“Impression Products v. Lexmark International”

• I. CHIEF JUSTICE ROBERTS delivered the opinion of the Court.

• 1. Respondent Lexmark International, Inc. designs, manufactures, and sells toner cartridges to consumers in the United States and around the globe. It owns a number of patents that cover components of those cartridges and the manner in which they are used. When toner cartridges run out of toner they can be refilled and used again. This creates an opportunity for other companies – known as remanufacturers – to acquire empty Lexmark cartridges from purchasers in the United States and abroad, refill them with toner, and then resell them at a lower price than the new ones Lexmark puts on the shelves. Not blind to this business problem, Lexmark structures its sales in a way that encourages customers to return spent cartridges. It gives purchasers two options: One is to buy a toner cartridge at full price, with no strings attached. The other is to buy a cartridge at roughly 20-percent off through Lexmark’s “Return Program.” A customer who buys through the Return Program still owns the cartridge but, in exchange for the lower price, signs a contract agreeing to use it only once and to refrain from transferring the empty cartridge to anyone but Lexmark. To enforce this single-use/no-resale restriction, Lexmark installs a microchip on each Return Program cartridge that prevents reuse once the toner in the cartridge runs out. Lexmark’s strategy just spurred remanufacturers to get more creative. Many kept acquiring empty Return Program cartridges and developed methods to counteract the effect of the microchips. With that technological obstacle out of the way, there was little to prevent the remanufacturers from using the Return Program cartridges in their resale business. After all, Lexmark’s contractual single-use/no-resale agreements were with the initial customers, not with downstream purchasers like the remanufacturers. Lexmark, however, was not so ready to concede that its plan had been foiled. In 2010, it sued a number of remanufacturers, including petitioner Impression Products, Inc., for patent infringement with respect to two groups of cartridges. One group consists of Return Program cartridges that Lexmark sold within the United States. Lexmark argued that, because it expressly prohibited reuse and resale of these cartridges, the remanufacturers infringed the Lexmark patents when they refurbished and resold them. The other group consists of all toner cartridges that Lexmark sold abroad and that remanufacturers imported into the country. Lexmark claimed that it never gave anyone authority to import these cartridges, so the remanufacturers ran afoul of its patent rights by doing just that.

• 2. First up are the Return Program cartridges that Lexmark sold in the United States. We conclude that Lexmark exhausted its patent rights in these cartridges the moment it sold them. The single-use/no-resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.

• 3. The Patent Act grants patentees the “right to exclude others from making, using, offering for sale, or selling [their] invention[s].” 35 U.S.C. §154(a). For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude. See Bloomer v. McQuewan, 14 How. 539 (1853). The limit functions automatically: When a patentee chooses to sell an item, that product “is no longer within the limits of the monopoly” and instead becomes the “private, individual property” of the purchaser, with the rights and benefits that come along with ownership. Id., at 549–550. A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U.S. 241, 250 (1942) (emphasis added). The sale “terminates all patent rights to that item.”

• 4. This well-established exhaustion rule marks the point where patent rights yield to the common law principle against restraints on alienation. We have explained in the context of copyright law that exhaustion has “an impeccable historic pedigree,” tracing its lineage back to the “common law’s refusal to permit restraints on the alienation of chattels.” Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 538 (2013). As Lord Coke put it in the 17th century, if an owner restricts the resale or use of an item after selling it, that restriction “is voide, because… it is against Trade and Traffique, and bargaining and contracting betweene man and man.” 1 E. Coke, Institutes of the Laws of England §360, p. 223(1628). … Turning to the case at hand, we conclude that this well-settled line of precedent allows for only one answer: Lexmark cannot bring a patent infringement suit against Impression Products to enforce the single-use/no-resale provision accompanying its Return Program cartridges. Once sold, the Return Program cartridges passed outside of the patent monopoly, and whatever rights Lexmark retained are a matter of the contracts with its purchasers, not the patent law.

• 5. The Federal Circuit reached a different result largely because it got off on the wrong foot. The “exhaustion doctrine,” the court believed, “must be understood as an interpretation of” the infringement statute, which prohibits anyone from using or selling a patented article “without authority” from the patentee. … The misstep in this logic is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on “the scope of the patentee’s rights.” United States v. General Elec. Co., 272 U.S. 476, 489 (1926) (emphasis added).

• 6. The Federal Circuit also expressed concern that preventing patentees from reserving patent rights when they sell goods would create an artificial distinction between such sales and sales by licensees. If a licensee breaches the license by selling a computer for commercial use, the patentee can sue the licensee for infringement. … The Federal Circuit’s concern is misplaced. … [A] license is not about passing title to a product, it is about changing the contours of the patentee’s monopoly: The patentee agrees not to exclude a licensee from making or selling the patented invention, expanding the club of authorized producers and sellers. See General Elec. Co., 272 U.S., at 489–490. Because the patentee is exchanging rights, not goods, it is free to relinquish only a portion of its bundle of patent protections.

• 7. Th[e] question about international exhaustion of intellectual property rights has also arisen in the context of copyright law. Under the “first sale doctrine,” which is codified at 17 U.S.C. §109(a), when a copyright owner sells a lawfully made copy of its work, it loses the power to restrict the purchaser’s freedom “to sell or otherwise dispose of … that copy.” In Kirtsaeng v. John Wiley & Sons, Inc., we held that this “‘first sale’ [rule] applies to copies of a copyrighted work lawfully made [and sold] abroad.” 568 U.S., at 525. … Applying patent exhaustion to foreign sales is just as straightforward. Patent exhaustion, too, has its roots in the antipathy toward restraints on alienation … and nothing in the text or history of the Patent Act shows that Congress intended to confine that borderless common law principle to domestic sales. … And differentiating the patent exhaustion and copyright first sale doctrines would make little theoretical or practical sense: The two share a “strong similarity … and identity of purpose,” Bauer & Cie v. O’Donnell, 229 U.S. 1, 13 (1913), and many everyday products – “automobiles, microwaves, calculators, mobile phones, tablets, and personal computers” – are subject to both patent and copyright protections …

• II. JUSTICE GINSBURG, concurring in part and dissenting in part.

  I concur in the Court’s holding regarding domestic exhaustion – a patentee who sells a product with an express restriction on reuse or resale may not enforce that restriction through an infringement lawsuit, because the U.S. sale exhausts the U.S. patent rights in the product sold. … I dissent, however, from the Court’s holding on international exhaustion. A foreign sale, I would hold, does not exhaust a U.S. inventor’s U.S. patent rights. … Patent law is territorial. When an inventor receives a U.S. patent, that patent provides no protection abroad. Because a sale abroad operates independently of the U.S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U.S. patent rights. U.S. patent protection accompanies none of a U.S. patentee’s sales abroad – a competitor could sell the same patented product abroad with no U.S.-patent-law consequence. Accordingly, the foreign sale should not diminish the protections of U.S. law in the United States. … But even if I subscribed to Kirtsaeng’s reasoning with respect to copyright, that decision should bear little weight in the patent context. Although there may be a “historical kinship” between patent law and copyright law, Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 439 (1984), the two “are not identical twins,” id, at 439, n. 19. … More importantly, copyright protections, unlike patent protections, are harmonized across countries.