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Fed Cir. Reaffirms Patent Exhaustion Doctrine, Limits on Resale

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By Casey C. Sullivan, Esq. on February 17, 2016 6:00 AM

The doctrine of patent exhaustion remains sound in light of recent Supreme Court rulings, an en banc Federal Circuit ruled last Friday. That doctrine, also known as the "first sale" doctrine, allows patent owner's to avoid exhaustion of their rights by selling a patented product subject to clear limitations on resale or post-sale use.

That doctrine allows, for example, restrictions on the resale of printing cartridges, as was the case here. Under the doctrine of patent exhaustion, Lexmark, the printing company, was allowed to sue Impression Products for patent infringement for violating its single-use, no-resale restrictions.

The Doctrine of Patent Exhaustion

The Copyright Act grants owners of certain copyrighted articles the ability to resell those goods "without the authority" of the copy right holder. If you buy a book, you're allowed to resell that book, whether Houghton and Mifflin wants you to or not. That's not always the case for many patented goods, however.

Under the Patent Act, too, there is a presumption that a patentee's sale exhausts its rights in the article. But, under the doctrine of exhaustion, there are certain exceptions to that general presumption. A patented article that is sold subject to a single-use, no-resale restriction that is "lawful and clearly communicated to the purchaser," limits the authority transferred to the buyer.

In 1992, for example, the Federal Circuit ruled in Mallinckrodt v. Medipart that a single-use, no-resale restriction was binding on buyers and downstream. Despite the sale, the patentee had not exhausted its patent rights, thanks to the restriction. (These "patent exhaustion" cases might be better characterized as "patent preservation" rulings.) That holding was extended in 2001's Jazz Photo Corp. v. International Trade Comm'n, where the Federal Circuit found that selling a U.S.-patented article abroad does not limit the application of the patent exhaustion doctrine.

But What About Quanta?

Both of those rulings remain good law, despite recent Supreme Court rulings, the en banc Federal Circuit reaffirmed last week. The opinion, written by Judge Richard Taranto, is 99 pages long, but the gist is straightforward. Impression Products had argued that two Supreme Court decisions had undermined the doctrine. In Quanta Computer v. LG Electronics, the Supreme Court reaffirmed the patent exhaustion doctrine and found that the particular language at issue hasn't created a limited license.

To many commentators, it looked like Quanta had put many Federal Circuit precedents in question, particularly Mallinckrodt. But, the Fed. Circuit found, whatever questions Quanta raised, it did not decide affirmatively enough to justify turning away from precedent. It was easy to differentiate Quanta and the present case, the court found, describing them as "at least two steps removed" from each other.

Similarly, the court found, the Supreme Court's ruling in Kirtsaeng v. John Wiley & Sons, did not undermine the circuit's foreign sales ruling. Kirtsaeng held that the "first sale" doctrine, allowing owners of copyrighted works to sell that work as he wishes, applies to works made abroad. But again, it was easily differentiated, the Federal Circuit ruled -- Kirtsaeng was a copyright, not a patent, case.

So for now, the Federal Circuit's patent exhaustion doctrine survives for another day, unless the Supreme Court steps in.

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