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Intellectual Property Law

New Matter FALL 2015 Volume 40, Number 3

Finding a Place for Mallinckrodt and Conditional Sales in the Patent Exhaustion Doctrine: Will "Lex" Mark the Spot?

GINO CHENG Winston & Strawn LLP

The Federal Circuit is facing a rare opportunity to clarify and correct a muddled area of the law: contracting around patent exhaustion. After a panel hearing, the Federal Circuit ordered on April 16, 2015 sua sponte an en banc hearing of the patent exhaustion issues in Lexmark Int’l, Inc. v. Impression Prods., Inc.1 The Lexmark case involves a patent owner’s sales of patented printer cartridges to end users under the condition that they use the articles once and then return them, as well as Lexmark’s sales of the same patented articles to its resellers requiring the resales to take place under the same restriction. The Federal Circuit will consider whether any of those sales gives rise to patent exhaustion in the U.S. In light of deep-rooted Supreme Court precedent,2 the Federal Circuit should overrule en banc its previous decision in Mallinckrodt, Inc. v. Medipart, Inc.,3 to the extent it had ruled that a sale of a patented article—when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant—does not give rise to patent exhaustion.

INTRODUCTORY OVERVIEW AND POLICY CONSIDERATIONS

Without a clear line of demarcation defining exhaustion as occurring at the initial point of sale—whether within or outside of the U.S.—a purchaser or assembler might be unfairly encumbered by any post-sale restrictions that the licensor/rights holder unilaterally imposes. For example, the licensor/rights holder could attempt to limit the freedom of the purchaser or its downstream customers to enjoy the sold good by imposing conditions ofuse or restricting the number of uses, the duration of use, the class of users, the manner of disposal or recycling, etc., upon requirement of additional payments or threat of infringement litigation. In other words, despite the consummated purchase and transfer of ownership, the licensor/rights holder could exploit post-sale restrictions to extend its monopoly beyond the point of sale, either to manipulate the progression of the good as it moves through the supply chain, to extract additional remuneration at each level, or both.

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