Lexmark International, Inc. v. Ink Technologies Printer Supplies, LLC
Docket: Case No. 1:10-cv-564
Court: District Court, S.D. Ohio; March 27, 2014; Federal District Court
The court is reviewing a Motion to Dismiss filed by Defendant Impression Products, Inc. against Plaintiff Lexmark International, Inc., which claims infringement of its patented toner cartridges. Lexmark asserts that it initially sold these patented inkjet cartridges outside the U.S., from which foreign defendants acquired and remanufactured the cartridges, subsequently selling them within the U.S., including to Impression Products, thus allegedly infringing Lexmark's patent.
In evaluating the motion to dismiss, the court will consider the complaint in the plaintiff's favor, accepting allegations as true and drawing reasonable inferences. To withstand dismissal, Lexmark's complaint must provide sufficient factual content to suggest a plausible claim for relief, avoiding mere formulaic recitations. The court emphasizes that while the plausibility standard does not demand probability, it requires more than mere possibilities of unlawful conduct. Legal conclusions or unwarranted factual inferences will not be accepted as true.
The patent exhaustion doctrine states that a patentee loses control over a patented article after making an unrestricted sale. This principle was established in cases such as Bowman v. Monsanto Co. and Quanta Computer, Inc. v. LG Elecs. Inc. The Federal Circuit has determined that this doctrine is territorial, meaning that the first authorized sale must occur in the United States for patent rights to be exhausted. The Jazz Photo Corporation decision reaffirms that sales outside the U.S. do not exhaust U.S. patent rights, based on precedent from the 1890 case Boeseh v. Graff, which held that authorized sales of goods patented in foreign countries do not affect U.S. patent rights.
In contrast, the Supreme Court addressed the "first sale" doctrine in copyright law in Kirtsaeng v. John Wiley & Sons, Inc. The Court examined whether the phrase "lawfully made under this title" contained a geographical limitation, concluding it did not. The Court found that the statutory language and legislative history indicated no intent to impose geographical restrictions. The analysis considered the broader context of copyright law, noting that provisions like the manufacturing clause aimed to equalize treatment of domestically and internationally produced copies, which would be inconsistent with a geographical limitation in the first sale doctrine.
The Supreme Court examined whether statutory interpretation favored a geographical limitation on the first sale doctrine, presuming Congress intended to maintain the common law's substance. Tracing the doctrine to the Seventeenth Century, the Court noted that common law historically disallowed restraints on the alienation of chattels, with a copyright holder's control over resale contradicting principles of trade and consumer freedom. It highlighted that such freedom benefits consumers and alleviates courts from the complexities of enforcing restrictions on movable goods, which could lead to selective enforcement.
The Court concluded that the common law first sale doctrine imposes no geographical limitations and identified practical challenges associated with such restrictions. Libraries would struggle with foreign book collections lacking current copyright holder information, and retailers would face hurdles in reselling goods containing copyrighted elements from abroad. Museums would similarly require permissions for displaying foreign works, complicating transactions and displays even when ownership had transferred.
The Court addressed the defendant's arguments for a geographical interpretation, notably regarding market division, concluding there is no copyright principle favoring publishers' exclusive rights. Instead, the first sale doctrine restricts copyright holders' ability to partition domestic markets, aligning with antitrust laws. The Court emphasized that any decisions about copyright owners' powers to segment international markets remain the prerogative of Congress, not the Court's role to dictate.
The Supreme Court's interpretation of 17 U.S.C. § 109(a) favors a non-geographical approach to the first sale doctrine, suggesting Congress would not intend to impose copyright-related harms through a geographical interpretation. The central issue between Lexmark and Impression Products is whether the Supreme Court's decision in Kirtsaeng overrules the Federal Circuit's ruling in Jazz Photo, which would affect the exhaustion of Lexmark's patent rights upon the first authorized sale abroad. Courts have indicated that an appellate decision should only be overturned if it is plainly inconsistent with new Supreme Court rulings. In this case, Kirtsaeng does not appear to directly conflict with Jazz Photo, as the latter pertains to patent law while Kirtsaeng addresses copyright law without mentioning patents or their exhaustion doctrine. The Federal Circuit has affirmed that copyright cases do not dictate patent issues, and the protections under copyright and patent law differ. Additionally, the patent exhaustion doctrine is based on judicial precedent rather than statutory language, unlike the explicit provisions in the Copyright Act that support a non-geographical interpretation. Consequently, there is insufficient basis to conclude that Kirtsaeng implicitly overturned Jazz Photo.
The absence of a codified patent exhaustion doctrine allows for flexible interpretation of its principles, with Lord Coke's policy serving as a foundational reference. However, this policy is not the sole consideration. The patent exhaustion doctrine's historical context diverges from that of the first sale doctrine, as illustrated in the Supreme Court case Kirtsaeng. In Kirtsaeng, the Court examined the common law of first sale prior to its codification in the Copyright Act of 1909, ultimately finding no geographical restrictions, indicating that Lord Coke's principles remained applicable and unchanged by Congress.
In contrast, the patent exhaustion doctrine has developed through judicial decisions rather than codification, making its application more reliant on case law, such as Jazz Photo, which interprets Supreme Court precedents regarding first sales abroad. Kirtsaeng did not address the evolution of patent exhaustion law or its interpretation by courts, leaving open the possibility that the principles articulated by Lord Coke have been modified in the patent context.
Moreover, Kirtsaeng emphasizes the need to consider historical and practical contexts when applying patent exhaustion principles to international sales. Significant factors include the decisions in Jazz Photo and related cases, along with the implications of territoriality on patent exhaustion. Although the recent LifeScan decision by the Federal Circuit may offer insight into future applications of Kirtsaeng in relation to Jazz Photo, it does not definitively discredit Jazz Photo's validity. LifeScan focused on whether patent exhaustion applies to free distributions and did not address territoriality, seeking guidance from earlier Supreme Court cases on patent exhaustion to inform its conclusion.
The Federal Circuit concluded that the patent exhaustion doctrine is not limited to sales, referencing the principles of Lord Coke, which do not differentiate between gifts and sales. It stated that a patentee cannot bypass patent exhaustion by distributing a patented product for free. In contrast to the LifeScan case, the Federal Circuit acknowledged that Supreme Court precedent supports a territoriality requirement for patent exhaustion, thus complicating reliance on Lord Coke’s principles, as established in Jazz Photo. The court noted that while a reevaluation of Jazz Photo might occur, it is uncertain if the reasoning from Kirtsaeng would be applied strictly to patent law. The distinction between copyright and patent law protections was emphasized, cautioning against conflating them by suggesting Kirtsaeng implicitly overruled Jazz Photo. The Supreme Court's denial of certiorari in Ninestar Technology Co. Ltd. v. International Trade Commission, which involved similar issues, indicated that Jazz Photo remains the controlling precedent for patent exhaustion related to first authorized sales abroad. The court recognized that many arguments against a territoriality requirement in copyright might also apply to patents but concluded that Kirtsaeng did not intend to overturn Jazz Photo. Consequently, Impression Products’ Motion to Dismiss was denied, and a related motion by Lexmark International, Inc. for a surreply was also denied. The court clarified its terminology, using "first sale" for copyrights and "exhaustion" for patents.
The Supreme Court in Bobbs-Merrill expressed hesitance to apply patent law principles regarding first sale to copyright law, highlighting the differences in protections provided by each. It concluded that common law on patent exhaustion does not automatically extend to copyright law, nor does the first sale doctrine in copyright law extend to patent exhaustion. The Federal Circuit's decision in Ninestar Tech. Co. v. ITC affirmed that U.S. patent rights are not exhausted by products originating from abroad, dismissing claims that Jazz Photo was overruled by Quanta Computer, Inc. v. LG Electronics, Inc. The court noted that Quanta’s context did not involve the importation of products not made or sold under a U.S. patent, thus limiting Quanta’s applicability to domestically sold products only.
