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Federal Circuit Declines to Disturb Established Precedent Regarding the Exhaustion of Patent Rights

On February 12, 2016, the Federal Circuit Court of Appeals issued a decision confirming two important aspects of the doctrine of patent exhaustion in the anticipated en banc decision in Lexmark Int’l, Inc. v. Impression Prods., Inc., Nos. 14-1617, -1619 (slip op.) (Fed. Cir. Feb. 12, 2016) (“Lexmark”). In a lengthy 10-2 decision, the court reaffirmed its prior decisions in Mallinckrodt and Jazz Photo. The first of these cases determined that post-sale limits on the use and resale of a product practicing a patented invention are permissible, and the second concluded that foreign sales of such a product do not exhaust a patentee’s U.S. rights to exclude. On Friday, the court declined to disturb these prior decisions in an important affirmation of a patentee’s U.S. patent rights.

In confirming that the 24-year-old Mallinckrodt decision got it right, the court rejected the contention that all sales by a patentee exhausts its rights as to the product sold, and compared direct sales by a licensee to a bilateral license agreement with the purchaser. The court distinguished the Supreme Court’s Quanta decision and relied on longstanding precedent that a patentee may, through restrictions on its licensees, limit the rights of downstream purchasers. In so holding, Judge Taranto, writing for the majority, explained that a patentee’s own sale of the patented article—instead of leaving the manufacture and sale of the article to others pursuant to a license—could not exhaust the patentee’s right to impose downstream restrictions.

The court also concluded that an extraterritorial sale of a patented good does not strip the patentee of its rights to restrict the claimed invention’s import into, or its sale or use within, the United States. This is because “a foreign market under foreign sovereign control [is] not equivalent to the U.S. markets under U.S. control.” Sale by a patentee within the United States “presumptively exhausts its rights in the article sold”—but the same presumption cannot be applied to foreign sales. The Federal Circuit accordingly rejected the defendants’ suggestion that the Supreme Court’s decision in Kirtsaeng, which assessed the effect of foreign sales on copyright protections under 17 U.S.C. § 109(a), should nonetheless govern a patent infringement dispute. In doing so, the court emphasized its 2001 pronouncement in Jazz Photo that foreign sales do not exhaust domestic patent rights.

This decision represents an important and substantial reaffirmation of long-settled Federal Circuit precedent regarding a patentee’s rights. Lexmark upholds both a patentee’s rights to limit post-sale, downstream use of its patented invention, and also recognizes established notions of domestic sovereignty over intellectual property protections. If it is appealed, observers will anxiously await the Supreme Court’s decision whether to review the Federal Circuit’s reasoning and result.

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About this Author

James Wodarski IP Litigation Attorney Mintz Levin
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Jim is a seasoned trial lawyer who concentrates his practice on intellectual property litigation. He skillfully represents clients in federal district and appellate courts, including the US Court of Appeals for the Federal Circuit, as well as the International Trade Commission. He handles disputes involving smartphones, core processor circuits, digital imaging software, telecommunications devices, and LED lighting systems, and many other technologies. And he has more than two decades of experience with complex civil litigation, including insurance, securities, and First...

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 Andrew H. DeVoogd Member Boston Mintz Patent Litigation Licensing & Technology Transactions International Trade Commission Strategic IP Monetization & Licensing Federal District Court IP Due Diligence
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Drew is an experienced patent litigator and trial attorney whose work encompasses a broad range of technologies. He regularly represents clients in high stakes International Trade Commission investigations involving some of the world's largest technology companies. He also litigates patent matters and other business disputes in federal district courts around the country, and advises clients in complex IP licensing and related transactions. Drew excels at helping clients make sense of nuanced legal issues while developing effective strategies to protect and leverage their intellectual property. 

Drew focuses his intellectual property practice in patent litigation, with an emphasis on Section 337 investigations in the International Trade Commission. Drew has participated in all phases of numerous ITC investigations involving some of the largest technology companies in the world. He has first-chair trial and strategy experience during multiple ITC evidentiary hearings, and regularly leads large litigation teams through fast-paced ITC investigations. Drew has also litigated patent infringement and trade secret cases and other complex business disputes in federal district courts across the country.  He has successfully argued on behalf of his clients during multiple Markman claim construction hearings, as well as on all manner of discovery, pretrial, and other motions, before the ITC and federal district courts.

In addition, Drew provides strategic counseling to help clients protect and leverage IP rights to maximize their value. Drew has participated in negotiating and closing numerous complex IP licensing and sale transactions, including elaborate multiparty agreements involving thousands of patents, as well as conducting pre-suit and transactional diligence relating to large portfolios of U.S. and foreign intellectual property assets. He also advises clients on trademark protection and related disputes.

Drew has worked in diverse technology areas such as embedded microprocessors, liquid crystal displays, graphics processors, consumer telecommunications systems, converged devices and related software and operating systems, mobile communications infrastructure, DDR4-compliant memory modules and their components, memory controllers, LED-based lighting systems, thermoplastics, electrical motors, and biochemical assays.

Drew is a member of the firm’s Pro Bono Committee. His own pro bono work includes representing asylum-seekers, as well as clients of the Mintz Domestic Violence Program in obtaining and extending 209A abuse prevention orders on behalf of victims of domestic violence and sexual assault, including on appeal.

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