Roberts Rules of Order

The Supreme Court has been quite active fine-tuning the patent system and deboning the law of the Federal Circuits for many years.  Today is no exception.

In Impression Products, Inc. v. Lexmark International, Inc.  (May 30, 2017), Chief Justice Roberts took to task the Federal Circuit’s take on the law of patent exhaustion, i.e., whether a patentee upon a sale retains any rights to the sold object.  In this case, Lexmark tried to prevent other companies, such as Impression, from refilling Lexmark printer ink toner cartridges.  Obviously, the printer ink business is quite lucrative and it is no surprise that this case made it to the Supreme Court.

The Federal Circuit had earlier held that Lexmark’s proscriptions on refilling were acceptable, whether the sales were within the United States or abroad (for import).  The nuanced, decades-old jurisprudence of the Federal Circuit held patent law in special regard vis-à-vis other areas of law, and permitted limited controls post-sale.

Back in 2013, the same issue arose in a copyright dispute.  The Court there held that the first sale doctrine extinguished a copyright holder’s rights.  In that case, Kirtsaeng v. John Wiley & Sons, Inc., Kirtsaeng sold Wiley textbooks printed in Thailand on eBay for U.S. students.  The large price differential between the prices in the United States and Thailand made the venture profitable, much to the chagrin of Wiley who sued him.

Just as in Kirtsaeng, the Court today said restrictions or conditions on resale or use constituted unlawful restraints on alienation.   Thus, Lexmark cannot predicate their refilling policy on patent law.  They can, of course, seek coverage under licensing, contract law or another approach.  To Chief Justice Roberts, the patentee upon selling the object has obtained the full measure of the patent right, i.e., no rights remain and the patent right is exhausted.

Justice Ginsburg, who dissented in Kirtsaeng, dissented here.  In her dissent, she made several cogent points.  First, the patent system is different from the copyright system, which has an explicit first-sale statutory provision – unlike patent.  Second, the territorial nature of the patent system and activities in global commerce suggest different handling.  Foreign activities have no bearing on the existence of U.S. patent rights.  Also, the patent laws differ between countries, unlike the more uniform copyright laws, making the first sale exhaustion argument for patent weaker.

Nonetheless, Lexmark and other patentees will now have to take care to obtain a fair price for their products at the time of sale.  Roberts Rules of Order for IP are straightforward: the patent bargain must honed further, and the rogue interpretations of the Federal Circuit must be stamped out.  It is rather odd that the Court regularly condemns the Federal Circuit, yet often has zero alternative interpretation.  The Alice and other recent cases simply held that they did not like the interpretation of the Federal Circuit, and no substitute was proffered.  Here, however, we have a clear directive: you sell a patented item and that is all you get for it.