Impression v. Lexmark (SCOTUS Oral Argument) case summary
The case involves the doctrine of “exhaustion,” under which a patentholder’s rights to enforce its patent ordinarily are “exhausted” with regard to any particular object at the moment the patentholder sells the object. As applied to this case, for example, Lexmark’s rights to control the use of its patented refillable print cartridges would be “exhausted” when it sells those cartridges to retail buyers, even if Lexmark conditions the sale on the promise that the buyer will not refill the cartridge. That, at any rate, is the argument of Impression Products, which makes a business out of refilling Lexmark cartridges in violation of those agreements. Lexmark’s argument, by contrast, is that modern commerce requires that innovators have the flexibility to devise contracting structures that segment the market into separate sectors, each of which gets a different price commensurate with the uses to which products will be put in that sector.
이 케이스는 소진 이론에 대한 것으로, 소진 이론이란 특허권자의 특허권 행사가, 관련 제품을 판매하는 순간에 소진된다는 것임. (Lexmark는 프린터 카트리지를 2가지 종류로 판매함. 소비자가 카트리지를 다 쓰면 Lexmark에게 반환한다는 조건으로 20퍼센트 싸게 파는 “Return Program Cartridge” 와 이러한 single-use 제한조건없이 판매되는 regular cartridge임.)
이번 대법원 건의 원고인 Impression 의 주장은, 1) Lexmark의 특허권 행사권리는, 설령 Lexmark가 single-use 제한조건을 계약으로 명시하였다고 하더라도 그 카트리지를 소비자에게 파는 순간에 소진된다는 것임. (Impression은 외국에서 Lexmark 카트리지를 사서, 그 안에 있는 chipset을 변경하고, 잉크를 재주입하여, 재생 카트리지를 만들어 미국에 판매하고 있음) 2) 특히, Impression은 대법원이 2013년도에 copyright law의 exhaustion doctrine에 대해서 판결한 Kirtsaeng 사건이 이번 특허법 케이스에도 그대로 적용되어야 한다고 주장.
본 사건의 하급심, Federal Circuit 건에서는 Lexmark의 주장이 맞다고 판결하였음. Lexmark는 Federal Circuit의 두 가지 판례를 인용하였음. 1) 1992년 Mallinckrodt 사건에서 Federal Circuit은 특허권자가 post-sale restriction을 할 수 있다고 하였음. 2) 또한, 2001년 Jazz Photo 사건에서는 외국에서의 제품 판매가 미국 내에서의 특허권 행사를 소진하지 않는다고 하였음.
Lexmark is a manufacturer of laser printers and their toner cartridges. It owns patents covering the toner cartridges’ some aspects like the "encoder wheel" which determines how much toner remains in the cartridge and optimizes the print settings accordingly.
Lexmark makes most of its profits not by selling the laser printers, but by selling the toner cartridges. Lexmark offers end-user customers a choice when they purchase these replacement cartridges: a "Regular Cartridge" sold at full price without any use limitations, or a "Return Program" cartridge sold at a discount in exchange for the purchaser's agreement to use the cartridge only once. The two types of cartridges are physically identical. But, customers, who buy the 20%-cheaper cartridges under the Return Program, agree that after the cartridge's toner is exhausted, they will return the empty cartridge only to Lexmark. In contract, customers who buy regular cartridges pay full price, but are not subject to the single-use restriction. That is, the 20% discount applied to the cartridge under the Return program reflects the single-use limitation of the cartridge.
The Return Program is a restriction on both sale (by resellers) and use (by customers) of the cartridge. Lexmark sells Return Program cartridges directly (to end-user customers) and indirectly (through "authorized resellers"). The Return Program contractually binds both Lexmark's authorized resellers and its customers. Lexmark resellers are not allowed to sell a Return Program cartridge that is not subject to the single-use restriction. And whether a customer buys a Return Program cartridge directly from Lexmark or indirectly from an authorized Lexmark reseller, it does so subject to a user agreement that obliges the customer to use the cartridge only once.
The use restriction--a combination patent license and contract--is clearly displayed on the package of a Return Program cartridge and on Lexmark's website.
Lexmark runs the Return Program (Recovering the cartridges after a single use) partly because the Program’s sing-use restriction may reduce the opportunity for third-party grey-market activities, e.g., transfer of a product sold at a lower price in one country to another country where the same product is sold at a higher price. Lexmark decided to give customers a choice of two cartridges (Return Program and regular ones) rather than restricting post-sale use across the board.
Each Return Program cartridge contains a computer chip that enforces the single-use restriction. The chip monitors the cartridge's toner level: once all the toner in a Return Program cartridge is consumed, the chip stores this fact in its memory. If the cartridge is later reinstalled, the chip will interact with the printer to disable the cartridge.
Impression hacked the chip, refilled the cartridges. Once the chip is circumvented, Lexmark's Return Program cartridges may be reused multiple times, in violation of the single-use restriction. With respect to Lexmark cartridges first sold outside the United States, Impression contends that Lexmark's sales abroad precluded Lexmark from suing for infringement of its U.S. patents when those cartridges were imported, remanufactured, or resold in the United States.
Impression acknowledged that its position contradicted this Court's ruling in Jazz Photo, which held that a foreign sale does not exhaust U.S. patent rights. But Impression contended that Jazz Photo had been implicitly overruled by the Supreme Court's decision in Kirtsaeng.
The district court disagreed, noting that Kirtsaeng construed a distinct provision of the Copyright Act and therefore did not implicitly overrule Jazz Photo's application of the Patent Act.
A majority of the en banc Federal Circuit reaffirmed its prior decisions in Mallinckrodt v. Medipart, 976 F.2d 700 (Fed. Cir. 1992) and Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001) on two issues of the patent exhaustion doctrine:
1) Post-sale limits on use and resale: In reaffirming Mallinckrodt, the court held that a patentee may preserve its right to allege infringement when selling a patented article through “clearly communicated, otherwise-lawful restrictions.” Specifically, the court upheld that a patentee has the ability to “sell[] a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser” without exhausting the patentee’s rights in that item.
2) Foreign sales and exhaustion a patentee’s U.S. rights: In reaffirming Jazz Photo, the court also held that importing patented articles sold abroad constitutes infringement, unless the patentee has authorized the importation, because foreign sales do “not authorize the buyer to import the article and sell and use it in the United States.”
a. Distinguishing the Supreme Court’s recent decision in Kirtsaeng v. John Wiley & Sons, 133 S. Ct. 1351 (2013), which analyzed foreign sales under section 109 of the Copyright Act, the Federal Circuit determined that Kirtsaeng “does not answer the question presented under the Patent Act.”
b. After concluding that Kirtsaeng did not control the outcome, the court held that a patentee does not waive its U.S. rights to a patented article “simply by making or authorizing a foreign sale of an article.” The court explained, however, that U.S. patent rights may be exhausted by a foreign sale under an express or implied license, but that that question was not presented here.
- Supreme Court (Impression v. Lexmark)
o Issues
§ (1) Whether a “conditional sale” that transfers title to the patented item while specifying post-sale restrictions on the article's use or resale avoids application of the patent-exhaustion doctrine and therefore permits the enforcement of such post-sale restrictions through the patent law’s infringement remedy; and
§ (2) whether, in light of this court’s holding in Kirtsaeng v. John Wiley & Sons, Inc. that the common-law doctrine barring restraints on alienation that is the basis of exhaustion doctrine “makes no geographical distinctions,” a sale of a patented article – authorized by the U.S. patentee – that takes place outside the United States exhausts the U.S. patent rights in that article.
[1] Edited from http://www.scotusblog.com/2017/03/argument-analysis-justices-skeptical-categorical-exhaustion-patent-rights/
[2] https://patentlyo.com/patent/2015/04/lexmark-impression-facts.html
[3] Id.
[4] http://www.finnegan.com/publications/federalcircuit/FCCDetail.aspx?pub=39e12032-91c8-4f8e-ae77-f58111271ad2
[5] http://www.scotusblog.com/2017/03/argument-analysis-justices-skeptical-categorical-exhaustion-patent-rights/
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