AAI Argues Federal Circuit Should Overturn Precedents That Restrict Patent Exhaustion (Lexmark Int’l v. Impression Products)

The American Antitrust Institute (AAI) filed an amicus brief with 24 law professors urging the Federal Circuit Court of Appeals to reverse two Federal Circuit precedents restricting the patent exhaustion doctrine.

The patent exhaustion, or “first sale,” doctrine provides that the authorized sale of a patented product exhausts the patent holder’s patent rights, and prohibits suits against downstream users for patent infringement.

The AAI has long recognized the important role the exhaustion doctrine plays in facilitating competition in product markets driven by intellectual property, including aftermarkets.  In 2007, the AAI filed a successful brief in the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc. urging the Court to reaffirm a robust application of the doctrine.

In the case at hand, the district court held that the patent exhaustion doctrine prevented Lexmark, a printer manufacturer, from bringing patent infringement actions against a cartridge remanufacturer for reusing Lexmark toner cartridges obtained from consumers in violation of Lexmark’s “single use” notice.  At the same time, the district court held that patent exhaustion did not apply to Lexmark toner cartridges first sold abroad.

The Federal Circuit ordered the appeal in the first instance to be heard en banc and requested briefs on whether it should reverse prior cases holding that the exhaustion doctrine is not triggered when the first authorized sale is outside the United States and that the doctrine does not apply to “conditional” sales.  The amicus brief argues that those cases are inconsistent with recent Supreme Court precedent, including Quanta.  The brief maintains that if a conditional sale creates a binding contract then a patent holder may have contractual, but not patent, remedies.

The brief was written by Phil Malone and Jef Pearlman of the Stanford Law School intellectual property and innovation clinic.