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Implications of Supreme Court case outlined

December 9, 2016

A US law firm believes that the US case between Lexmark and Impression Products “will have important implications for secondary markets for patented products and global commerce”.

The US Supreme Court

The US Supreme Court

The original case was decided in Lexmark’s favour earlier this year, with the US Court of Appeals ruling that the US remanufacturer had “infringed Lexmark’s patents by marketing refurbished Lexmark cartridges that originally were sold with ‘single use’ or ‘no resale’ restriction in the US and abroad”.

The case began when Impression was named in an IP infringement case in October 2013 referring to the “unlawful importation […] the sale for importation and/or the sale within the United States after importation” of a number of infringing remanufactured and cloned aftermarket cartridges. Impression moved to dismiss and overturn Jazz Photo, which impacts on patent exhaustion, or the “first-sale doctrine”, influenced by the Supreme Court’s ruling in the Kirtsaeng case, which prevented copyright owners from stopping imports and reselling content sold abroad.

The February ruling decided Impression “infringed the patent rights of Lexmark […] when it imported Lexmark’s toner products back into the United States after they were first sold abroad”, and was “liable for selling refurbished Lexmark cartridges that were originally marketed for a single use under its return and recycle programme”. Recently however, the US government backed an “overturn” of the decision, and “urged” the Supreme Court to review it, with the court’s confirmation soon after.

Stefan M. Meisner and James Buchanan Camden, of US law firm McDermott Will & Emery, stated that the implications of the “ultimate outcome of this case” might include “important practical consequences for secondary markets for patented products and global commerce”. If the court upholds the ruling, then a patent holder “may be able to limit or even eliminate the secondary market in its patented goods by including a post-sale restriction on use or resale in its sales contracts”.

Instead of an “outright ban” on the use or resale, a patent holder “might be able to ‘demand royalties for the use or resale of articles embodying its invention at multiple downstream points in the channels of commerce, long after the first authorised sale” in the USA. They noted that even the district court in the original case “cautioned” that “such a holding” would “create significant uncertainty for downstream purchasers and end users who may continue to be liable for infringement even after an authorised sale to the consumer has occurred”.

Another implication might be that “companies seeking to import products” into the USA might nedd to “track the provenance of every sub-component and sub-sub-comoponent within its products” to avoid IP infringement when it is imported to the USA, and “this is particularly difficult in the global high technology industry where products are frequently covered by ‘thickets’ of patents”.

A patent holder may also be able to “twice extract royalties for its patent” and sell it “for use in a component”, as well as “sue for infringement once the finished product is imported”. Lexmark believes “such concerns are overstated”, the firm notes, but “regardless, given the potential implications” for “secondary markets and global commerce”, the lawyers advise to “closely follow” the case”, because it will have “significant implications on how patent holders either bring their products to market or license their rights to others”.

In turn, companies that “participate in markets where parts or consumable products are necessary to keep larger products or systems operational will need to assess their exposure to potential patent infringement assertions”, and in conclusion, they note that “this case will become the seminal decision on the application of the patent exhaustion doctrine under US law”.

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