Impression Products, Inc. v. Lexmark International, Inc.

137 S.Ct. 1523 (2017)

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Nature of the Case

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Facts

When toner cartridges run out of toner they can be refilled and used again. D structures its sales in a way that encourages customers to return spent cartridges. In exchange for the lower price, the customer signs a contract agreeing to use it only once and to refrain from transferring the empty cartridge to anyone, but D. D installs a microchip on each Return Program cartridge that prevents reuse once the toner in the cartridge runs out. This creates an opportunity for other companies-known as remanufacturers such as D to acquire empty P 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 P puts on the shelves. Once they break the chip codes, they can use the used cartridges many times. P’s contractual single-use/no-resale agreements were with the initial customers, not with downstream purchasers like D. P sued D for patent infringement. D's defense was that P’s sales, both in the United States and abroad, exhausted its patent rights in the cartridges, so D was free to refurbish and resell them, and to import them if acquired abroad. D filed motions to dismiss. The District Court granted the motion as to the domestic Return Program cartridges but denied the motion as to the cartridges P sold abroad. Both parties appealed. The Federal Circuit considered the appeals en banc and ruled for P. It held that a patentee may sell an item and retain the right to enforce, through patent infringement lawsuits, “clearly communicated, . . . lawful restriction[s] as to post-sale use or resale.” The exhaustion doctrine derives from the prohibition on making, using, selling, or importing items “without authority.” It held that when the seller restricts post-sale use or resale the exhaustion doctrine does not apply. It reasoned that P’s sales had not exhausted all of its patent rights and that the company could sue for infringement. The court had held that a patentee’s decision to sell a product abroad did not terminate its ability to bring an infringement suit against a buyer that “import[ed] the article and [sold] . . . it in the United States.” D appealed.