U.S. Supreme Court: Selling Product Exhausts Patent

U.S. Supreme Court: Selling Product Exhausts Patent

Marilyn Odendahl for www.theindianalawyer.com

In a decision that Zimmer Biomet and other medical device manufacturers argued will change their industry, the Supreme Court of the United States ruled Tuesday that patent holders cannot keep their patent protections after they sell their products.

The case, Impression Products, Inc. v. Lexmark International, Inc., 15-1189, started when Lexmark filed a patent infringement complaint against Impression for refilling and reselling its used ink cartridges. The Federal Circuit Court of Appeals found since Lexmark had explicit restrictions prohibiting refurbishing and reselling its cartridges, its patent rights were not exhausted when it sold the items.

However, the Supreme Court disagreed. It held Lexmark lost its exclusive rights once the sale of the product was completed.

“The Patent Act promotes innovation by allowing inventors to secure the financial rewards for their inventions,” Chief Justice John Roberts wrote for the majority. “Once a patentee sells an item, it has secured that reward, and the patent laws provide no basis for restraining the use and enjoyment of the product.”

Zimmer Biomet Holdings Inc., based in Warsaw, Indiana, and Medtronic PLC, filed an amicus curiae brief in support of Lexmark.They asserted that patent protections serve to guard against the risks posed by remanufacturers who reprocess and then sell medical devices that are designed for only one use. The third-party may not have cleaning instructions and may be unaware of design changes that make the device more compatible with other medical equipment.

The Medical Device Manufacturers Association, which also filed an amicus curiae brief in support of Lexmark, disputed Impression’s claim that manufacturers are imposing reselling restrictions in order to increase their profitability. The association pointed to patient safety, asserting the medical device manufacturers have used the conditional-sale doctrine to help ensure compliance with performance and safety standards.

Zimmer Biomet and Medtronic disputed the reprocessing industry’s contention that reusing provides a lower-cost alternative and that allowing infringement lawsuits would end the secondary markets for used products. Devices designed to be used again are already available, which gives the remanufacturers an avenue to maintain their businesses by servicing reusable medical equipment, Zimmer and Medtronic argued. Removing patent remedies will increase the frequency of single-use products being reprocessed, putting patients and the current market at risk.

Paul Stewart, partner at Knobbe Martens Olson & Bear LLP in California, expects the market will change in “fairly short order” in response to the Supreme Court’s ruling. More companies reprocessing patented products will enter the market.

Stewart served as counsel of record on the Medical Device Manufacturers Association’s amicus brief.  Chief legal counsel for Zimmer Biomet, Joseph Topmiller and the counsel of record for the brief submitted by Zimmer and Medtronic, Kathleen Daley of Finnegan Henderson Farabow Garrett & Dunner LLP in New York, did not return calls seeking comment.

The Supreme Court cited multiple precedents in reaching its decision. Those same precedents have been referred to by the Federal Circuit Court of Appeals for decades but in this case, the justices took a different reading of the past rulings.

“In all candor, I wasn’t that surprised because there are a lot of very old Supreme Court precedent that had language in them that could be interpreted in the way the Supreme Court interpreted them,” Stewart said of the decision in Impression v. Lexmark.

Patent holders will still be able to use contract law to enforce any restrictions on resales but, as Stewart noted, that could pose new difficulties. Namely, the manufacturers would essentially be bringing legal action against the purchasers who are also their customers, which they might be reluctant to do.

Eight justices voted as Justice Neil Gorsuch did not take part in the decision. Chief Justice John Roberts delivered the opinion.

Justice Ruth Bader Ginsburg concurred with the majority’s decision as it pertains to domestic sales but dissented on the finding that U.S. patent protections are exhausted during foreign sales.

To reach its decision on international exhaustion, the majority pointed to Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 525 (2013), which found foreign sales exhaust U.S. copyright protections. However, Ginsburg does not believe the case applies because patent law, unlike copyright, has not been harmonized between countries. She argued U.S. patent protections are not recognized abroad. For such protection, an inventor or manufacturer must apply to each country for the exclusive right to sell their products.