Post-sale restraint

A post-sale restraint, also termed a post-sale restriction, as those terms are used in United States patent law and antitrust law, is a limitation that operates after a sale of goods to a purchaser has occurred and purports to restrain, restrict, or limit the scope of the buyer's freedom to utilize, resell, or otherwise dispose of or take action regarding the sold goods.

"[3] Perhaps the earliest US discussion of post-sales restraints occurs in Adams v. Burke,[4] in which the US Supreme Court refused to find patent infringement when an undertaker — who purchased a patented coffin lid, and transported it outside the territory in which the manufacturer was licensed (the ten-mile radius surrounding Boston) — used the product to bury a client.

The defendants, the proprietors of Macy's department store in New York, disregarded the notice and proceeded to cut prices.

[8] In 1926, in United States v. General Electric Co.,[9] the Supreme Court tried to make a bright-line distinction between post-sale restraints on patented goods, which the exhaustion doctrine did not allow, and limitations that a patentee imposed on the freedom of a manufacturing-licensee to sell goods manufactured under a limited license of a patent, which were permissible if "normally and reasonably adapted to secure pecuniary reward for the patentee's monopoly".

In General Talking Pictures Corp. v. Western Electric Co.,[11] the Supreme Court reaffirmed and expanded on the distinction made in the 1926 GE case between post-sale restraints and licenses containing a limitation on what the licensee was permitted to do.

In United States v. Univis Lens Co.,[13] the patentee Univis sold unpatented lens blanks (partly finished blocks of glass comprising fused pieces of glass "of different refractive power") to "finishers", who further ground and polished them to manufacture patented lenses from them.

The Court considered that the blanks "embodie[d] essential features of the patented device", they were not used for anything else, and that was sufficient to trigger the exhaustion doctrine.

"Prompted by a decline in its market share to a relatively insignificant 1% to 2% of national television sales", Sylvania adopted a franchise distribution system.

In 1992, in Mallinckrodt, Inc. v. Medipart, Inc.,[24] the Federal Circuit held that post-sale restrictions (such as those in notices affixed to the patented product), other than ones fixing prices or imposing tie-ins, were to be governed by the rule stated in the 1926 GE case for manufacturing licenses, which is the same as the rule in the General Talking Pictures case.

In so ruling, the Court relied in substantial part on the "impeccable historic pedigree" of "the common law's refusal to permit restraints on the alienation of chattels".

It also said that the "doctrine also frees courts from the administrative burden of trying to enforce restrictions upon difficult-to-trace, readily movable goods."