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Fed. Circ.’s Lexmark Ruling Good Sign for Patent Owners

The Federal Circuit’s recently decided to retain limits on patent exhaustion, which is good news for patent owners like Lexmark, allowing them to exert control over products after they’re sold.

The Federal Circuit’s Lexmark opinion sends a mixed message for patent owners.

In the 10-2 en banc decision, the Federal Circuit decided not to disturb two of its longstanding rules: that overseas sales of a product don’t exhaust a patent owner’s right to sue in the U.S. and that patent owners can impose restrictions on the use of patented items after they are sold in order to keep the sale from exhausting their rights.

The court decided to take the case en banc to determine whether those rules remained good law following recent U.S. Supreme Court decisions that printer cartridge reseller Impression Products Inc., which Lexmark International Inc. accused of infringement, cast doubt on the prior holdings. The court found that the rulings don’t require it to change its precedent.

“On its face, this is a win for patent owners because it allows them to maximize their protection through contractual restrictions or where they sell their products geographically,” said Derek Dahlgren of Rothwell Figg Ernst & Manbeck PC.

A decision that either foreign sales or post-sale restrictions exhausted the rights of patent owners would have diminished their ability to use patents to protect their market, he said.

While the Lexmark case involves printer cartridges, the issue of patent exhaustion has broad ramifications across a wide range of industries, including technology, pharmaceuticals and medical devices. Patent owners have relied on the limitations on patent exhaustion to restrict post-sale uses of patented products, a strategy that would have been disrupted had the Federal Circuit overruled its precedent.

“It’s a pro-patent owner decision that reaffirms Federal Circuit precedent,” said Jeffrey Fisher of Farella Braun & Martel LLP. “It’s a less welcome decision for consumers and those who may potentially be accused of infringement down the road.”

The en banc Federal Circuit also gave its blessing to the practice of imposing post-sale restrictions on patented products. It held that as long as those restrictions, such as a requirement that a product can only be used once, are lawful and clearly communicated to buyers, they do not exhaust patent rights.

The issue of post-sale restrictions is particularly important to medical device makers as they use them as a way to protect patient safety, said Joseph Re of Knobbe Martens Olson & Bear LLP, whose firm filed an amicus brief in the case on behalf of the Medical Device Manufacturers Association.

Since reusing medical devices like syringes can lead to the transmission of infection diseases, “single patient use restrictions are critical in a hospital setting,” Re said.

Such restrictions can protect patients, as well as the reputation and sales of device makers. If a product is reused and leads to complications, the original manufacturer will likely be blamed, and “you want people to think highly of your products, and you don’t want them to be the cause of a medical disaster.”

For more information, see Law360.

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