Lexmark Loses Supreme Court Case
The U.S. Supreme Court said companies give up their patent rights when they sell an item, in a ruling that puts new limits on businesses’ ability to prevent their products from being resold at a discount. The ruling is a defeat for Lexmark International Inc., which was trying to stop refurbished versions of its printer cartridges from undercutting its’ U.S. sales. It’s also a blow to companies such as HP Inc. and Canon Inc., which sell their printers for a relatively low cost with the idea that they will recoup money on sales of replacement cartridges. The decision was 8-0 in some respects and 7-1 in others.
The dispute involved inkjet cartridges that were refilled and sold by Impression Products Inc. of Charleston, West Virginia. Lexmark said Impression was infringing its patents. Impression said Lexmark, based in Lexington, Kentucky, had already been paid for the use of its inventions and had exhausted its rights.
The Supreme Court has ruled that patent holders can’t sue people for reselling or refurbishing a product that’s based on those patents. The Court passed down a decision in Impression Products v. Lexmark International, declaring that printer company Lexmark can’t sue companies selling refilled toner cartridges for patent infringement. This case reverses a two-part federal circuit court ruling from 2016, affirming that patent law doesn’t justify eroding ownership rights.
Todays’ ruling covers two separate arguments involving refilled cartridges. The first involves discounted “Return Program” cartridges, which Lexmark sells with a contractual restriction on reselling. The second involves any internationally sold cartridge that was refilled and imported into the US. In the first case, Lexmark argued that its contract with buyers includes a right to sue for patent infringement, which last years’ federal court decision upheld. In the second, it claimed that while selling an item inside the US might “exhaust” a company’s domestic patent rights, it retained those domestic rights if the same product were sold abroad. The federal circuit court also agreed with this reasoning.
According to the Supreme Court, “The Patent Act promotes innovation by allowing inventors to secure the financial rewards for their inventions. Once a patentee sells an item, it has secured that reward, and the patent laws provide no basis for restraining the use and enjoyment of the product”, no overcompensation, no overleveraging, no double-dipping, and no restrictions that go beyond what the Patent Act allows.
This is a blow to all printer manufacturers, not just to Lexmark, and will force them to take other actions to try to protect their lucrative supplies business, including perhaps even raising cartridge prices, increasing cartridge capacities, and shipping sets of cartridges during the initial printer sale etc. Certainly it is a win for consumers who are offered more choices.