Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Federal Circuit over insulates patents from competition, AAI asserts, (Apr 26, 2016)

By Greg Hammond, J.D.

The Federal Circuit Court of Appeals has strayed from the U.S. Supreme Court’s guidance on core patent exhaustion issues and “eviscerated” important limits on patent holders’ rights, the American Antitrust Institute (AAI) argues in an amicus brief before the Supreme Court. “A patent should provide only enough insulation from competition to incentivize innovation,” AAI states (Impression Products, Inc. v. Lexmark International, Inc., Dkt. 15-1189).

The patent exhaustion, or “first sale,” doctrine provides that the authorized sale of a patented product exhausts the patent holder’s patent rights and prohibits suits against downstream users for patent infringement. Under the instant action, a district court held that the patent exhaustion doctrine prevented Lexmark International, Inc.—a printer manufacturer—from bringing patent infringement actions against a cartridge remanufacturer for reusing Lexmark toner cartridges obtained from consumers in violation of Lexmark’s “single use” notice. The district court also held that patent exhaustion did not apply to Lexmark toner cartridges first sold abroad. Impression Products, Inc. has appealed the appellate court’s order that partially affirmed the district court’s decision.

AAI argues in its brief that the Federal Circuit has “radically reconceptualized” the longstanding patent exhaustion doctrine as a “mere presumption of authority,” which conflicts with the Supreme Court’s common-law precedent dating back more than 150 years. Under the appellate court’s reading, the exhaustion doctrine is merely a default arrangement that a patentee can change with questionably effective contract terms—or even unilateral pronouncements—not a hard-and-fast limit on a patentee’s rights, according to AAI. However, the Supreme Court has held that any authorized sale exhausts patent rights and that any conditions on sale, if they amount to valid agreements, are properly enforced via contract law, not patent law.

In addition, the Federal Circuit has lost sight of patent exhaustion’s core purpose, AAI asserts, because the court held that foreign sales authorized by the U.S. patentee never exhaust U.S. patents. This holding purportedly clashes with the Supreme Court’s holding, which rejected the idea that international exhaustion implicates extraterritoriality and reaffirmed the common-law principles against restraints on alienation that animate both copyright and patent exhaustion, according to AAI.

In furthering its mission of advancing competition in the economy, protecting consumers, and sustaining the vitality of the antitrust laws, AAI argues that the Supreme Court should grant review in this action in order to ensure that deviations to the patent exhaustion doctrine come only from the Supreme Court.

Companies: Impression Products, Inc.; Lexmark International, Inc.

News: Antitrust