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  • Monday, June 12, 2017 3:00 PM | IIPLA Team (Administrator)

    The Supreme Court Redefines Patent Exhaustion

    Michael Q. Lee, Paul A. Ainsworth, and Krishan Thakker

    In Impression Products, Inc. v. Lexmark International, Inc., No. 15-1189 (U.S. May 30, 2017), the Supreme Court fundamentally changed patent licensing in the United States by eliminating a key limitation on patent exhaustion, and eliminating the distinction between U.S. and foreign sales. Impression addressed two issues: (1) “whether a patentee that sells an item under an express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit” (Id., Slip Op. at 1), and (2) “whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.” (Id. at 2.) In its decision, the Court overruled the Federal Circuit on both issues.

    The ruling is expected to demystify the “cloud of uncertainty” for downstream purchasers/licensees and end-users of patented components in the global market who risked continuing liability for infringement even after authorized sales to consumers occurred. But for other businesses, the ruling could hamper investment in R&D and innovation because of the limits placed on a patent owner’s ability to obtain fair value for its intellectual property.

    Post-Sale Restrictions Do Not Avoid Patent Exhaustion

    In Impression, the Supreme Court held that the sale of a patented good exhausts all patent rights in the good even where the product is sold subject to a lawful, and clearly communicated restriction on re-sale. In this case, Lexmark sold patented ink cartridges under a customer “Return Program,” that provided for a significant price discount under the condition that buyers use the cartridges only once, and refrain from transferring the spent cartridges to anyone but Lexmark. Lexmark brought suit after Impression refilled and resold spent “Return Program” cartridges.

    The Supreme Court held that 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.” (Id. at 5.) The Court reasoned that its decision is consistent with the “well-established exhaustion rule [that] marks the point where patent rights yield to the common law principle against restraints on alienation” (Id. at 6), and provided an example of “a shop that restores and sells used cars. The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale.” (Id. at 7.)

    The Court characterized its decision as “long held” (Id. at 8), and stated its “recent decision in Quanta Computer, Inc. v. LG Electronics, Inc. settled the matter.” (Id. at 9.) But the Quanta decision is far from clear on this point. Unlike Lexmark, Quanta involved an unrestricted license grant. Quanta, 553 U.S. 617, 636 (2008). The Impression Court characterized Quanta as involving “contracts requiring purchasers to use those processors with other parts that the company manufactured” (Impression, Slip Op. at 9), but practitioners and commentators – as well as the Court itself in Quanta – characterized those provisions as no more than notice provisions. Quanta, 553 U.S. at 636. This was particularly the case since the contracts at issue specified that breach of the notice provision would not be grounds for termination. Id. at 623-624, 636-637.

    After Impression, it may be more difficult for a patentee to spread the cost of its technology among different entities in the stream of commerce, or to leverage its technology in different business silos. The Court’s suggestion—to use contract law rather than patent law to enforce post-sale restrictions—presents additional challenges not the least of which is the possible lack of privity with downstream buyers.

    Even before the Court’s decision, practitioners were considering possible workarounds to avoid patent exhaustion, such as “covenant-to-sue-last” provisions. But the viability of those workarounds is unclear given the scope of the Court’s holding, as well as Federal Circuit precedent equating a covenant-not-to-sue with a patent license for purposes of patent exhaustion. See Transcore v. Electronic Transaction Consultants Corp., 563 F.3d. 1271 (Fed. Cir. 2009). It is more likely that patentees will take steps to establish privity with downstream purchasers. This may be transactionally difficult, however, and not possible for existing license agreements.

    Sales Outside the United States Exhaust U.S. Patent Rights

    Also in Impression, the Supreme Court held that authorized foreign sales of patented articles likewise exhaust the patentee’s U.S. patents. The Impression Court’s decision is aligned with the Supreme Court’s earlier decision in Kirtsaeng v. John Wiley & Sons, Inc., 568,U.S. 519 (2013), which held that foreign sales exhausted U.S. copyrights. Indeed, the Supreme Court cited Kirstaeng in support of its reasoning, stating that “[applying] patent exhaustion to foreign sales is just as straightforward.” (Impression, slip op. at 14) The Court was not concerned with the territorial limits of U.S. patents: “Exhaustion is a separate limit on the patent grant, and does not depend on the patentee receiving some undefined premium for selling the right to access the American market. A purchaser buys an item, not patent rights. And exhaustion is triggered by the patentee’s decision to give that item up and receive whatever fee it decides is appropriate.” (Id. at 15)

    The Court’s holding may result in companies increasing foreign prices to match those in the U.S. This may be especially true with patented products that can be easily imported into the U.S., such as pharmaceutical products, consumer products and electrical components. The Court’s decision also opens the door to compulsory licenses in foreign countries, that would effectively negate US patent rights. The Court seemed to acknowledge this possible consequence but remained unconcerned by the consequences: “The patentee may not be able to command the same amount for its products abroad as it does in the United States. But the Patent Act does not guarantee a particular price, much less the price from selling to American consumers.” (Id. at 15)

    Michael Q. Lee, Director

    Paul A. Ainsworth, Director

    Krishan Thakker, Associate

  • Monday, June 05, 2017 4:00 PM | IIPLA Team (Administrator)

    About The Author

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    Intellectual property is also regarded as IP law; include intangible creations of the mind. It protects creations by granting patents, copyright, and trademarks.

    The basis for legal protection may be that the creator has the right to own it. The theory is that it promotes further innovation for the benefit of society. Like all property rights, IP law allows the owners to gain from their work and investment in the creation.

    Intellectual property includes patents, trademarks, copyrights, registered designs and design rights. Some IP rights (such as patents, trademarks, and designs) require official ownership registration in the Intellectual Property Office, providing owners with protection and monopoly rights. Others such as copyright and design rights will automatically arise upon creation but do not protect a third party’s independent creation – only from copying. 

    Of course, intellectual property rights, protect the expression of ideas, not the ideas themselves, as a first step, it is important that appropriate confidentiality measures are made to ensure that negotiations with various parties from the beginning are protected and never disclosed.

    Intellectual property rights differ regarding duration and methods, but the effect is to make sure that the owner has the exclusive right to use and decide how to use those rights and to prevent the second part from using the same rights.

    A patent protects a new invention and has industrial applications. This allows the holder of a patent to use the invention to simplify business processes, gain competitive advantage and increase revenue by licensing or selling the patent to the third party.

    Copyright protects original literary works (for example, computer programs, and instruction manual), musical works, dramatic works of art (such as logos, maps, architectural drawings, prints, photographs and architectural works). The copyright owner is the first author of the copyrighted work. So, if you contact Law Firm Abu Dhabi orConstruction Lawyerto carry out survey, write a report, create a website or a piece of software that parties own the copyright, even if you have paid for it. However, copyright does not protect ideas.

    Trademark is a sign that can distinguish the goods or services of one merchant from another. A sign includes words, logos, images, or a combination of them. A sign to be registered must be different, not misleading and not similar or identical to any earlier marks for the same goods and services.  Keep in mind that simple registration of your company with the Companies’ House does not guarantee trademark protection. Similarly, if you have a website, you must have a trademark as a domain name and vice versa.

    Creating awareness of IP law among the people is essential for maximizing the value of intellectual property and the wealth of your business and reducing the possibilities of accidental non-confidential disclosures, which could reduce the demands of a successful patent and a negative impact on the value of their intellectual property and ultimately their companies’ property.

    Regular training of people on intellectual property is essential and should include the following:

    • How to Identify and Protect Intellectual Property;
    • How patents are used to improve technology;
    • Understanding the patent process,
    • How confidential information are to be treated;
    • Intellectual Property record keeping, including Lab Log and Intellectual Property Protection; and
    • Who to contact in case of need.

  • Saturday, April 08, 2017 11:59 PM | Azam Ghani (Administrator)
    Over the past few days, you may have heard some chatter about ‘IP Czar’ nomination. No surprising.

    Vishal J. Amin, Senior Counsel on the House Judiciary Committee, has been nominated by President Trump as the next White House Intellectual Property Enforcement Coordinator. Amin will be part of Executive office of the President. After confirmation, Amin would succeed Daniel Marti, who handled the responsibility of the IP Enforcement Coordinator during the President Obama’s second regime.

    On behalf of International Intellectual Property Law Association (IIPLA), in the capacity of Director, I welcome his nomination.

    Amin is not new to the government of the United States. He served at various positions in the administration of President George W Bush at the White House, including:
    • Associate Director for Domestic Policy,
    • Special Assistant at the US Department of Commerce and
    • Associate Director for Policy in the Office of the Secretary.

    We believe thoughtful contemplation and prompt appointment for this position is critical for the Intellectual Property Industry. Vishal is smart thoughtful leader and we commend President Trump for his choice.

    Azam Ghani,
    Founder Director, International Intellectual Property Law Association (IIPLA).
    CEO, Menteso, Inc. (

  • Monday, June 06, 2016 8:00 AM | Azam Ghani (Administrator)

    San Jose/London, June 6, 2016.

    USPTO Deputy Commissioner, Mr. Mark Powell, attending IIPLA 2nd Global IP Summit 2016 London at The Law Society of England and Wales on June 6, 2016.

    IIPLA's 2nd Global IP Summit is being organized for IP lawyers, in-house and external IP counsel, law firm partners, legal service providers, legal outsourcing service executives, policy makers, IP service buyers and investors in the IP world, along with the stakeholders in the legal and Intellectual Property Industry. The attendees further include educators & learners from global universities.

    IIPLA's 2nd Global IP Summit 2016 is the next step towards the unification of IP trends Worldwide. IIPLA's 2nd Global IP Summit aims to create an International Forum of Intellectual Property for In-house IP lawyers, partners, IP Agencies, Law firms and providers of other services in the  legal industry. IIPLA's 2nd Global IP Summit facilitates exchange of experience & ideas and encourages cross border cooperation. Thus, IIPLA's 2nd Global IP Summit would enrich the participants with IP knowledge, resources and its application in future.

  • Wednesday, July 29, 2015 8:00 AM | Azam Ghani (Administrator)

    Speaker Mark Powell, Deputy Commissioner, Office of International Patent Cooperation, spoke in Session Two: Improving Global Patent Prosecution at IIPLA Global IP Summit 2015 London. For more information, please visit the below USPTO reference:

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