AAI Asks Supreme Court to Hear Exhaustion Case (Impression Products, Inc. v. Lexmark International, Inc.)

The American Antitrust Institute (AAI) filed an amicus brief with a group of law professors urging the Supreme Court to grant certiorari and reverse a Federal Circuit Court of Appeals decision that sharply restricts 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.

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.

In an en banc decision, the Federal Circuit reversed and reaffirmed its prior decisions holding that the exhaustion doctrine does not apply to “conditional” sales; nor is it triggered when the first authorized sale is outside the United States.  The amicus brief argues that Federal Circuit ruling is inconsistent with recent Supreme Court precedent and threatens to undermine the competitive benefits that the exhaustion doctrine promotes.  In particular, the brief maintains that the “conditional sale” doctrine not only clogs commerce in patented products, but permits manufacturers to sue consumers for willful patent infringement for violating conditions printed on a product package.

The AAI had joined with the professors to file a brief in the Federal Circuit urging the court to uphold the district court’s decision.  It 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.

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