, you still haven’t explained why a sale outside the USA *should* exhaust the rights of someone who holds a US patent.

          Even for a Friday, this is a hilarious request. But I agree that it is odd that “anon” has really managed to work himself up over this issue. Who can imagine what the angle is? Better yet: who cares.

          1. Who can imagine what the angle is?

            You know, people do not always advance a thesis because of a self-interested motivation. Sometimes people defend a proposition merely because they believe it to be true.

            I happen to disagree with anon’s thesis here, but it seems vanishingly unlikely that there is any upside to him if he is correct. Quite the contrary, really. An international exhaustion rule makes U.S. patents less valuable as assets. Given that anon makes his living acquiring U.S. patents for his clients, the proposition that he is advancing actually works to the detriment of his bottom line.

            For what little my opinion on this point is worth, I think it is actually admirable that he is advancing a proposition that works against his own material self interest.

            I still disagree with him on the logical merits of the issue, however. :)

            1. The upside is that property is properly treated as property and the Big Corp attempts to double dip and denigrate the property right should be stopped.

              My view remains consistent to my views on innovation, property rights, and helping my clients obtain the best (and proper) legal protections for those items.

          2. If USPat has a US patent on Fludge, but does not have a Zootland patent, then maybe USPat might realise that it doesn’t make sense to own a subsidiary in Zootland selling Fludge. But if it divested itself of the Zootland subsidiary to ZooFirm, it could license ZooFirm to produce Fludge for import into the US. If it wished ZooFirm could sell Fludge in Zootland without the need for authorization from USPat. The sales fo Fludge in Zootland would then be unauthorized (but nevertheless legal) sales, and thus USPat would not have exhausted its US patent rights. Maybe ZooFirm would have to avoid using USPat’s trademarks. But if the product is sold as Grudge by ZooFirm in Zootland, then that surely makes it easier to give notice to unsuspecting consumers that Grudge cannot be imported into the US without permission from USPat.

            1. it could license ZooFirm to produce Fludge for import into the US

              DP, that does not buy you the absence of an authorized sale that I think that you are looking for.

              1. Recall that USPat has no patent rights in Zooland. I am supposing that USPat can enter into a contract with ZooFirm authorizing ZooFirm to produce agreed quantities of Fludge, selling the quantities produced at prices agreed by USPat, and maybe authorizing the sale of Fludge to firms acceptable to USPat who are in the business of importing Fludge into the U.S. The legality of the contract would presumably be determined by the laws of Zooland.

                There seems nothing in law to prevent ZooFirm manufacturing additional quantities of the product, branded as Grudge, and selling Grudge in markets outside the U.S. I see no obligation on USPat to express a view on whether it authorizes the sales. It can adopt the position of a former pope in another context: “ni approvo, ni non disapprovo, taceremo.” In that context I would suggest that the sales of Grudge in Zooland and elsewhere, though legal, are unauthorized sales, and as such do not exhaust USPat’s patent rights regarding importation into the U.S.

                1. There seems nothing in law to prevent ZooFirm manufacturing additional quantities of the product, branded as Grudge, and selling Grudge in markets outside the U.S

                  Ah, I see now.

                  ZooFirm IS authorized to make the product.
                  ZooFirm IS authorized to sell the product.

                  But both authorizations are of limited nature, as to quantity and location.

                  …but this does beg the question as to the basic legality of ZooFirm acting beyond its authorization – you want to call this “legal,” and even go so far as to add that the laws of Zootland apply – which may not make such contract-breaking actions technically “illegal.”

                  I think that you may have pulled such a hypo from the known examples of Chinese manufacturers at first entering into legitimate manufacturing deals and then turning around and creating double factories – one controlled per manufacturing contracts, and the other not. I am familiar with a couple US firms to which this occurred, and in each case, the US firm shut down all workings with the Chinese firm, and pressed charges for contract violations and fraud. I think that you want in your hypo a foreign host country that thumbs its nose at the contracts and deems any such product illicitly produced as “legal.”

                  But back to your hypo…

                  You are then adding a wrinkle that ZooFirm is also acting beyond their authority, using their knowhow to make unauthorized product and to sell that unauthorized product.

                  This then changes the section that I commented upon and that section now includes an entity that is acting (in part) as an infringer (perhaps not direct, but an infringer, non-the-less).

                  USPat may be viewed as complicit if its agreements (quantity and location) are being violated, and it sat by and remained quiet. Knowledge and non-action is an action.

                  On the other hand, perhaps USPat does not sit by and attempts (unsuccessfully) to stop ZooFirm from that portion of activity in violation of its written agreement.

                  How would you craft your hypo in that regard?

                  Would it matter then that USPat remains at an advantage of dealing with an entity known to be contributing to infringement? Would USPat need to rescind its agreement and fully stop ZooFirm from even the non-infringing authorizations?

                  How would ANY US company be able to set up and enforce ANY meaningful contract for controlled authorizations in your hypo?

                  I would suspect that Zootland at best would soon be a pariah nation, and that they would find their future prospects accordingly diminished.

      3. Is exhaustion even a “thing” if patents are not property

        *yawn*

        How many years are we going to have listen to this inanity?

    2. The point is you can structure a company such that “Fiegelson America LLC” owns the USA patent, and “Fiegelson Europe SA” sells the product in Europe. If companies are structured appropriately, Fiegelson Europe SA may not be “authorized” by Fiegelson America LLC, hence no exhaustion of patent rights.

    1. More specifically, no more use of patent infringement suits for inhibiting secondary sales, as opposed to contractual agreements, and those contractual agreements do not “run” with further sales of the product itself.

  9. I fully agree that Congress needs to fix this issue to the extent that a patent holder cannot sell his product outside United States at a price that he negotiates.

    There is also the issue of price differentials caused by inability to pay. Congress look at this issue too.

    1. to the extent that a patent holder cannot sell his product outside United States at a price that he negotiates.

      That’s just it Ned – no one is saying that THAT ability to set the price point has been taken away from the patent holder.

      What has happened is that the unfair double dipping of selling AND not being subject to exhaustion has been rectified.

      It should be abundantly clear that for the sales being discussed (both foreign and domestic), the patent holder enjoys the full benefit of the bargain that he can strike in the market.**

      Your angst highlights the dustkicking going on (I am not saying that you are doing that dust-kicking)

      **outside of the conditions that a foreign government may choose to impose on ALL market participants. Which is every right of a foreign sovereign to impose.

  10. If some fine-tuning of the contours of patent exhaustion in the international context is required, whose responsibility is it to implement this?

    Is it the responsibility of SCOTUS? Or of the CAFC?

    Consider the following exchange from the Impression Products v. Lexmark oral argument:

    ===

    JUSTICE KENNEDY: Are there other examples of really important rules that have not been codified? Why hasn’t this been codified?

    MR. PINCUS: In the Patent Act, Your Honor?

    JUSTICE KENNEDY: Too busy or what?

    MR. PINCUS: Well, I think — I think that — that there were a number of — of — of patent law rules that Congress didn’t codify it fully or either at all in the 1952 Act. This was one. […] So we not only have the Court’s consistent enunciation of the doctrine, we have the fact that there was this deviation and then an immediate correction. So —

    JUSTICE SOTOMAYOR: So it’s contributory negligence. What other patent ideas were not codified?

    MR. PINCUS: The misuse doctrine, I don’t believe, was — was codified initially, although there have been some subsequent amendments that have done that. Other patent defenses, […]

    ===

    The disposition of Impression Products v. Lexmark is surely consistent with the supposition that, in a case or controversy where there is no statutory text to interpret, SCOTUS will almost certainly go for the most straightforward disposition compatible with its principles of statutory interpretation, basic common law principles and its prior precedent. And the governing precedent from the White Court followed in subsequent SCOTUS cases grounds the patent exhaustion doctrine on the claimed “hostility” of the common law towards restraints on alienation. Accordingly Sir Edward Coke puts in a cameo appearance.

    Maybe the disposition with regard to international exhaustion suits some (e.g., Intel) but doesn’t suit others. But I would suspect that SCOTUS would consider that it is not the business of Article III Courts such as SCOTUS and CAFC to regulate the patent system, of to weigh the competing desires of the various interests impacted by patent law. If such regulation is needed, then surely it is the responsibility of Congress to legislate, or, where appropriate, to devolve detailed regulation to an agency. Such regulation surely should not be the business of courts exercising the “judicial power of the United States” in deciding cases and controversies. (The CAFC presumably has, or had, other ideas.)

    1. Well, Distant, it is good that Congress kept its hands off the non codified portions of patent law because to the extent they did attempt to codify the law, they unintentionally changed it. I give you one example: prior to 1952, contributory infringement did not require knowledge of the patent, only knowledge that the component was going into a combination that was later adjudged to be infringing. There was considerable debate on this point in Aro case.

    2. I was just reading up on Coke. I found it a bit strange that he was knighted by James I of England in 1603 upon the latter’s ascending to the throne.

      Odd that.

  11. Would exhaustion apply if the ownership of the patents was split up between different subsidiaries? I.e., if BigPharma, Inc. owned the U.S. patent and made the U.S. sales, while BigPharma GmbH owned the European patents and made the European sales.

    1. I think that the really safe answer to this question is “we do not know yet.” I would not be surprised if some company does not try this approach, at which point a court will rule on it. We will have to wait until that case presents before we will know for sure.

      Here, however, is my prediction (which is worth exactly what you are paying for it): The CAFC will consider the case that you are describing sufficiently distinct from Lexmark as not to be governed by Lexmark‘s rule. The CAFC will hold that BP Inc’s patents are not exhausted by BP GmbH’s German sales.

      Maybe the SCotUS takes cert at that point, or maybe it waits another few years for another case with a cleaner factual record. One way or the other, the CAFC’s holding is eventually overturned in a unanimous or nearly unanimous Supreme Court decision.

      1. What’s the distinction?

        BigPharma, Inc. is controlled by Big Pharma, Inc. The sales by the “subsidiary” are therefore authorized by Big Pharma, Inc. Lexmark controls. There is exhaustion. End of analysis.

            1. Assume Dutch company P sells its US light bulb business to GE, together with its patents that cover P’s bulbs. P’s sales of light bulbs in Holland could no longer be imported into the US without infringing “GE’s” patents, albeit, the patents were purchased from Philips.

  12. Greg,

    For someone who stated: “I resent, as much as you do, the fact that we in the U.S. are made to subsidize drug prices in the entire rest of the world.

    at: link to patentlyo.com

    All that I have seen from you is a defense of the things that you say that you resent.

    Do you think that odd?

    1. Two responses:

      (1) No, I do not think that odd. It is perfectly consistent to simultaneously (a) recognize that there are flaws in an existing regime and (b) believe that the regime should not be changed in the hasty and precipitous manner than the Supreme Court just accomplished.

      (2) Perhaps, however, I should rephrase my earlier assertion. I resent bitterly the idea that we are subsidizing drug prices in Canada or Germany, or other such nations that are wealthy enough to pay their own fair share. I am less bothered by the idea that we are subsidizing lower prices in Peru or South Africa, or other such countries that are much less wealthy than are we.

      1. I am less bothered by the idea that we are subsidizing lower prices in Peru or South Africa, or other such countries that are much less wealthy than are we.

        How nice of you to minimize your umbrage because of the “Robin Hood” effect.

        None the less, subsidizing Big Pharma (and other Big Corps playing the arbitrage game and double dipping at the expense of me as a US citizen is NOT “ok” with me just because squeezing extra cash out of me just might subsidize a poor nation.

        If I want to engage in charity, that is my choice. You “being generous” on my account is more than just a little problematic.

        As to any sense of “inconsistency of taking of sticks,” you assume the conclusion that you want to reach.

        There is no inconsistency. As I have abundantly made clear, when a patent holder chooses to sell, he also chooses to exhaust. Further, MY view is consistent on the choice to sell (regardless of the “where” of the sale).

        There is NO taking because the patent holder is choosing a positive action in relation to his negative right. You throw out the word “taking” when it just does not apply.

        And further, somehow, you want to twist my consistency into some inconsistency….?

        Sorry, but that dog won’t hunt.

        So your attempt to switch the spotlight to me is a FAIL.

        The spotlight remains on your inconsistency in so vigorously supporting the thing that you claim that you resent. As to your (1), you have shown ZERO support for such a split view – as noted, there is not a single post of yours that is not in defense of what you merely claim to resent. If indeed you had a split view, you would not be defending that which you resent, but you would be advocating to stop that which you resent by some other means. Not a single word there from you.

        1. If I want to engage in charity, that is my choice. You “being generous” on my account is more than just a little problematic.

          Sure. In case it was not clear, I agree with this. The fact that I am not bothered by the idea of subsidizing Peruvian drug prices does not in any wise imply that you ought similarly to be untroubled. That is why I refined my statement to back away from the assertion that “I resent, as much as you do…” Perhaps I resent it less. It is not for me to say whether I resent it as much as you do.

          As to any sense of “inconsistency of taking of sticks,” you assume the conclusion that you want to reach.

          There is no inconsistency.

          Oh my. I see that I have touched a sore spot.

          On Monday, a U.S. patent allowed its owner to set one price in Mexico and another price in the U.S. On Tuesday, a U.S. patent no longer empowered its owner to do so. There is, in other words, very palpably fewer rights in the U.S. patent owner’s possession today than there were at the start of the week.

          The irony is that there really is no taking by the AIA (the thing supposedly taken—the right to demand clear-&-convincing evidence before a finding of invalidity can be made—still exists in all of the same contexts that it existed before the AIA). By contrast, the Lexmark court definitely trimmed away at the set of things that one can do with a U.S. patent.

          Somehow, however, you are righteously indignant at the AIA’s (non)”taking,” and blithely indifferent the “taking” worked by Lexmark. I use sneer quotes because I do not believe that either one is a “taking” in the constitutional sense, but it is more than a little rich that you can be so selective in your application of the “taking” argument on this point.

          1. As I stated, there is no “selective” because a taking only occurs in one the two items.

            That you may “feel” exactly opposite, seeing a “taking” where there is none and not seeing a taking where one is present is NO inconsistency on my part as you attempt to impugn.

            All this is, is you being wrong in both areas.

        2. If indeed you had a split view,… you would be advocating to stop that which you resent by some other means. Not a single word there from you.

          Fair enough. Please allow me to clarify.

          I think that international price discrimination is a good thing. Therefore, I think that policies that impede international price discrimination are a bad thing.

          I am also, however, opposed to subsidizing drug prices in Canada (etc). The reason why drug prices are so much lower in Canada is because the Canadian government sets the prices low by law. It seems to me that the right way to fix this situation is either (1) to engage in negotiations with Canada (etc) to stop setting their prices and let market prices prevail there just as they do here; or (2) to set our own low prices by statutory fiat. As between those two options, #2 would have the effect of destroying the branded drugs industry, so I prefer option #1.

          Notice that none of this, however, really has to do with patent policy. The reason that high-U.S./low Canadian prices bother me is that I know that Canada has taken a legislative choice to make us a patsy. I resent being made the patsy.

          If Canada were to rescind its drug price laws, however, and the market prices were to naturally reset in a manner in which Canadian drug prices were still lower, I would not really be bothered by this. I do not get annoyed at the discovery that bananas are cheaper in Brazil than they are in Michigan.

          1. It is NOT Canada making us a patsy.

            It is the Big Corp willing to sell into a market with such price controls and turning around and making up the difference by charging US citizens more.

            Your comment of “international price discrimination is a good thing.” and your defense of the business model say far more than you think such says.

            And no, it is not saying good things.

            1. Your comment of “international price discrimination is a good thing.” and your defense of the business model say far more than you think such says.

              What my comment says is made explicit here.

              1. Your comment that you linked to is by no means all that you have said on the issue and changes nothing about the lengths that you have gone to defend a business model that you claim (limited) umbrage with.

                As I responded to both directly to the post that you link to, as well as pointing out that your “Robin Hood” lessening of umbrage is NOT something that can be forced on anyone else in the US being abused by double dipping (and NOT by the single first dip, for which NO ONE is arguing about).

                Greg,

                I find it telling that you reply to me NOT showing that you understand, acknowledge, and respond to what I actually say, but seem to do the opposite – and then turn around and argue with Mark along lines that what I put to you IS who is “making us a patsy.”

                re: “It is the Big Corp willing to sell into a market with such price controls and turning around and making up the difference by charging US citizens more.”

                You seem to want to blame the foreign country (but not really “blame”) and you don’t seem to realize that the blame is NOT on the foreign country at all, but on the Pharma companies that willingly go along with what the foreign country asks, comfortable (at least previously) in knowing that it COULD double dip and not only obtain the benefit of the bargain that may rightfully be obtained from US citizens, BUT ALSO – and more than that – obtain BOTH the benefit of the bargain (no doubt less of a bargain than in the US, but nonetheless choosen to be taken) of foreign sales AND the attempted curtailment of any natural secondary market for which patent laws NEVER were meant to control.

            2. Greg at least has the capacity to view the world from a perspective other than his own, which is a life skill that you appear to lack. And I say this as the resident of a country having a geographical size comparable to the US, but a population (and tax base) somewhat less than that of California. So I know what it is to have a different perspective.

              Even so, I do not agree with Greg either. Australia is one of those countries in which a Government regulatory system effectively sets prices. We certainly have economic advantages as a developed nation, but we have an exemplary health care system that we simply could not afford if it were opened up to the market forces that result in higher prices even in a country with ten times our population.

              Nobody here is going to vote for a party that proposes to destroy our health care system. And we are not stupid enough to fall for Trump-style promises of a magic scheme that costs less but somehow provides more and better coverage. You folks in the US are patsies, but not for the reasons Greg is suggesting!

              1. [W]e have an exemplary health care system that we simply could not afford if it were opened up to the market forces that result in higher prices…

                Exactly. You folks are content to free ride off of us. Fair enough, of course. If the tables were turned, I might well do the same. Nevertheless, the tables are not turned, and I resent being made to pay for the rest of the world’s free ride. You Aussies—just like the Canadians—may be lovely folks, by and large, but you are making the U.S. your patsy.

                You folks in the US are patsies, but not for the reasons Greg is suggesting!

                I am perfectly willing to believe that we are patsies for other reasons than the ones that I named, but I would be interested to read why you think that we are not patsies for the reasons given.

                I live in a country where we have structured our laws to pay branded pharma companies—and pay them handsomely—for new drugs, and as a result the whole world gets to use the new drugs that these pharma companies develop.

                You live in a country where you have structured your laws to pay these same companies just slightly more than the marginal cost of production, secure in the knowledge that these companies are content to sell at that price because they will have made their real money in the U.S. market.

                Australians (at least the ones who trouble to think about the subject) know perfectly well that there would be no new drugs if everyone did as Australia does, but Australia does not care about the deleterious consequences that would result if the U.S. were to follow the Australian example. It is possible to free-ride on the U.S. expenditures, and therefore why not free-ride? Australia sees clearly enough that we in the U.S. are rather stupidly willing to pay the whole tab, and Australia is not too proud to profit from our foolishness.

                I say this not to criticize the rest of the world. It is hardly your fault if we are idiots. It is just that this makes us your patsy, and I wish we were not.

                1. It is certainly not the case that Australia pays branded drug companies only slightly more than the marginal cost of production. They do quite nicely off us, actually.

                  Under the Australian system, the Government negotiates prices with the drug companies for those medicines that it proposes to subsidise under our Pharmaceutical Benefits Scheme (PBS). The Government’s strength is that if the drug company does not reach a deal, its drugs will not be subsidised, and they will therefore not be as widely prescribed and used. The products could still be sold (assuming they have the required approvals), but at the full prices, as paid by you folks in the US, many people will not be able to afford them.

                  For a patented drug, the company’s bargaining strength comes from the fact that there is no alternative supplier.

                  The choice for the drug company is have a PBS listing, at a lower price, and sell a higher volume, or have no PBS listing, charge a higher price, but maybe sell very little and thus make a smaller profit overall.

                  There is a very revealing case currently before the courts in Australia, relating to the drug PLAVIX (clopidogrel), for which Sanofi owned an Australian patent. I use the past tense here, because the patent was revoked after being found invalid in the course of litigation with generic manufacturer Apotex. At the commencement of the litigation in 2007, Sanofi obtained an interlocutory injunction restraining Apotex from launching its generic version of the drug pending the outcome at trial. The case was finally resolved in 2010, when the High Court denied Sanofi’s application to appeal.

                  The Australian Government is now seeking compensation of $60 million from Sanofi, which it asserts is the difference between the price it paid for PLAVIX for the two and a half years or so of the litigation, and the price it would have paid had a generic alternative been available. There is considerable confidence in this number, given that a generic alternative is now available, and has been for some time!

                  So, even if we assume that generic manufacturers really do sell at just slightly more than the marginal cost of production (unlikely, in a market such as Australia), Sanofi received a premium on top of this of around $25 million per annum for PLAVIX. And the Government’s claim is only for the period covered by the injunction. Although the patent was, presumably, always invalid, the money paid to Sanofi prior to Apotex’s application for revocation is untouchable.

                  Over the years, then, Australians are making a pretty sizeable contribution to the development of new drugs, considering that our population is less than 10% that of the US. Bear in mind, also, that we have a term extension regime that grants up to five additional years of protection as compensation for regulatory delays, as a result of which most drugs receive an effective 15 years or more of patent protection. The figure usually touted by Big Pharma for development of a new drug is on the order of $1 billion, so it seems quite likely that there are many cases in which Australian taxpayers are covering well in excess of 10% of these costs.

                  So we are still paying a decent share. The main difference, however, is that we have the Government using its bargaining power to negotiate better prices for us. I would say that it is not so much that the US is subsidising us, but that the drug companies are taking advantage of US consumers. My understanding is that they spend a lot of money on lobbying legislators over there to ensure that nobody derails the gravy train!

                  And that is why I say that it is not us making patsies of you. It is the drug companies, and your own members of Congress!

                  Mark

                2. Mark,

                  It is a zero-sum game. That your government drives a bargain that Pharma agrees to really is not any “point of blame.”

                  The point of blame is with Pharma that agrees to such a deal, obtains their first dip through the sale at the agreed upon price, and then turns around and attempts to control any secondary market that may quite naturally arise from the terms of the deal that Pharma agreed to.

                  This is the aspect of the second dip that is the “patsy-generator.”

                  If we are but consistent in the application of what “exhaustion” means (and again, exhaustion simply does not carry with it any notion of where a sale takes place), it would be Pharma and their “protected” business model that would have to change.

                  That would not be a bad thing.

                  Now let’s talk about Greg’s statement of

                  Australians (at least the ones who trouble to think about the subject) know perfectly well that there would be no new drugs if everyone did as Australia does, but Australia does not care about the deleterious consequences that would result if the U.S. were to follow the Australian example.

                  Could this mean – as Greg argues – that Pharma simply decides not to invest in any new drugs?

                  Possibly.

                  But that would be – and remains to be – a decision solely made by Pharma, and serves NO valid place as to any attempt to create an inconsistent view of what exhaustion means.

                  A threat – and that is what that amounts to – of some parade of horribles that NO new drugs will be developed is implicit in Greg’s defense of the current business model.

                  But such a threat is not reason enough to force U.S. citizens to be patsies.

                  Patsies of anyone – be that of a foreign government as Greg postulates, or of drug companies (as we agree) or members of our own congress doing the bidding of those drug companies (which you postulate).

                  And let us be perfectly clear that it is not any first dip that makes us patsies. It is the second dip – and the efforts to innoculate a business model against the natural effects of the first dip by attempting to corrupt the consistent understanding of exhaustion and insert an inconsistent demarcation of “where sold”.

                3. It is certainly not the case that Australia pays branded drug companies only slightly more than the marginal cost of production. They do quite nicely off us, actually.

                  Sure enough. You are correct. I went to the OECD data archive to prove you wrong, and instead I find that you are correct. I had been proceeding on bad data. Naturally, if my premises are wrong, then my conclusion cannot be sound. I withdraw my earlier assertions.

                  I would say that it is not so much that the US is subsidising us, but that the drug companies are taking advantage of US consumers.

                  Possibly. I gather from what you wrote that the mechanism by which we are being soaked is not so much to do with patent exhaustion, but rather with our unwillingness to use our government’s buying power to negotiate better prices. I find that intuitively plausible, although now that I find that many of my earlier thoughts on this subject were predicated on bad data, I am reluctant to come to any firm conclusions without more study and reflection.

                4. Greg,

                  Why is it do you think that “rather with our unwillingness to use our government’s buying power to negotiate better prices.“…?

                  Hint: it has nothing to do with “unwillingness.”

                  2nd hint: it has everything to do with the $trength of voice$ due to the likes of Citizens United.

                5. Greg – think about Canadian drug pricing a bit more. If you forego patent protection in CA, you do not avail yourself to the jurisdiction of the PRWB, the CA body that sets “fair” drug pricing (if I remember the acronym correctly.) Ironically, without a patent, you can charge more for your drug then if you had a patent. Although your drug won’t be covered by the CA state plan, most Canadians have supplemental insurance that will cover it.

              2. Mark,

                Quite the contrary, as Greg has shown ONLY the capacity to view the situation from the perspective of that which he is defending.

                Do not be confused by his earlier statement to the contrary (and the point of the post above) – as he has walked back that earlier statement.

                Further, your attempt to say that I do not have a capability NOT AT ISSUE here – and hence no reason for me to show that capability – quite misses the point of the discussion. It is thus baseless ad hominem and well below you.

                To then further attempt tot ascribe to me (at least that is what it appears that you are doing) ALL of America’s woes is more than a bit preposterous. Who knows, you just might have slipped into a rambling rant against americans in general…

              1. xtian,

                One important point subsumed in your question:

                Big Pharma still maintains the choice whether to sell (as well as the choice as to what price to set – albeit Canada as a sovereign has curtailed that part of the choice for everyone).

                With that in mind, “should” becomes a very nuanced question, with the “drivers” to the answer to that question NOT (perhaps) being the drivers that you may want to include.

                I say this because you predicated your question with “moral” buzzwords, using “life saving” and “cancer” as if those words demand a different business choice for the entity whose decision it remains. Quite frankly, whether to sell or not has NO such “moral imperative,” even given the presence of your chosen buzz words.

                1. The discussion may be moot for the most part in light of today’s Patently-O.

                  Nevertheless, if Pharma A develops a product that markedly reduces the progression of MS so much so that in certain individuals their own system is able to slowly start to rebuild. Pharma A realizes that the MS population in the major countries is significant enough and will be willing to pay a significant price for the product. Pharma A patents fairly broadly, but, in light of this decision, only sells in those countries where it can maintain a price on a world-wide basis. Hence, countries that control pricing are out. Countries that have looked at controlling pricing and distribution are out for fear they will adopt controls.

                  So, a large portion of the population that could benefit from this product is denied it because, on a purely business perspective, it does not make good business sense to put the patent protection and world-wide pricing at risk.

                  Is there not a moral dilemma? Do we really expect the world to sit back and say business is business? Look what happened with EPiPen and other drugs recently.

                  Capitalism says let the free market reign; however, this decision says otherwise. This decision says one market controls the world-wide.

                  Patents give one the ability to define markets on a country by country/region by region basis and establish market control and pricing within those individual markets based on the exclusionary right of the patent. This decision destroys that principle whether it be a pharma product or otherwise.

                2. Ed,

                  You have the logic link broken with your comment of:

                  Capitalism says let the free market reign; however, this decision says otherwise. This decision says one market controls the world-wide.

                  The decision does not say what you think it says.

                3. Ed, you assume that people in markets where the pharmaceutical company does not patent will not have access to the wonder drug because the pharmaceutical company will not sell there.

                  I think, however, that if the drug is as popular as you posit it is, then generics will manufacture and sell in locations where there is no patent protection.

            3. Anon, I am not sure that you have factored in human behaviour into your calculations.

              For any long-term price drops to occur in the US market as a result of international exhaustion, there needs to be at least one foreign market for which the following equation yields a (large) positive integer:

              (Profit in country X from sales at original price in country X) –

              (Profit in country X from sales at US price in country X) = ??

              Only then would there be a financial incentive for the company selling the product both in the US and elsewhere to continue selling abroad at a lower price.

              How often do you think this will happen? And how do you think other countries (whose citizens are likely to be considerably less affluent than the average US consumer) will react if they experience widespread price hikes, or even withdrawals of certain products? Or do you think that the most likely outcome is a lot of creative effort on the part of multinationals in devising ways to legally “isolate” all ex-US sales of their patented products?

              Please note that I have no wish to discuss any perceived rights and wrongs of this situation. Instead, I merely wish to point out that it is important to take a pragmatic view when assessing the likely impact of Lexmark. I mean, put yourself in the shoes of the multinational: would you start selling abroad (at price that the foreign market can bear, which is lower than that in the US) if that meant that all of your effort in establishing a foreign market led to LOWER profits than if you hadn’t bothered in the first place?

              1. Confused, do you not realize that the patentee has already sipped the first dip while flipping a big box of protons and neutrons back and forth through a magic hat band?

                On a more serious note, it looks for all the world to me as if the discussion has run into a rut where each side is simply repeating itself. Regrettable, but not uncommon, that.

                1. Greg – I agree (with your more serious note, that is!).

                  I never understood what anyone gained by “digging in” at their current position and closing their eyes and ears to all potentially contradictory information or arguments. In my experience, all this leads to is a process that starts with confirmation bias and ends up with crisis (when the pile of contradictions and negative effects becomes just too huge to ignore). My inclination is therefore to engage with and understand a variety of viewpoints… as then, even if you still end up standing your ground, you might at least lean how to avoid some of those negative effects.

                  Do you think that Anon is a politician or someone working in the PR industry? This would certainly explain the frequent use of what I like to call the “Shaggy defence”: which is where no matter how damning the evidence against them, the individual continues to argue that “It wasn’t me”.

                2. I expect that Anon is discussing in good faith—i.e. I do not take him to be willfully obtuse. I do not believe that he has quite fully thought through the relevant implications of his own position, but I do not think that he is merely dissembling in the manner of a PR professional.

                3. I never understood what anyone gained by “digging in” at their current position and closing their eyes and ears to all potentially contradictory information or arguments.

                  And yet, Confused, that is exactly what you have done.

              2. Confused,

                Anon, I am not sure that you have factored in human behaviour into your calculations.

                I very much HAVE factored in human behaviour into my calculations.

                I simply have identified human behaviour that you want to accept in an unthinking manner and that same behaviour is what I do not accept (as some type of given right).

                You seek now to avoid the arguments that you sought to avoid previously.

                Under your veneer of “pragmatism” you are still seeking control of secondary markets – without bothering to actually establish that such secondary market control has a rightful place.

                Quite frankly, I am overjoyed that the secondary market condition is likely to force changes to the existing business paradigms. Those existing business paradigms have long made me, as a US citizen, an unwilling accomplice to the ability of Big Corp to subsidize its foreign sales practices.

                Perhaps those citizens who have enjoyed that subsidy will not take for granted what Big Corp has been doing (the animus you appear to want to direct towards me should be directed elsewhere).

                1. Anon – your repeated use of the “ABC” technique (acknowledge, bridge, control) perhaps suggest that, despite Greg’s doubts, you DO work in politics or PR. I have to say that this would certainly explain the futility of trying to get clear answers from you on simple questions. Your talent of avoiding the question is a wonder to behold!

                2. Anon – your repeated use of the “ABC” technique (acknowledge, bridge, control)

                  That’s a pretty fancy way of you saying that you have no legitimate counter to the points that I have presented.

                  And yet again – it is not me that has the onus of “answering questions” – especially questions that I HAVE already answered.

                  You on the other hand – for all your protests of others digging in have done that exact thing (and at the same time have not answered points put to you, other than “I don’t like that argument”). (your latest “I have to say” is a rather weak rhetorical t001 that presumes the “what” you have to say is somehow meaningful to the “what” you are NOT saying.

                  Why in the world would I stop presenting a point that you so assiduously run away from?

                  That point of course is all that you are doing is trying to control secondary markets with patent rights.

                  To both you and Greg (who is being a bit disingenuous with his “ I do not believe that he has quite fully thought through the relevant implications of his own positions,” I have made it perfectly clear I fully “get” the “why” you want what you want (control of secondary markets). You both have simply failed to provide a cogent legal path to get there. And make no mistake – it is you that needs to provide such a path.

                3. I’m starting to lean towards the conclusion that you operate more in the political sphere than in PR. This is because of your repeated use of unjustifiable assertions as an “answer” to difficult points for you.

                  Let’s start with your claim that neither Greg nor I have provided answers to what you appear to view as the “unimpeachable logic” of your arguments. Well, either you haven’t been paying attention or you are being deliberately disingenuous. For example, one of my answers (which was very clearly stated) was to question your assumption that there is any legal basis for a “secondary market” involving commercial-scale import and re-sale. Also, as I and others have repeatedly pointed out, if there is indeed legal basis for such a “secondary market”, why do some countries or regions (such as the EU) not recognise its existence?

                  In other words, my answer is that you are making a whole host of questionable assumptions regarding legal basis. Also, from a policy perspective, international exhaustion is arguably highly undesirable due to the negative effects that it can cause.

                  Whilst we can perhaps thank FDA rules for limiting the effects of Lexmark on parallel trade in pharmaceuticals, just think of the uproar that might be caused if this were not the case. Think about it: parallel trade could cause there to be effectively only one “world” price for any given drug. This means that patients in, for example, sub-Saharan Africa would be paying the same price for drugs (including essential medicines) as patients in the US. Would YOU be happy with that outcome? Even if it meant that life-saving drugs would be exported away from (or priced out of the reach of) poor people in other countries, just so that you can save cash (that you can well afford) on your meds? And what effect do you think that international exhaustion would have on efforts to provide access to medicines in Least Developed Countries?

                  In other words, whilst you may be content with the circularity of your logic, you cannot stop others from taking a broader perspective and observing that, in addition to the “positive” aspects of international exhaustion that you perceive, there are a whole host of negative outcomes that lead us – on balance – to believe that it is undesirable.

                  Answered enough for you? Now over to you to answer all of my queries that you have been so assiduously avoiding (though, given your “politician-like” approach, I won’t hold my breath waiting for you to ever do anything other than follow the ABC rules!).

                4. Taking your last two paragraphs on their own, let’s de-spin your attempted rhetoric:

                  Answered enough for you?

                  That depends. Did you actually provide answers, or did you deflect as you have been so assiduously been doing?

                  Now over to you to answer all of my queries that you have been so assiduously avoiding

                  I have been “assiduously avoiding” your attempts at deflections. When your queries are nothing more than deflections from the points at hand, they do not deserve answers. I have been putting the onus directly on where it needs to be.

                  In other words, whilst you may be content with the circularity of your logic

                  Again with the false accusation. My logic has no circularity. It merely has applied terms consistently, whilst I point out that YOUR desired Ends must inject inconsistency into the terms we have been discussing.

                  you cannot stop others from taking a broader perspective

                  No one has been trying to stop anyone from taking a broader perspective. As I continue to tell you, I “get” WHY you want what you want. This is not a matter of “not taking a broader perspective.” It never has been. You are still lost in your desired Ends without a cogent path to those ends. Calling what you want “a broader perspective” does not make it so. ALL that that does is prevent you from actually doing as I have asked of you to do.

                  there are a whole host of negative outcomes that lead us – on balance – to believe that it is undesirable

                  Sorry, but your “whole host of negative outcomes” merely comes down to trying to defend a business model that forces me as an American citizen to foot the bill for lower prices elsewhere. As I have been telling you, such forced “altruism” is far worse that your “negative outcomes,” and what you want – what you desire really is immaterial here.

                5. And let’s de-spin the rest of your rant:

                  because of your repeated use of unjustifiable assertions

                  I am not the one repeatedly attempting unjustifiable assertions. ALL of my assertions are firmly grounded in the combinations of US jurisprudence of consistent application of legal terms, property law and patent law.

                  as an “answer” to difficult points for you.

                  False accusation – I have had no difficulty. There have been no difficult points for me. You confuse my making sure that you do not get away with deflections as “difficulty” when no such “difficulty” exists.

                  one of my answers (which was very clearly stated) was to question your assumption that there is any legal basis for a “secondary market” involving commercial-scale import and re-sale

                  You deflected and wanted me to prove a point opposite of the point that YOU needed to prove (and that you STILL have not proven).

                  That’s not an answer. It wasn’t an answer the first time I called you out for deflecting. It still is not an answer.

                  As to “ Also, as I and others have repeatedly pointed out, if there is indeed legal basis for such a “secondary market”, why do some countries or regions (such as the EU) not recognise its existence?

                  I HAVE engaged you on the “COM” exception, giving full credit to the explicit exception that proves the rule. I also then told you that the present case does not deal with that type of patent and that YOU needed to not conflate things with the attempt to use a different type of patent. Of course, you did not listen or adjust your arguments in the least, but merely “dug in” as if your desired injection of a different type of patent was dispositive. It was not.

                  my answer is that you are making a whole host of questionable assumptions regarding legal basis.

                  Not at all. I have no such “host of questionable assumptions.” You on the other hand STILL have not provided any actual answers to my points, and YOU are the one obfuscating with different types of patents and the like.

                  Also, from a policy perspective, international exhaustion is arguably highly undesirable due to the negative effects that it can cause.

                  You parading (yet again) your desired conclusion as if this dictates the necessary result is (yet again) rejected.
                  I have already told you directly that your “parade of horribles” is NO reasons to force my altruism, and what you are actually doing is merely preserving a particular business method that requires control of secondary markets – all the while you have done ZERO to show a cogent legal basis for the control of secondary markets comes from.

                  Your middle paragraph evidences your diatribe and left-liberal forced altruism as if those were somehow unquestionably “good things”

                  Your “effectively one “world” price scare tactic already does not work as I have abundantly made clear that you just do not get – with the patent right – the right to control secondary markets.

                  And yes, I would be happy if my medical costs did not subsidize the profits from a business decision to charge lower prices ANYWHERE else. Least developed or otherwise, “essential” medicines or otherwise – forcing me to pay more just to protect the overall profits of Big Pharma does not make me happy.

                  Your rant against parallel trade still shows that you are NOT providing me any answers to my points.

                  Answered enough for you?

                  No. You still have not answered the main points. At all.

                6. Anon. OK, I accept that you are just rigidly and inflexibly applying “principles” that you believe can be derived from common law. I also concede that I am looking at this from the other end of the telescope, namely from a policy perspective. This is no doubt why our views differ so wildly.

                  I guess you could say that I just want a system that is workable (and ethical), whereas it appears to be more important to you to uphold what you clearly believe are universally applicable “principles” of common law.

                  The reason that I am not persuaded by your arguments boils down to my belief that principles from common law should not be so inflexibly applied as to produce an absurd outcome (particularly an outcome that is arguably contrary to the objectives of relevant statutes).

                  To quote the Wikipedia entry on common law:
                  “The common law is more malleable than statutory law. First, common law courts are not absolutely bound by precedent, but can (when extraordinarily good reason is shown) reinterpret and revise the law, without legislative intervention, to adapt to new trends in political, legal and social philosophy”.

                  Further, in R v Miller, the UK Supreme Court recently summed up the constitutional position as follows:
                  “The law is made in or under statutes, but there are areas where the law has long been laid down and developed by judges themselves: that is the common law. However, it is not open to judges to apply or develop the common law in a way which is inconsistent with the law as laid down in or under statutes, ie by Acts of Parliament”.

                  In essence, I am arguing that it was by CHOICE and not by necessity that SCOTUS applied common law principles to ex-US sales. I simply believe that it was the wrong choice – for the reasons outlined above as well as the absurdity of assuming that a sale occurring outside of the US has the same effect on transfer of title as a sale within the US.

                  So take this as me acknowledging that I now understand why we disagree, and that we shall just have to agree to differ.

                7. Pure B$:

                  OK, I accept that you are just rigidly and inflexibly

                  You are the one digging in and you are the one being rigid and inflexible.

                  And you are also the one that STILL has not answered the points presented to you.

                  As to “I guess you could say that I just want a system that is workable (and ethical),

                  More B$ – you are only trying to protect a business model that captures the secondary market – there is NO ethics is forcing me as a U.S. citizen to subsidize markets elsewhere, and the fig leaf of “under-developed” or “otherwise cannot afford “essential” medicine is an abomination of an excuse to force me to pay more with that control over the secondary markets – a control that has no place (leastwise that YOU have shown) in any patent system.

                  as to produce an absurd outcome (particularly an outcome that is arguably contrary to the objectives of relevant statutes).

                  More B$. The only “absurd” is your own feelings. You have utterly failed to link to any “objectives of the relevant statutes

                  Likewise with your (again) conclusory statement of “ I simply believe that it was the wrong choice – for the reasons outlined above as well as the absurdity of assuming that a sale occurring outside of the US has the same effect on transfer of title as a sale within the US.

                  You gave NO solid reasons – and still have not shown why the secondary market control capture SHOULD be a part of any First Dip.

                  Remember, Confused, you were the one that “started this” by exclaiming just how “wrong” this Supreme Court decision was – how it was simply inconceivable that the Court would come to its conclusion. ALL that you have done since then is throw out your feelings and dodge the fact that you feel that the control of secondary markets (somehow) MUST inure. Along the way you have merely attempted to denigrate and mischaracterize my position and you have consistently attempted to evade the direct points of what you are defending.

                  So take this as me acknowledging that I now understand that you understand that you have no cogent legal position to back up the fact that you want the control of secondary markets to inur in patents so that Big Pharma can continue to force U.S. citizens to subsidize their price policies and that some trickle down benefit to under-developed countries may take place.

                  Let’s agree to call a spade a spade, and not pretend that you now “understand” that which you have continued to attempt to evade, and that somehow that “understanding” is enough.

                8. Anon – very neo-libertarian. So long as you’re getting the best possible deal, there is no need to worry about the effect that this might have on the rest of the world. It’s not like anything bad (for you) can possibly come of following that path, right?

                  I admit it, I’m looking at this from a policy perspective and prioritising what I believe to be the intentions of statute over “principles” of common law that I believe (in this instance) are overridden by those intentions. Whether or not you think that my beliefs are correct, the underlying contentions are both arguable and coherent.

                  Now, in the face of that admission, are you prepared to directly address any of the questions that I have posed you (eg relating to transfer of title by foreign sale, etc.)? Whilst I know that you are thoroughly convinced that your logic is impeachable, it’s not unreasonable to apply some pressure-testing to the underlying analysis to make sure that it hangs together. Or are you still too afraid to start pulling at that thread?

                  And you are right, there is one thing about your position that I just don’t “get”. That is, how is it that the chip on your shoulder about the profits of big companies prevents you from realising that Lexmark could have some seriously negative effects? And if you think that those negative effects will just be on the profit margins of big companies, then you really have not been paying much attention to how the world works.

                9. More pure B$ from you, now with labels and an unsubstantiated sense of righteousness.

                  I notice that you can be very generous when forcing others to be altruistic. Lucky for all of us then, that NO such “One World Order” exists where my liberty and form of government (as in here in the United States) is subjugated to the “niceties” as dictated completely by someone else.

                  It’s not like anything bad (for you) can possibly come of following that path, right?

                  I suggest that YOU truly broaden your horizons and read some Adam Smith.

                  I admit it, I’m looking at this from a policy perspective and prioritising what I believe…

                  As abundantly pointed out, YOUR priority is only – repeat ONLY – your desire. As such it has ZERO legal weight.

                  Whether or not you think that my beliefs are correct, the underlying contentions are both arguable and coherent.

                  And

                  That is, how is it that the chip on your shoulder about the profits of big companies prevents you from realising that Lexmark could have some seriously negative effects?

                  Neither of which matter here. You keep on wanting to act that I do not “get” the “why” you want what you want and I keep on telling you that I fully understand the “why” you want what you want. Comprehension may have only recently come to you, but I have had comprehension of both sides of this dialogue from the start. I simply reject your unsubstantiated self-righteous choice to play priorities and be generous with MY money.

                  Now, in the face of that admission, are you prepared to directly address any of the questions that I have posed you (eg relating to transfer of title by foreign sale, etc.)?

                  No. You STILL have not faced the direct points that I presented to you – where does this desire of yours to force my altruism and make U.S. citizens held captive to subsidizing Big Pharma and their business decision (and desire) to capture control of secondary markets come from? It certainly is NOT present in any patent right.

                  You somehow think that admitting to something that I have known all along absolves you of actually answering the points that you keep on evading….

                  That’s truly bizarre.

                  And no, your emotive rhetoric does not phase me. You seek to project some feeling of fear where there is none.

                  Quite in fact, I would be in good position to spin that directly back to you and ask what are you so afraid of?

                  Why do you insist on digging in to this “noble ideal” and pretend that such noble Ends means that just ANY means to that Ends must be OK? What are so you afraid of that time after time after time YOU keep on evading the points put to you?

                  then you really have not been paying much attention to how the world works.

                  As I have stated, I am not the one lacking comprehension here. How the world works is all well and good, but it is your own (if I may also use labels) Left-Liberal errant largess that needs to take a reality check with how the world works.

                  Reading Adam Smith will help you with that.

      2. “(2) Perhaps, however, I should rephrase my earlier assertion. I resent bitterly the idea that we are subsidizing drug prices in Canada or Germany, or other such nations that are wealthy enough to pay their own fair share.”

        If you think that’s bad, consider how many billions, if not now a trilly or so, we subsidize their defense.

          1. Well brother that is the direct result of lefty tom cuckery in the EU. It’s as bad, or worse, there than it is in Merica. Gotta end the leftism at some point or we’ll be paying to defend them from outright attack while they import literal terrorists to their own nations en masse to virtue signal about how amazing they are.

              1. Now now anon, in America and in Merica we can treat enemies of the state better than that. There’s really no need to kill them, simply declare hatred of/fighting the state to be illegal with a 1 year and 1 day suspended sentence. Presto, they’re felons and can’t vote until they get their acts together.

          2. It would be interesting to see just how our NATO allies support the war in Afghanistan, which, after all, is a NATO war on al Qaeda and the Taliban.

            In the recent Netflix movie starring Brad Pitt, it is seen that the Germans provided some troops, but they could not leave base. Other countries provided one or two soldiers that did nothing. Others simply trained.

            Why do we support NATO if they do not support us, or make a mockery of their commitment?

    2. Incidentally, as long as we are discussing odd inconsistencies, I note that you seem to be rather ebullient at the recent taking of a set of sticks from the bundles of U.S. patentees. Until a few days ago, a U.S. patent entitled one to (1) set prices across international markets to maximize revenue and (2) distribute goods at different prices in different channels of U.S. commerce. The SCotUS just plucked both of those sticks from the bundles of existing U.S. patentees, and yet no compensation was paid for the “taking” of these sticks.

      I thought that you were righteously indignant about “unconstitutional” ablation of sticks from the patent bundle without compensation? Why the lack of outrage here?

      1. Answered in part above, but let me add:

        Your (1) has never been one of the sticks in the bundle of patent rights and your (2) still exists – quite apart from any sticks in the bundle of patent rights.

        As mentioned, this merely shows that you are wrong on both fronts of what you would try to take issue with in my views.

  13. [B]ecause the… TRIPS Agreement… allows for countries to issue a compulsory license for patented goods in certain circumstances, drug companies may face foreign sales that they have not authorized.

    That is an interesting point. I wonder, when eventually the issue presents itself, whether the SCotUS will consider a sale made under a compulsory license in (e.g.) Brazil—for which the U.S. patentee has received some sort of remuneration—counts as a sale sufficient to trigger exhaustion?

    1. I think compulsory licensing is always geographically limited, and sale of products that fall outside the scope of a license is still an infringing act.

      1. Sure. My question is a bit different. Suppose DrugCo owns both a U.S. patent and a Brazilian patent covering the same compound (compound X).

        The USFDA approves a 100 mg coated tablet of compound X.

        The Brazilian Agência Nacional de Vigilância Sanitária (ANVISA) also authorizes a 100 mg coated tablet of compound X, and authorizes a local Brazilian generics company to manufacture this tablet under a compulsory license. Under the terms of the compulsory license, DrugCo (as the patentee) gets a 10¢/tablet royalty.

        It is true, as Prof. Wasserman notes, that Lexmark distinguishes Boesch on the grounds that Lexmark had “authorized” the Canadian sales, while the patentee in Boesch had not “authorized” the German sales. The idea that “authorization” is the standard, however, is a purely a creation of SCotUS-made law. There is no statutory text that constrains the Court to the “authorization” test, and therefore the Court is free to wiggle away from Lexmark‘s talk of “authorization” as “loose language” should the Court wish to reach a different result in a future case.

        Exhaustion has traditionally been grounded in the idea that the patentee has “received the reward,” and therefore it is only fair to regard the patent rights as exhausted. If the Brazilian government imposes a 10¢/tablet “royalty” on DrugCo, that is a “reward.” Will that be enough to exhaust the patent rights? It is not clear to me that Lexmark actually answers that question.

        1. Will that be enough to exhaust the patent rights? It is not clear to me that Lexmark actually answers that question.

          Seems to me that a compulsory license is hardly “authorization.”

          I’m not sure why you want to dismiss the concept of an authorized sale from the Supreme’s opinion. The fact that the sale of the good in question was not authorized by the patentee seems kind of central to the exhaustion concept if you ask me.

          1. Put another way, let’s say Pirate makes and sells the drug in Brazil for $1 a tablet (1/100th what the patentee charges for the drug in the US, where the patent rights are located). Pirate sells 100,000 tablets in Brazil and sends the patentee ten bucks with a note saying “Thanks” and also a smiley face with a patch over one eye.

            There’s zero chance that this will qualify as the patentee “receiving its award” and zero chance that any court will hold that the patentee’s rights to block importation into the US were “exhausted” by Pirate’s sale. That’s because there was no authorization to sell in Brazil. Period.

            1. Yes, I agree. Outright piracy, however, seems to me a very different circumstance than a compulsory license made under the terms of a treaty to which the U.S. is a party.

            2. This seems a reasonable argument, however there are (at least) two complicating factors. First, compulsory licensing regimes under TRIPS require that the compensation to the patentee be reasonable, which is a departure from your hypothetical pirate. Second, in deciding to file for a patent in a country having such a compulsory licensing regime, the patentee signaled its intention and desire to supply that market with the benefit of patent rights, but subject to the possibility of grant of a compulsory licence. In the counterfactual situation, it could have elected not to file, leaving the market open to generics (including its own competing products) and avoiding the possibility of “compulsory authorisation” altogether.

              Should the patentee be permitted to have its cake and eat it in these circumstances? Personally, I am in favour of price discrimination where it benefits developing nations, but I would never bet on SCOTUS taking the same view.

              1. Personally, I am in favour of price discrimination where it benefits developing nations, but I would never bet on SCOTUS taking the same view.

                See post 4.1.1 for the information.

                The “altrusim” of your feeling is not something that should be allowed to be forced on those who do not share that “altrusim.”

                There is no mechanism possible to allow a higher subsidized price (on secondary market items) to exist ONLY for those who do not mind “benefiting developing nations.”

                The collision then, between a foreign sovereign’s rightful decisions to set up laws within their own sovereign (as exemplified by compulsory licensing) and the argument’s being supplied as to why “it is only fair” that a second dip be allowed to those choosing to obtain a first dip of obtaining the benefit of the bargain of choosing to sell an item AND not have that sale result in exhaustion (based merely on the location factor) comes into play.

                Why should SCOTUS take the same view?

          2. I’m not sure why you want to dismiss the concept of an authorized sale from the Supreme’s opinion.

            Please do not misunderstand. I do not want to dismiss the concept of “authorized sale” from the exhaustion analysis. My point is simply that I do not trust the Supreme Court not to dismiss the idea from their analysis, whenever the issue eventually presents itself.

            1. I do not trust the Supreme Court not to dismiss the idea from their analysis

              Well, I’m all for healthy skepticism but a compulsory license and piracy have one thing in common: no authorization. And I don’t think anybody — especially the Supreme Court — is going to eliminate authorization from the exhaustion doctrine. Will there by some areas that are gray? Of course. In any event, my bet is placed. 😉

          3. If someone is offered a choice of selling at “X” or not selling at all, it is still a choice to sell at “X” and thus authorization is present.

            As much as compulsory licensing is v0m1t-inducing (and it should so induce), such remains the right of a foreign sovereign.

            But that still would involve the conscience choice of the US patent holder to sell into that market.

            1. That’s not how compulsory licenses work. It allows others to practice the patent with remuneration to the patent owner. Hence the term compulsory license.

              It’s not a choice of selling at X or not selling at all. It’s a choice of others can sell at X and pay you Y, or… that’s it. There is no second choice. You can try to undercut your generic competitors if you like. But you can’t stop the drug from selling altogether. The drug will be available in that market whether you participate or not.

  14. [T]he useful comparison is not between geographic price discrimination and no price discrimination, but between geographic price discrimination and the other methods that companies will increasingly turn to following this ruling.

    This is a good point. I suppose that, going forward, branded pharma companies can file New Drug Applications (NDAs) in the U.S. for (e.g.) a 200 mg product, and an NDA in the EU for (e.g.) a 100 mg product. The 100 mg product will never achieve bioequivalence to the 200 mg product that is approved in the U.S., so the FDA will have no authority to allow the import of the 100 mg product from the E.U.

    This is a bit of a headache, having to do two sets of phase III trials (one for U.S. data, and another for E.U. data) and coordinating which versions of the same active are authorized in which markets. If this is the only way to maintain the price discrimination, however, then I expect that branded pharma will learn to live with this sort of headache. The alternative is to find a totally different business model, and that is an even larger headache.

Comments are closed.