U.S. Supreme Court Curbs Patent-Holder Power to Block Resale

  • Ruling is blow to printer companies, pharmaceutical industry
  • Patent rights end once company sells product, Roberts says

The U.S. Supreme Court said companies give up their patent rights when they sell an item, in a ruling that puts new limits on businesses’ ability to prevent their products from being resold at a discount.

The ruling is a defeat for Lexmark International Inc., which was trying to stop refurbished versions of its printer cartridges from undercutting its U.S. sales. It’s also a blow to companies like HP Inc. and Canon Inc. that sell their printers for a relatively low cost with the idea that they will recoup money on sales of replacement cartridges. The decision was 8-0 in some respects and 7-1 in others.

Writing for the court, Chief Justice John Roberts said sellers give up their patent rights even when the purchaser agrees not to resell the product to anyone else. He said that rule applies regardless of whether the sale happens domestically or overseas.

"Extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain," Roberts wrote.

Justice Ruth Bader Ginsburg issued a partial dissent, saying she would have let companies keep their patent rights when they make a sale overseas. Justice Neil Gorsuch didn’t take part in the case, which was argued before he joined the court.

Controlling the Marketplace

The ruling takes away an important tool used by companies to control the marketplace.

The biotechnology, drug and agricultural industries backed Lexmark in the dispute, calling for broad patent rights. Medical-device companies like Medtronic Inc. argued that allowing the reuse of devices like cardiac catheters could imperil patients and expose the original manufacturers to lawsuits.

On the other side were major Silicon Valley companies, including Alphabet Inc.’s Google and Intel Corp., as well as sellers of refurbished auto parts and medical devices.

The dispute involved inkjet cartridges that were refilled and sold by Impression Products Inc. of Charleston, West Virginia. Lexmark said Impression was infringing its patents. Impression said Lexmark, based in Lexington, Kentucky, had already been paid for the use of its inventions and had exhausted its rights.

Companies like HP and Lexmark will have to come up with new ways to protect their products and their profits, said Kevin Nelson, a patent lawyer with Schiff Hardin in Chicago. That could mean more innovation by the companies -- and higher prices for consumers.

“It’s going to impact the prices in the short term while they learn how to deal with the new environment,” Nelson said.

Nelson said the ruling may have less impact on medical devices, which have to deal with regulatory oversight and squeamishness about used medical parts.

“People are a lot more discerning about medical devices,” Nelson said. “I’m not going to go with Joe Schmo for my prosthetic limb.”

The case is Impression Products v. Lexmark, 15-1189.

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