PATEnT EXHAuSTiOn RuLing iMPACTS vALuE
Intellectual Property Section Chairs : Debra D . Larsen - GrayRobinson , P . A . & Cole Carlson - GrayRobinson , P . A .
Purchasers may pay higher prices to offset the costs of the growing gray markets .
© Can Stock Photo / bedo
Once you purchase a product , do what you want with it ! That statement is the result of Impression Products , Inc . v . Lexmark Int ’ l , Inc ., 137 S . Ct . 1523 ( 2017 ), where the U . S . Supreme Court examined the applicability of the doctrine of patent exhaustion . Patent exhaustion basically states that a patent owner loses all rights to a patented product once it is sold . In Impression Products , the Court was presented with two issues : ( 1 ) whether a patent owner can use a patent infringement suit to enforce contractual restrictions on the purchaser ’ s right to resell or reuse the patented product ; and ( 2 ) whether a patent owner exhausts its patent rights by selling the product in a foreign country . Id . at 1529 .
Historically , a patent owner was allowed to sue for patent infringement when it attached contractual restrictions to a purchaser ’ s subsequent use or sale of a patented product and then that purchaser violated those restrictions . See Mallinckrodt , Inc ., v . Medipart , Inc ., 976 F . 2d 700 , 709 ( Fed . Cir . 1992 ). A patent owner
also retained the ability to bring a patent infringement suit against a purchaser who imported the product and sold it within the United States . See Jazz Photo Corp . v . International Trade Commission , 264 F . 3d 1094 ( Fed . Cir . 2001 ). Thus , before Impression Products , the patent owner had more control than the purchaser .
But in an 8-0 decision on the issue of contractual obligations and a 7-1 decision on the issue of foreign sales ( Justice Ginsberg dissented ), the Court held that “ a [ patent owner ’ s ] decision to sell a product exhausts all of its patent rights in that item , regardless of any restrictions the [ patent owner ] purports to impose or the location of the sale .” Impression Products , 137 S . Ct . at 1529 . That is , the doctrine of patent exhaustion applies to products that are sold regardless of any restrictions the patent owner imposes or the location of the sale . The Court reasoned that the doctrine applied to both issues because at its essence , the exhaustion doctrine “ marks the point where patent rights yield to the common law principle against restraints on alienation .” Id . at 1531 .
The Impression Products decision is a massive win for purchasers , and a new obstacle for patent owners . Many business models will change . For example , pharmaceutical companies typically charge higher drug prices domestically compared to internationally , which will likely facilitate the development of “ grey markets ,” meaning sales initially made abroad will be resold domestically at dramatically reduced costs . It is thus likely that patents will become devalued as the incentive to innovate will be stifled by the reality of smaller profits .
So , while the purchaser is the immediate victor in the Impression Products decision , the larger patent owners may eventually structure their pricing scheme to be uniform throughout the industry . That is , purchasers may pay higher prices to offset the costs of the growing grey markets . Interestingly , the Impression Products decision largely impacts the pharmaceutical industry at a time when domestic drug prices are a fiery topic for political debate . Coincidence ?
Author : Cole Carlson - GrayRobinson , P . A .
Check at HCBA on Social Media ! HCBA is now on Facebook , Instagram , Twitter and LinkedIn .
2 8 N O V - D E C 2 0 1 7 | H C B A L A W Y E R