Supreme Court Leans Towards Aftermarket

Supreme Court Leans Towards Aftermarket

The U.S. cartridge aftermarket may well be the industry that ends the use of patents as vehicles to restrict products. And it may also be the end of questions as to whether patents rights can be asserted when the product was first sold in another country.

History has been on the side of the aftermarket. For hundreds of years, all patent rights were exhausted when the item was first sold. But creative OEM legal teams have whittled away that right, using licenses and other fictional-but-confusing restrictions.

With most of the remaining justices indicating they favor the clear-cut case for exhaustion as well, the aftermarket may soon have these impediments to domestic and international commerce removed.

The Federal Circuit Court of Appeals has been happy to oblige the OEMs’ lawyers. They have been upholding these restrictions. But recently the U.S. Supreme Court has been siding in favor of the aftermarket, free commerce and consumers’ rights. With that stage set, the U.S. Supreme Court heard the case of Impression Products v Lexmark International on March 21.

After a chilly, even hostile reception at the appellate level, the U.S. Supreme Court appears warmly open to domestic patent exhaustion. As for international patent exhaustion after the first sale of a cartridge, they appear ready to overturn the lower court on that issue as well.

Lexmark has been using this unsettled area of patent law to threaten – or sue – remanufacturers when they “violate”
the return program by remanufacturing cartridges, or buy cores first sold in Canada or overseas for remanufacturing.

An incredulous industry and public wondered how this OEM’s misuse of patents could be legal? Even Justice Alito pondered on Tuesday, “Why isn’t this codified?” But that is a better question for Congress than aftermarket attorneys.

The Supreme Court seemed to be most vexed by the U.S. government’s answer to the question of whether to exhaust patents that were first sold outside the U.S. The Solicitor General suggested that a foreign first sale presumptively exhausts U.S. patent rights unless the U.S. patent owner expressly reserves those rights in the terms of the foreign sale. Both Justices Breyer and Kennedy wondered how that could be done. Kennedy said, “do we put a sticker” on the product? If so, that would be “a boon for sticker companies.”

Fellow aftermarket attorneys left the court stating that the first issue would most likely be “a slam dunk” win for the aftermarket. The question of international exhaustion of patent rights will be harder to prevail upon. However, Justice Sotomayor stated that she saw no reason to treat patent rights differently than copyrights, which were recently deemed exhausted in another.

With most of the remaining eight justices indicating they favor the clear-cut case for exhaustion as well, the aftermarket may soon have these impediments to domestic and international commerce removed. The sticker market will probably have to look elsewhere for its boost.