Impression Products, Inc. is a small company that buys used printer cartridges, restores them and then re-sells them to businesses in West Virginia. Originally founded in 1979, the company focused on typewriter ribbons, but quickly adapted their business to handle the evolution to modern computer/printer technology. Recently, the company employing 25 people averaged around $10 million to $15 million in sales. Lexmark International, one of the world’s leading printing manufacturers, has filed a law suit against Impression Products alleging infringement.
Lexmark added Impression Products to an existing lawsuit that named other cartridge re-manufacturers as infringers of Lexmark’s toner cartridge patents. While the other cartridge re-manufacturers settled, Impression Products countersued.
Lexmark argues that Impression Products infringed on their toner cartridge patents because the cartridge was sold with a shrink wrap license. A shrink wrap license is an end user agreement that is usually enclosed with an item and contains pre-drafted terms and conditions, visible through the wrapper. The consumer agrees to these terms and conditions by opening the package. The terms on the Lexmark cartridge states:
RETURN EMPTY CARTRIDGE TO LEXMARK FOR RECYCLING
Please read before opening. Opening this package or using the patented cartridge inside confirms your acceptance of the following license agreement. The patented Return Program cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for recycling. If you don’t accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available.
In February of 2016, this case was presented in the United States Court of Appeals for the Federal Circuit (CAFC or Court). The case required the Court to examine the “first sale” or “patent exhaustion” doctrine which provides that the sale of a patented item by the patent owner exhausts or terminates the rights of the patent owner once the sale is complete. In United States v. Masonite Corp., the Court explained that termination of the patent rights is dependent upon “whether or not there has been such a disposition of the article that it may fairly be said that the patentee has received his reward for the use of the article.” In another case, Bowman v. Monsanto Co., the Court stated that “[u]nder the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article.”
CAFC heard the Lexmark International, Inc. v. Impression Products, Inc. case en banc and held that “a patentee may preserve its §271 rights when itself selling a patented article, through clearly communicated, otherwise-lawful restrictions, as it may do when contracting out the manufacturing and sale…That conclusion follows naturally from the statute. Congress straightforwardly prescribed in §271(a), that a sale or use of patented article ‘without authority’ is an infringement.” The Court also held that the sale of a U.S. patented item to a foreign country does not exhaust the patent rights of the U.S. patentee when reservation of rights is not a part of the sale.
The Supreme Court has decided to hear the case, but prior to doing so they have solicited opinions from government officials, specifically the U.S. Solicitor General, Ian Heath Gershengorn. Gershengorn believes the Supreme Court should review not only the CAFC’s holding that post-sale restrictions on the use or resale of patented articles are enforceable under patent law, but also the CAFC holding that foreign sales never trigger exhaustion of U.S. patent rights.
This case will likely be heard by the Supreme Court in early spring of 2017 with a decision following in late spring or early summer.