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Fed. Cir. Will Rehear Lexmark Ink Cartridge Case En Banc

Well, that's interesting. Yesterday, the Federal Circuit sua sponte ordered an en banc hearing in Lexmark International v. Impression Products, Inc. A three-judge panel just heard oral arguments on March 6, but that apparently wasn't sufficient for the Federal Circuit.

According to the order, the parties must resubmit new briefs and address the applicability of Kirtsaeng v. John Wiley & Sons and patent exhaustion in the face of a single-use-and-return restriction. This case is actually pretty huge.

Textbooks, Ink Cartridges -- It's All Expensive

The case addresses whether a sale of a patented product outside the United States exhausts the manufacturer's patent. Federal Circuit precedent holds that a patent is exhausted only when the first sale occurs in the United States. That would be the end of it, if not for a Supreme Court case -- Kirtsaeng -- from 2012. In that case, a student bought textbooks from abroad, then resold them in the United States because they were cheaper to buy from another country.

The Supreme Court held that the first sale doctrine applies even when the first sale occurs overseas; the Copyright Act's language on this subject has no geographic restriction, said Justice Breyer for the 6-3 majority.

Lexmark is slightly different, but only because it dabbles in patents, not copyrights. In the instant case, Lexmark sold ink cartridges abroad, then Impression Products remanufactured them and sold them in the United States. Like the first sale doctrine, the patent exhaustion doctrine holds that, once a patent holder has made a sale of a patented good, then the holder loses its right to control the good.

In 2014, a federal court in Ohio held that the rule from Kirtsaeng doesn't apply to patents -- but largely because "copyright cases are not 'controlling' regarding patent issues" and because a district court wouldn't be able to overturn Federal Circuit precedent. Of course, that's why we're here: The Federal Circuit can overturn its own precedent if it determines that Kirtsaeng applies to its 2001 decision in Jazz Photo Corporation v. Int'l Trade Comm'n.

In the End, It's the Prebate That Got Him

But where courts giveth, they also taketh away. The same federal district court nevertheless concluded that Lexmark's "Prebate" program, the "single-use-and-return restriction" in the court's second question, exhausted its own patents.

Lexmark sold cartridges abroad under a license in which end users promised to return used cartridges to Lexmark. This restriction, Lexmark claimed, was enough to override patent exhaustion, since it was reserving the right to retain the cartridge in the future. Impression, on the other hand, claimed that the Prebate program served no other purpose than to prevent competition.

The district court said a 2008 Supreme Court decision, Quanta Computer v. L.G. Electronics, applied even if the face of an agreement purporting to restrict an end user's control of a patented good after the first sale. The Federal Circuit will also address this issue in the en banc rehearing.

Lexmark will undoubtedly head to the Supreme Court in a year or two, and it may stand for the much larger question of how far manufacturers can go in dictating the terms by which end users can use the goods they've purchased.

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