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On February 12, 2016, the Federal Circuit issued its en banc opinion in Lexmark v. Impression Products.
Lexmark, a manufacturer of printers and toner cartridges, sued Impression Products and other competitors, asserting infringement of Lexmark's patents by acquiring, refilling, and selling used cartridges. Impression obtained and refilled used Lexmark cartridges that were sold outside the United States, as well as cartridges sold under Lexmark’s “Return Program” (which allows customers to purchase patented Lexmark cartridges at a discount in exchange for agreeing to use the cartridge only once and then return the empty cartridge to Lexmark).
Impression contended that the restrictions under Lexmark’s Return Program were unenforceable because Lexmark’s patent rights were exhausted upon the initial sale under the Supreme Court's decision in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008). Lexmark, on the other hand, argued that Quanta did not create a blanket rule against all post-sale restrictions, and that the sale of a patent product under a single-use restriction did not exhaust the seller’s patent rights under the Federal Circuit's earlier 1992 decision in Mallinckrodt, Inc. v. Medipart, Inc..
As for the Lexmark toner cartridges sold outside of the U.S., Impression argued that the Federal Circuit's 2001 decision in Jazz Photo Corp. v. United States International Trade Commission that patent exhaustion only applies to an authorized first sale within the U.S., was overruled by the Supreme Court's 2012 decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013), that the Copyright Act’s “first sale” doctrine was not so geographically limited.
The en banc Federal Circuit, however, held that:
First, we adhere to the holding of Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), that a patentee, when selling a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. Such resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. [And distinguishing the Supreme Court’s decision in Quanta as a sale made by a separate manufacturer under a patent license conferring an unrestricted authority to sell, and not a sale made by the patentee itself].
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Second, we adhere to the holding of Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), that a U.S. patentee, merely by selling or authorizing the sale of a U.S.-patented article abroad, does not authorize the buyer to import the article and sell and use it in the United States, which are infringing acts in the absence of patentee-conferred authority. Jazz Photo’s no-exhaustion ruling recognizes that foreign markets under foreign sovereign control are not equivalent to the U.S. markets under U.S. control in which a U.S. patentee’s sale presumptively exhausts its rights in the article sold. A buyer may still rely on a foreign sale as a defense to infringement, but only by establishing an express or implied license—a defense separate from exhaustion, as Quanta holds—based on patentee communications or other circumstances of the sale. [And distinguishing the Supreme Court’s decision in Kirtsaeng as a copyright case under 17 U.S.C. § 109(a) which has no counterpart to that provision in the Patent Act].
Judge Dyk, joined by Judge Hughes, dissented, writing that:
... Mallinckrodt was wrong when decided, and in any event cannot be reconciled with the Supreme Court’s recent decision in [Quanta]. We exceed our role as a subordinate court by declining to follow the explicit domestic exhaustion rule announced by the Supreme Court.
The dissent also argued that while a foreign sale does not in all circumstances lead to exhaustion of United States patent rights, "a foreign sale does result in exhaustion if an authorized seller has not explicitly reserved the United States patent rights."