Supreme Court Limits Patent Owners’ Control Over Patented Articles After Authorized Sale

The U.S. Supreme Court issued a significant decision today that largely answers the question of how much control a patent owner can wield over a patented product after it has been sold, holding that a patent owner’s decision to sell a product exhausts all of its patent rights in that product, regardless of any restrictions attached to the sale, or where the product was sold.

In Impression Products, Inc. v. Lexmark International, Inc., the Supreme Court made two significant rulings regarding the scope of “patent exhaustion”, a doctrine which states that a patent owner, upon selling a patented product, relinquishes their patent rights in that article.  In its first ruling, the Supreme Court held that once a patent owner sells a product, that sale exhausts all patent rights in the product, regardless of any post-sale restrictions that the patent owner intended to impose on the purchaser, either directly or through a licensee.  In their second ruling, the Supreme Court held that an authorized sale of a patented product outside of the U.S. exhausts all patent rights in that product, as if that product were sold in the U.S.

The Supreme Court’s decision continues a trend of high court decisions that overturn decisions by the Court of Appeals for the Federal Circuit.  The Federal Circuit had previously held that a patent owner may sell a product and retain the right to enforce clearly communicated and lawful restrictions through patent infringement lawsuits.  The Federal Circuit had also held that when a patent owner sells a product outside of the U.S., that foreign sale does not exhaust its patent rights associated with that product.  In reversing both rulings, the Supreme Court clarified that patent exhaustion is a “uniform and automatic” principle that extinguishes patent rights, and the only recourse for enforcing post-sale restrictions imposed on a purchaser is through a separate action under contract law.  In particular, the Supreme Court held that the Federal Circuit wrongly applied patent exhaustion as “a presumption about the authority that comes along with a sale”; instead, exhaustion is a “limit on the scope of the patentee’s rights.”

The high court’s clarification of patent exhaustion will undoubtedly change both the legal and business landscape for industries who rely on post-sale restrictions to control the resale, use and importation of products after they are sold.  Therefore, patent owners who are concerned about the downstream use, resale or importation of their products will have to consider alternative strategies for protecting their intellectual property, and alternative strategies for negotiating sales and license agreements with third parties, both domestically and internationally.