Last week, in Impression Products v Lexmark the US Supreme Court declared that an authorised sale of a patented product abroad exhausts the patentee’s rights within the United States of America. This follows on from 2013’s Kirtsaeng ruling adopting international exhaustion for copyright.
There is lots of analysis already, including Patently-O and Scotusblog, so this will be brief:
The underlying issue is printer manufacturers’ ongoing attempts to extract value according to usage of the printer by “metering” usage through charges on toner cartridges.
Lexmark has a number of patents over its toner cartridges. It offered patented toner cartridges for sale in two ways: at full price, with no restrictions or, for a 20% discount in return for a signed contractual condition that the customer would not refill the cartridge but return it to Lexmark.
Remanufacturers (vendors of refilled toner cartridges) had been acquiring Lexmark toner cartridges, circumventing the microchips preventing refilling then and reselling them.
In this action, Lexmark had sued two groups of remanufacturers . The first group had obtained the cartridges they refilled within the United States (presumably the original owner of the cartridges was in breach of its contract by passing its used (empty) cartridges along). The second group had acquired their cartridges outside the United States and imported them into the United States for resale.
In summary, the majority of the Supreme Court held:
We conclude 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 or the location of the sale.
In the majority opinion, Robert CJ noted that the 1890 decision of Boesch v Graff – the Supreme Court’s only previous consideration of this issue, did not concern parallel imports, but products made in Germany legally by someone other than the US patentee.
Given Lexmark itself appears to have sold the cartridges overseas, Prof. Wasserman Rajec notes that the Supreme Court’s decision does not settle what qualifies as an sale abroad authorised by the patentee.
Ginsburg J dissented
As her Honour did in Kirtsaeng, Ginsburg J dissented from the adoption of international exhaustion:
Because a sale abroad operates independently of the U. S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U. S. patent rights. U. S. patent protection accompanies none of a U. S. patentee’s sales abroad—a competitor could sell the same patented product abroad with no U. S.-patent-law consequence. Accordingly, the foreign sale should not diminish the protections of U. S. law in the United States.
Her Honour also considered that patent law and copyright law were sufficiently different that the rule applicable in copyright (in the USA) should not apply to patent law:
the two “are not identical twins,” id, at 439, n. 19. The Patent Act contains no analogue to 17 U. S. C. §109(a), the Copyright Act first-sale provision analyzed in Kirtsaeng. See ante, at 13–14. More importantly, copyright protections, unlike patent protections, are harmonized across countries. Under the Berne Convention, which 174 countries have joined, members “agree to treat authors from other member countries aswell as they treat their own.” Golan v. Holder, 565 U. S. 302, 308 (2012) (citing Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, as revised at Stockholm on July 14, 1967, Arts. 1, 5(1), 828 U. N. T. S. 225, 231–233). The copyright protections one receives abroad are thus likely to be similar to those received at home, even if provided under each country’s separate copyright regime.
What’s the position in Australia?
Until the High Court makes another one of its ex cathedra policy declarations, the position in Australia is different.
First, when a patentee sells a patented product in Australia, the purchaser gets an implied licence to exercise all the rights in the patent: National Phonograph Co v Menck. Being an implied licence, it could be excluded by appropriate contractual terms.
Secondly, where a patentee itself sells the product in an overseas market, there is also an implied licence to import it into Australia. If the sale in the overseas market was made by a licensee from the patentee which did not also have a licence to sell in Australia, however, parallel importing would infringe.
Impression Products Inc v Lexmark International Inc (30 May 2017)