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ENTERPRISE PROCUREMENT ALERT | The Enterprise Procurement Group Update | 18 July 2017

An Enterprise Procurement Group Alert

By: Enterprise Procurement Practice Group

07/19/17

The Supreme Court often renders highly publicized rulings with profound social impact.

However, there are many less publicized Supreme Court rulings that significantly affect commercial and intellectual property rights. One such ruling was recently issued in Impression Products, Inc. v. Lexmark International, Inc.  In that case, the Supreme Court held that a patent holder’s decision to sell a product, inside or outside the U.S., exhausts all of its patent rights in that item, regardless of any restrictions the patent holder purports to impose by contract. 

Lexmark International, Inc. (“Lexmark”) designed, manufactured, and sold printer toner cartridges to consumers in the U.S. and around the globe.  It owned a number of patents that covered components of the cartridges and the manner in which they are used.  When toner cartridges run of out toner they can be refilled and used again.  Impression Products acquired empty Lexmark cartridges from purchasers in the U.S. and abroad, refilled them with toner, and then resold them at a lower price than the new ones sold by Lexmark.  Lexmark sued Impression Products for patent infringement.  The Supreme Court ruled that:

“…Lexmark exhausted its patent rights in these cartridges the moment it sold them.  The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.”

The importance of this ruling extends far beyond toner cartridges.  The ruling allows retailers and others to purchase goods at the cheapest price worldwide, and then resell them to customers in the U.S., assuming no other applicable law restricts or prohibits such activities.  Patent holders may be able to craft post-sale restrictions that could be enforceable against the initial purchaser under contract law. However, whatever rights a patent holder retains under such contracts are a matter of the enforceability of those contracts, not patent law.