Patentee rights “exhaust” on sale: USSC

The United States Supreme Court recently ruled that if a patented item has been sold once, the patentee’s rights are “exhausted” and can no longer be enforced. The decision also makes it clear that’s true even if the sale happened abroad and the item was later imported into The United States of America.

“A patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose”, the Court said adding further “If the patentee negotiates a contract restricting the pur­chaser’s right to use or resell the item, it may be able to enforce that restriction as a matter of contract law, but may not do so through a patent infringement lawsuit.”

The Court opined that the exhaustion rule marks the point where patent rights yield to the common law principle against restraints on alienation. The Pa­tent Act promotes innovation by allowing inventors to secure the fi­nancial rewards for their inventions. Once a patentee sells an item, it has secured that reward, and the patent laws provide no basis for restraining the use and enjoyment of the product. Allowing further restrictions would run afoul of the “common law’s refusal to permit restraints on the alienation of chattels.”

Applying patent exhaustion to foreign sales, the Court said “Patent exhaustion, too, has its roots in the antipathy toward restraints on alienation, and nothing in the Patent Act shows that Congress intended to confine that principle to domestic sales.”

“The patentee may not be able to command the same amount for its products abroad as it does in the United States. But the Patent Act does not guarantee a particular price. Instead, the Patent Act just ensures that the patentee receives one reward – of whatever it deems to be satisfactory compensation – for every item that passes outside the scope of its patent monopoly”, the Court observed.

Lexmark sold toner cartridges and one of the options to the customers was to buy a cartridge at a discount and in exchange for the lower price, customers must sign a contract agreeing to use the cartridge only once and to refrain from transferring the cartridge to anyone but Lexmark. Some companies acquire these cartridges from the customers within as well as outside of the United States and refill and resell them. Lexmark sued these companies for patent infringement.

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