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Supreme Court Draws Crucial Distinction In Landmark Patent Exhaustion Decision
The Supreme Court's decision in Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. __ (May 30, 2017), is the latest Supreme Court ruling to eviscerate years-long, patentee-friendly Federal Circuit precedent. Issuing less than one week after its decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 581 U.S. ____ (May 22, 2017) — in which the Supreme Court wiped out 27 years of Federal Circuit precedent by holding that a corporation “resides” for patent litigation venue purposes only in its state of incorporation — the Supreme Court's Impression Products decision further reins in the ability of patent owners to enforce their patent rights by holding that patent exhaustion precludes a patentee from using patent law to enforce post-sale restrictions on products sold by a patentee. (Note: For more on TC Heartland, see, “Supreme Court Turns Back Clock on Venue in Patent Infringement Litigation.”)
While the Impression Products decision is no doubt an unwelcome ruling for patent owners, the decision did confirm a crucial and noteworthy distinction between a patentee's selling of a patented product, which is the focus of the Court's exhaustion ruling, and a patentee's licensing of a patented product. In the latter instance, the Court was clear that a patentee may continue to use patent law to enforce licensing restrictions not only against a licensee, but in certain cases, against a knowing downstream purchaser as well. This article explores this important distinction and addresses how the Court's decision can be used as a guide for drafting patent licenses moving forward.
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