En banc Federal Circuit to revisit Mallinckrodt and Jazz Photo in view of Supreme Court decisions in Quanta and Kirtsaeng
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- In Quanta Computer, Inc. v. LG Electronics, Inc. (2008), the Supreme Court held that an unrestricted sale exhausted a U.S. patent, while in Mallinckrodt, the Federal Circuit earlier held that a single use sale did not exhaust a U.S. patent
- In Kirtsaeng v. Wiley (2013) the Supreme Court held that a copyright was exhausted by a foreign sale, while in Jazz Photo Corp. v. International Trade Commission, the Federal Circuit earlier held that a foreign sale did not exhaust a U.S. patent
Lexmark sells printers and derives profits from replacement cartridges for Lexmark printers. Lexmark customers have a choice when purchasing a replacement cartridge. They can buy a cartridge under a No-Return Program at full price without any use limitations, or buy a return cartridge at a discount under a Return Program, in which the customer agrees to use the cartridge only once.
Lexmark sued several defendants for patent infringement for use of toner cartridges sold under the Return Program. Impression asserted non-infringement of U.S. and international sales under the doctrine of patent exhaustion.
In the case, Lexmark International v. Impression Products, the lower court accepted Impression’s contention that the Supreme Court decision in Quanta (which addressed an unrestricted sale) implicitly overturned the Federal Circuit 1992 Mallinckrodt decision that held a single-use restriction does not exhaust the patent. The court entered a stipulated judgment of non-infringement in favor of Impression as to Return Program cartridges first sold inside the United States.
However, the lower court rejected Impression’s contention that the Supreme Court decision in Kirtsaeng (which held that a copyright sale outside the U.S. exhausted U.S. copyright) implicitly overturned the Federal Circuit Jazz Photo decision that a sale outside the U.S. does not exhaust the U.S. patent. The court held that Kirtsaeng construed a provision of the Copyright Act while Jazz Photo was a decision under the Patent Act. Thus, in Lexmark v. Impression, the court entered a stipulated judgment of infringement in favor of Lexmark as to cartridges first sold outside the United States.
Given that seminal Federal Circuit jurisprudence in both Mallinckrodt and Jazz Photo decisions are under attack on appeal, it is not surprising that the Federal Circuit agreed to hear the appeal and to hear it en banc. To do otherwise would risk making the Lexmark case yet another in a string of Federal Circuit decisions that have not fared so well at the Supreme Court. Guidance by recent Supreme Court precedent provides important clues as to how Lexmark v. Impression should be decided. If the Federal Circuit fails to act on this guidance, the Supreme Court in all likelihood most certainly will.
Quanta may not overrule Mallinckrodt as Impression contends, since Quanta applies to unrestricted sales and the sales in Lexmark are restricted. Moreover, in the Supreme Court case of Illinois Tool Works Inc. v. Independent Ink, Inc. (2006), the Supreme Court unanimously held that tying unpatented ink to patented printheads is not a per se antitrust violation. Albeit decided in the context of illegal tying and monopolization and not exhaustion, if in Illinois Tool the Supreme Court was not offended by a sale that restricts a buyer of a patented printhead and patented ink container for use only with unpatented ink purchased from the patent holder, it is hard to imagine that the Supreme Court would be offended by Lexmark’s sale that similarly restricts a buyer of a purchased cartridge in the Return Program to use the cartridge only with Lexmark ink. Especially, where Lexmark has given its customers an option to buy the cartridges at a higher price under a No-Return Program.
Under both Return and No-Return Programs, the customers appear to have clearly understood and contractually accepted specific “reasonable and intended uses” of the cartridges as required by Quanta. There should further be no exhaustion where, as here, the patent holder has, by the reduced contract price of the cartridge in the Return Program, not parted with and hence not exhausted the full value of his patent as reflected by the contract price of the cartridge in the No-Return Program. Under these circumstances, the specific-use restriction under the Return Program appears to neither run afoul of patent exhaustion nor be unreasonable.
Kirtsaeng, however, can be construed to overrule Jazz Photo. Despite being decided as a copyright and not a right under a patent, it is hard to imagine why the Supreme Court would not have the same concerns of an international sale on patent exhaustion as it did on the exhaustion of the copyright in Kirtsaeng.
For example, that entities who have purchased cartridges sold abroad would have to ensure that those cartridges were imported with permission; that a tourist who buys a cartridge in Paris “might find that she had violated the patent law”; that the patented cartridge in printers “would prevent the resale of … a printer … without the permission of the holder of the patent”; and that entities might have difficulty in using foreign-produced products.
However, any overrule of Jazz Photo should not result in exhaustion of foreign sales to foreign resellers and end-users contractually bound to the same one-use restriction to which resellers and end-users in the U.S. are bound. Under those circumstances, foreign sales should not be exhausted under Mallinckrodt.
Treatment by the Federal Circuit and the Supreme Court of Kirtsaeng in deciding the issue of patent exhaustion in Lexmark could be especially important in providing a litmus test on cross-over that may be appropriate between copyright and patent jurisprudence as to similar principles woven into the two.
This may allow developments in one body of law to accelerate the development of the law of another body on similar points. Just as the Supreme Court may one day look to Kirtsaeng in deciding patent exhaustion involving international patent sales so too the Court may one day look to its jurisprudence on patent eligible subject matter under 35 U.S.C. §101 as promulgated in Alice v. CLS Bank, Prometheus, Myriad, and Bilski in helping decide what is copyright eligible subject matter under 17 U.S.C. §102. For more insight on this question, see Marvin Gaye blog.
About Paul R. Juhasz