The U.S. Supreme Court, reversing a 2016 decision of the Federal Circuit, held that the exhaustion doctrine prevented Lexmark's patent infringement lawsuit, although Lexmark could enforce restrictions on use or resale of its contracts with direct purchasers under regular contract law (but not as a patent infringement lawsuit).

Besides printer and ink manufacturers, the decision of the case could affect the markets of high tech consumer goods and prescription drugs.

"[5] The district court said "that Quanta overruled Mallinckrodt sub silentio," and therefore "those post-sale use restrictions do not prevent patent rights from being exhausted given that the initial sales were authorized and unrestricted.

There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee's rights in the United States.

Although the government in its amicus curiae brief and defendant Impression argue "that a different result is required—that Lexmark automatically lost its patent rights—simply because Lexmark sold the Return Program cartridges itself, subject to the same communicated restriction, rather than having left the manufacture and sale to others under license," the court does not accept that: We conclude otherwise, as we did in Mallinckrodt and subsequent decisions.

Thus the Quanta "Court's discussion of that issue does not undermine Mallinckrodt's ruling that a patentee can preserve its patent rights through restrictions on its sales."

While Univis is controlling on what it decided on the issues before it, we do not think it appropriate to give broad effect to language in Univis, taken out of context, to support an otherwise-unjustified conclusion here on a question not faced there.The Federal Circuit therefore drew this conclusion from the past series of Supreme Court cases on exhaustion: For the foregoing reasons, we think that the best lesson to draw from the Supreme Court's precedents, as applied to the question before us, is that a patentee may preserve its patent rights by otherwise-proper restrictions when it makes and sells patented articles itself and not only when it contracts out manufacturing and sales.

Again, the court insisted that Congress had overridden the common law's prohibitions on post-sale restraints, in order to promote technological progress: [W]hatever considerations might go into a jurisdiction's choice as to the background rule for personal property in general, lawmaking authorities may reasonably make different choices for particular kinds of property.

Notably, as to intellectual property in its various forms, Congress, implementing the Constitution, has long deemed it important to incentivize creation and disclosure through grants to the creator of rights to exclude others for a time. . . .

That overriding legislative prescription removes the patented-article sale from the scope of Lord Coke's 1628 description of his country's general judicially fashioned property law. . . .

In short, notwithstanding Lord Coke's description of English general personal-property judge-made law, the patent-specific statutory analysis must govern here.The court then turned to what it called "the likely real-world consequences of one answer or another to the exhaustion question presented here."

The Federal Circuit said that did not apply to patents: [W]e see no basis for predicting the extreme, lop-sided impacts the Court found plausible in Kirtsaeng in different circumstances.

Therefore, the court concluded it is appropriate to apply to post-sale restrictions the same tolerance that the General Talking Pictures doctrine accords limitations in manufacturing licenses.

The court expressed concern that overruling Jazz Photo would harm the US drug industry: There seems to be no dispute that U.S.-patented medicines are often sold outside the United States at substantially lower prices than those charged here and, also, that the practice could be disrupted by the increased arbitrage opportunities that would come from deeming U.S. rights eliminated by a foreign sale made or authorized by the U.S. patentee.Finally, the court rejected a proposal that exhaustion should be presumed unless the patentee express states that it reserves its US rights.

Also: "Intermediary companies between the foreign purchase and the importation into the United States may be created that make it difficult for the U.S. patentee to carry an affirmative burden of proving adequate notice of reservations attached to a foreign-sold article."

He then criticized the majority for making up special rules for patent cases that differed from the common law and general legal principles, citing Supreme Court admonitions not to do that--"The Supreme Court has repeatedly instructed us not to ignore traditional legal principles to fashion rules 'unique to patent disputes.

'"[f] Finally, Judge Dyk took issue on multiple grounds with the majority's efforts to distinguish and limit the Supreme Court's rulings.

The distinction between restrictions on sales (impermissible) and restrictions on licensees (permissible) exists in the Court's precedent, and it is not for us to decide if it is a sound distinction.Dyk concluded his discussion of domestic exhaustion with the statement: "There is, in sum, no colorable basis for the majority's failure to follow the exhaustion rule for domestic sales as articulated by the Court in Quanta and numerous other cases."

In this part of the dissent, Judge Dyk argued for a nuanced balance that called for different results depending on whether the patentee was responsible for the sale abroad that was alleged to trigger exhaustion.

He then turned to "the centerpiece of the majority's holding that there is a doctrinal blanket ban on foreign exhaustion, namely the Supreme Court's decision in Boesch v.

[20] Impression presented these questions in its petition:[21] On June 20, 2016, the Court invited the Solicitor General to file briefs in this case expressing the views of the United States.

The brief argues that the "Federal Circuit's decision misreads" the Supreme Court's precedents and "would substantially erode the exhaustion doctrine.

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.

[26][32] Lexmark had argued, and the Federal Circuit agreed, that sale abroad "does not trigger patent exhaustion unless the patentee 'expressly or implicitly transfers or licenses' its rights.

Even so, the court left open the possibility that foreign sales, under the right circumstances, may incorporate an implied license to import and use the product within the United States.

[41]Kevin J. Cukierski and Adam H. Masia see the decision as "pro-patent owner" but warn again premature celebration: But take caution—it is likely that the Supreme Court will be asked to hear the case.

After quoting Judge Dyk's admonition, "We exceed our role as a subordinate court by declining to follow the explicit domestic exhaustion rule announced by the Supreme Court," he (or she) observed: For present purposes, it is simply worth noting that the Federal Circuit appears to be inching closer again to the concept that patent law is simply a unique beast, with unique rules and requirements.

[46]Dennis Crouch, in Patently-O commented on the issues and provided a summary of the merits briefs filed in the Supreme Court as of January 31, 2017.

Crouch opposed the Federal Circuit's ruling on these grounds: With personal property courts long ago rejected servitudes (such as use and resale restrictions) that bind subsequent purchasers.

Under the law, I probably should have taken steps to ensure that all of the original equipment manufacturers affirmatively granted repair and resale rights.