IP Newsflash

The Federal Circuit has ruled that neither the exhaustion nor permissible repair doctrines allow manufacture of new replacement components covered by design patents.

A district court in the Western District of Washington denied Adaptics Ltd.’s (“Adaptics”) motion for summary judgment of patent exhaustion, which was based on a theory that an authorized sale by a downstream reseller can exhaust patent rights against an upstream manufacturer. The plaintiff, Perfect Company (“Perfect”), alleged that two of Adaptics’ app-based products infringed Perfect’s U.S. Patents No. 8.829,365 and No. 9,772,217. Perfect also sued Apple Inc. (“Apple”), alleging that Apple’s sale of Adaptics’ products infringed the same patents.

On December 2, 2016, the Supreme Court granted certiorari in a case regarding the scope of patent exhaustion, including whether foreign sales exhaust U.S. patent rights and if post-sale restrictions on patented items are permissible. Impression Products, Inc. v. Lexmark International, Inc., 15-1189. The Court’s resolution of this case may have important implications for global commerce and secondary markets of patented products.

In a long-awaited en banc decision, the Federal Circuit ruled that the patent exhaustion doctrine does not apply to (1) initial sales with a single-use/no-resale restriction, or (2) foreign sales, whether restricted or not. In doing so, the court found that the Supreme Court’s Quanta and Kirtsaeng decisions did not overrule Federal Circuit precedent.

Lexmark sold its printer cartridges in the U.S. and abroad. Some of the foreign-sold cartridges and all of the U.S.-sold cartridges were sold subject to a “single-use/no-resale restriction.” Impression acquired and modified Lexmark’s cartridges for resale in violation of the Lexmark restriction. Impression not only resold the U.S. cartridges but imported the foreign-sold Lexmark cartridges for resale in the U.S.

On April 14, 2015, the Federal Circuit issued a precedential order pursuant to Fed. R. App. P. 35(a) ordering that the pending appeal in Lexmark International, Inc. v. Impression Products, Inc., be heard en banc.