It was ruled by the U.S. Supreme Court, unanimously, that patent holders cannot sue people or companies who refurbish or resell products based on their patents. In practice, this will make it significantly more difficult for manufacturers and drug makers to control how their products are sold on secondary markets. The decision comes from a case that was taken to the Supreme Court between Lexmark and Impression Products.
Originally, Lexmark sued Impression Products in Ohio Federal Court in 2010. The lawsuit was based on the fact that Impression Products were infringing on patents owned by Lexmark by refilling and reselling ink cartridges, as Lexmark retained their rights even after the sale.
However, this week, the Supreme Court disagreed with Lexmark’s assertions, finding the company cannot restrict how its products are used by consumers and resellers. Lexmark’s contract with buyers includes a right to sue for patent infringement, but the court rejected the company’s use of patent law to attempt to control ownership rights of a person who purchases the product.
Effectively, the decision finds that when a patent holder sells a product, it cannot use that patent to try to control how the buyer uses it. Lexmark could sue the buyer for breach of contract if they resell a printer cartridge when they explicitly agree not to, but the company cannot sue for patent infringement.
The court also ruled 7-1 companies that hold patent rights in the U.S. cannot control what happens to that product if it is sold overseas. “An authorized sale outside the United States, just as one within the United States, exhausts all [patent] rights,” Chief Justice John Roberts wrote in the majority decision.
The ruling reverses a two-part ruling by the U.S. Court of Appeals for the Federal Circuit, which found in favor of Lexmark in 2016.
The ruling is currently being viewed as a blow to the tech and pharmaceutical industries, which rely heavily on their ability to retain patent rights, especially when selling overseas where resellers may be able to buy products at a cheaper price and import them back into the U.S.
Stroock intellectual property partner Pierre Yanney spoke with the Patent Lawyer Magazine about the case. Mr. Yanney suggests that today’s decision harmonizes copyright rights and patent rights despite these acts being very different from one and other.
“Is this a distinction without a difference? Will infringement actions in such ‘downstream customer’ cases simply turn into contract actions? It seems the Supreme Court has plugged up one hole, but created another one. The support for today’s decision appears to be an effort to harmonize copyright rights and patent rights; however, as Justice Ginsburg’s dissent reminds us, the Copyright Act is quite different from the Patent Act—something that seems to have been glossed over in the majority opinion,” said Mr. Yanney.