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Boundaries of Patent Exhaustion Defense Explored, Decided (For Now) In <i>En Banc Lexmark</i> Decision

By David Tellekson, Phil Decker and Stefan Szpajda

Despite over 150 years of Supreme Court precedent, even the most basic precepts of patent exhaustion doctrine remain unsettled. In Lexmark Int'l, Inc. v. Impression Prods., Inc., No. 2014-1617 (Fed. Cir. Feb. 12, 2016) (en banc), the United States Court of Appeals for the Federal Circuit grappled with the very foundations of the so-called “first sale” defense in deciding that: 1) a patent owner's sale of an article abroad does not exhaust its U.S. patent rights; and 2) post-sale use restrictions imposed at the point of sale can preserve the patent owner's right to sue downstream users when those restrictions are violated.

Lexmark attracted enormous attention from amicus curiae. In the over 30 briefs submitted to the Federal Circuit, there was a clear demarcation along industry lines. Biotechnology and life sciences companies urged the court to maintain its limited exhaustion rules to permit price differentiation practices that benefit consumers who do not want, and cannot afford, the full bundle of rights associated with a patented product. Computer and high technology companies, in contrast, generally urged adoption of a broader exhaustion rule to ensure freer flow of component parts at every level of their international supply and distribution chains.

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