Supreme Court Limits Patent Rights

One of the hallmarks of a successful business is protections on an invention which provide a barrier to competition beyond just money–a patent. Whether you’re an inventor or an entrepreneur, intellectual property protection is close to the heart of your livelihood. Keeping track of what these protections offer is crucial, and these last couple weeks has been enormous for patent law rulings out of the US Supreme Court. First, they limited jurisdictions for patent infringement cases substantially-making patent law much more defendant friendly. Even more recently, and more importantly for patent rights, they limited patent’s exclusive rights by applying the first sale doctrine to patent law at home and abroad with more force than ever before.

What is the First Sale Doctrine?

The first sale doctrine is a concept, also known as exhaustion, that is found as part of the statutory law behind copyright law. The rule is fairly simple but requires a bit of an understanding of the rights intellectual property grants you. Owning a copyright in a work gives you the exclusive right to sell (or really distribute in any way), display, make copies of, or make directive works from that work. Out of all of these, the first sale doctrine exclusively impacts the distribution rights. Once you’ve sold something, or even intentionally given it away, you have “exhausted your distribution rights in that particular work. This means that whoever owns the object or work now is free to sell it, put it on display, blow it up with dynamite-basically distribute or dispose of it as they wish. They can’t make copies, you keep that right, but the distribution right is gone after first sale-thus the first sale doctrine. In Impression Products v. Lexmark, the Supreme Court took this concept from copyright law and decided how it should apply in patent.

Laser Printer Losers-The Case Itself

Lexmark makes laser printers and, more importantly for this case, toner cartridges for those printers. These cartridges, once used up, can be much more cheaply refilled than replaced. This left Lexmark with a bit of a problem-an entire market dedicated to underselling their products by refilling and reselling cartridges. These businesses buy up used cartridges from US purchasers and purchasers abroad to resell them after a refill. With these competitors in mind Lexmark offered their product in two ways, at full price with no stipulations or at a lower price along with a promise to return the cartridges to Lexmark. In order to enforce this, Lexmark included microchips in their cartridges to prevent reuse-a measure the refillers promptly learned how to circumvent.

After failing to curb the businesses of these competitors, Lexmark decided to sue all the companies refilling and selling their used cartridges. They had a big problem though, the contract to not resell the cartridges wasn’t with the refillers it was with the clients who sold to the refillers. Thus, with no contract to assert, Lexmark said that these refillers were infringing on their patent rights.

A patent gives its owners the right to exclude others from making, using, selling, or importing the invention. Lexmark said that because they prohibited reuse and resale in their contracts, the refillers were violating their distribution rights. By the time the case reached the Supreme  Court, there were two serious questions to be addressed. First, whether the contract term could be enforced against the refillers through a patent infringement lawsuit. Second, whethand for patent rights abroad, the answers were no and yes respectively.

What the Decision Does

Case law has long established that exhaustion can apply in patent similar to how it does in copyright law. With this and some recent Supreme Court rulings in mind, the outlook was never particularly good for Lexmark.

As enforceable as their no sale agreements were under contract law, the Supreme Court wasn’t buying it under patent law. The argument, and Lexmark’s hope, was that by selling something with a restriction against further sale they had preserved their first sale rights. This isn’t the case according to the Supreme Court, you can’t contract around the first sale doctrine. Once you sell something

Exhaustion abroad is something the Supreme Court has already addressed for copyright law-and they didn’t go the way Lexmark would want in that case. So it’s no surprise that they followed their own previous ruling in applying exhaustion to patent. From now on selling something outside the US officially counts as a sale under the first sale doctrine and exhausts your distribution right.

These rulings mean that patent rights have been limited, more strictly applying the first sale doctrine to your patents than ever before. However, for those following intellectual property law, this ruling has been more a matter of when than if. The Supreme Court was simply consistent with how it’s handled copyright law in the past.

It’s worth noting that a license is not a sale and that exhaustion applies only to the item actually sold.  This will limit this ruling for many common items such as software or iTunes songs as you more often license these products than actually purchase them.

What’s more, the ruling skirts around the edges of a few other areas of law. Anti-circumvention makes it illegal to, as the name implies, circumvent effective security measures such as the microchips Lexmark installed in their cartridges. Repair and reconstruction is a distinction within patent law. You are allowed to repair an object with a patent on it, but full reconstruction can cross into the territory of patent infringement. While both of these might have applied in this case, neither were considered by the Supreme Court whatsoever.

This ruling will mean that you and your business need to be more careful about how you handle sales if you want to protect your distribution rights in something. There are ways to maintain your rights, depending on how you distribute your product. After this ruling, it’s more important than ever to consider how you’re going to handle your rights and your product.