Printer Case to Test Patent Rights for Refurbished Goods

  • Court hears appeal in dispute over refilled printer cartridges
  • Silicon Valley and Big Pharma take different sides on issue

A lawsuit over used printer cartridges has morphed into a proxy fight pitting Silicon Valley against Big Pharma that could ultimately determine whether consumers can buy refurbished and resold goods -- from car parts to computers.

The case was argued before a dozen judges of the U.S. Court of Appeals for the Federal Circuit on Friday.

The dispute involves inkjet cartridges initially sold by Lexmark International Inc. and then refilled and sold by Impression Products Inc. Lexmark claimed Impression was infringing its patents for the cartridges. Impression claimed Lexmark already got paid once for use of its patented inventions, when the cartridges were first sold, and had exhausted its patent rights.

“It’s part of a multifront effort to scale back manufacturer’s rights to control who repairs and refurbishes products after sale,” said Jacob Kramer, an antitrust lawyer with Bryan Cave in Washington, who is not involved in the case.

Drug, biotech and medical device industries representing such companies as Pfizer Inc. and Johnson & Johnson have weighed in on the case, filing briefs saying they put restrictions on the resale of their products for safety reasons. Smartphone and computer manufacturers including Google Inc. and Samsung Electronics Co. also jumped in, arguing that limits would cause confusion over who gets paid in supply chain for complex electronics.

Refurbished goods appeal to consumers because they can find lower prices and more choices, but “the long-term cost is innovation,” said Kramer said of the case.

U.S., Overseas

A trial judge in Ohio agreed with Impression’s argument, but only when it comes to cartridges initially sold in the U.S. For those sold overseas, the refurbished cartridges were effectively deemed a new product that infringed the U.S. patent rights. Each side is appealing the argument they lost.

Impression, a closely held company based in Charleston, West Virginia, is hanging its appeal on a 2013 Supreme Court decision that allowed the resale of copyrighted materials initially sold abroad. The company contends there is no difference between patent and copyright law.

Not so, argue the drugmakers. They worry that a ruling in favor of Impression on the overseas sales issue would open the door to firms buying cheaper medicines overseas and then shipping them into the U.S. Government price controls and economic issues can mean lower costs in other countries.

HIV Medicines

Circuit Judge Pauline Newman questioned whether drugmakers should lose their rights when selling medicines like HIV drugs in Africa, and whether the court should overturn an older ruling that let medical device makers restrict the use of their products to a single use.

“One rule doesn’t fit all,” she said.

Restrictions on sales can be made through contracts or regulatory means, rather than resorting to patent law, said Impression lawyer Edward O’Connor of Avyno Law in Encino, California.

“If you sell it, you sell it,” he said earlier in the hearing.

Technology companies that includes Google, Intel Corp., Samsung and LG Electronics Inc. say the drug maker’s concerns are overblown, because the U.S. Food and Drug Administration already has strict rules limiting the so-called “re-importation” of medicines by anyone but the manufacturer.

The electronics companies instead focus on the myriad components that go into modern devices, from mobile phones to computers. They say if a patent owner is allowed “multiple bites at the same royalty apple,” it would complicate negotiations and ultimately mean higher prices for consumers.

Patent ‘Exhaustion’

“Once you have the sale, the patent rights are exhausted,” said Andrew Pincus of Mayer Brown in Washington, arguing for the computer companies and retailers.

A victory for Impression also would give a boon to the $318.2 billion after-market for refurbished auto parts, as well as the industry that re-sterilizes and repairs orthopedic devices.

Lexington, Kentucky-based Lexmark, like other printer companies and makers of razors, sells its main product at a low cost and relies on the sale of essential replacement parts, such as ink cartridges or blades, for its profit. Lexmark contends its entire business model is at stake.

Lexmark has a program where it charges people less money if they agree to return the used cartridges -- a policy the judge said was unenforceable. Medical device manufacturers likewise often put limits on the single use of their products.

“Purchasers get to chose: ‘What bundle of rights do I want to buy?” said Lexmark lawyer Constantine Trela of Sidley Austin in Chicago. “Any user who wants the right to reuse the cartridge can buy it.”

Beyond Printers

The biotechnology and crop science industries say they need to be able to restrict the use of their inventions to recoup the billions of dollars spent on research into new medicines and plants.

“This case goes far beyond printer cartridges or even software and smartphones,” Barbara Fiacco of Foley Hoag in Boston said, speaking on behalf of the biotech and agriculture companies.

The Federal Circuit, which heard the case before all active judges, gave both sides a chance to argue along with Lexmark and Impression. Lawyers representing Google, Intel and Samsung on the one side and the Biotechnology Industry Organization on the other each participated in the arguments. The Obama administration, which sides with Lexmark on some points and not others, also argued.

A decision is not expected for several months.

The case is Lexmark International Inc. v. Impression Products Inc., 14-1617, U.S. Court of Appeals for the Federal Circuit (Washington).

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