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The American Free Trade Association (AFTA) has provided a voice to the secondary marketplace for over 30 years.  AFTA works with industry, legislative leaders, regulatory officials and coalition members to ensure that genuine, branded consumer products are lawfully distributed across borders, providing American consumers with greater access to cost-effective, safe and authentic merchandise.

Supreme Court Says U.S. Patent Law Cannot Restrict Product Resale

On May 30, 2017. the United States Supreme Court in Impression Products, Inc. v. Lexmark International, Inc. held that when a patent owner sells a patented product all U.S. patent rights are exhausted by that single legitimate sale.  The U.S. patent owner cannot rely on U.S. patent law to stop unauthorized, downstream sales or resales of patented goods.

A copy of the 7-1 decision, authored by Justice John Roberts can be found here: lexmarkvimpressionsscopinion

Here is the brief background of the case:

Lexmark designs, manufactures, and sells toner cartridges throughout the World and owns U.S. patents covering components, parts and manner of use of those toners.  Lexmark provided purchasers with 2 options for purchasing its patented cartridges: they could pay full price and own the cartridge outright or they could participate in the manufacturer’s “Return Program.”  Participants in the Return Program paid a reduced purchase price for a cartridge fitted with a microchip preventing further use and  signed a contract promising only to bring a used cartridge back to Lexmark.

Over time, Impression Products was able to remanufacture Lexmark’s used cartridges by circumventing the microchips and started its own refill/resale business of the used Lexmark cartridges.

Lexmark sued for patent infringement claiming that the exclusive rights to prevent unauthorized imports found in U.S. patent law prevented Impression Products from reselling imported patented cartridges first sold outside of the United States.  The Federal Circuit agreed that the unauthorized resales of the patented toner cartridges by Impression Products violated Lexmark’s U.S. patent rights.

The U.S Supreme Court, however, held that U.S. patent law cannot be used to enforce resale limitations that may or may not be enforceable under contract law and that once an authorized sale occurs — no matter where or by whom — the U.S. patent owner has exhausted its monopoly rights under U.S. patent law.

Of note, similar to its rationale in the 2013 Kirstaeng ruling (kirstaengvwiley),  the Court held that U.S patent owners cannot rely on U.S. patent law to restrict product resales with the hope of reaping greater profits.  In his opinion, Justice Roberts held “”The patentee may not be able to command the same amount for its products abroad as it does in the United States, but the Patent Act does not guarantee a particular price.”

It may not be unreasonable to expect efforts to legislatively overturn this decision, particularly because U.S. patent laws are often relied upon to restrict unauthorized downstream sales of patented pharmaceuticals.  AFTA will carefully monitor and advise its supporters of any legislative efforts to overturn this decision.

 

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