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Supreme Court case begins

March 23, 2017

The case between Lexmark and Impression Products has seen the court initially favour the remanufacturer’s argument for patent exhaustion.

The original case was decided in Lexmark’s favour last 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 2016 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. Now, starting on Tuesday 21 March, the Supreme Court has been hearing “oral arguments”, and will decide “whether the patent exhaustion doctrine applies in instances where a patented article is sold by the patent holder subject to a lawful and clearly communicated post-sale restriction”, according to IP Watchdog.

Tricia Judge, Executive Director of the US remanufacturing association I-ITC (International Imaging Technology Council), commented in an email newsletter that the first days have seen the court lean “towards [the] aftermarket”, even “after a chilly, even hostile reception at the appellate level”. The court “appears warmly open to domestic patent exhaustion”, and “as for international patent exhaustion after the first sale of a cartridge, they appear ready to overturn the lower court on that issue as well”.

Justice Alito wondered “why isn’t this codified?” in relation to patent exhaustion, Judge noting that “that is a better question for Congress than aftermarket attorneys”, and she also pointed out that the court “seemed to be most vexed by the US government’s answer to the question of whether to exhaust patents that were first sold outside the US”, as “the Solicitor General suggested that a foreign first sale presumptively exhausts US patent rights, unless the US patent owner expressly reserves those rights in the terms of the foreign sale”.

Justices Breyer and Kennedy “wondered how that could be done”, Kennedy stating “do we put a sticker” on the product, and joking that if so, that would be “a boon for sticker companies”. Aftermarket lawyers “left the court stating that the first issue would most likely be ‘a slam dunk’ win for the aftermarket”, but “the question of international exhaustion of patent rights will be harder to prevail upon”.

However, Justice Sotomayor – according to Judge “stated that she saw no reason to treat patent rights differently than copyrights, which were recently deemed exhausted in another Supreme Court case. With most of the remaining justices indicating they favour the clear-cut case for exhaustion as well, the aftermarket may soon have these impediments to domestic and international commerce removed”, Judge joking that “the sticker market will probably have to look elsewhere for its boost”.

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