Lexmark v. Impression: Federal Circuit Holds that Restricted Sales and Foreign Sales Do Not Exhaust Patent Rights

In Lexmark International, Inc. v. Impression Products, Inc., the en banc Federal Circuit held that (1) the sale of an article under clearly communicated and otherwise lawful restrictions on use and resale avoids patent exhaustion and preserves the patentee’s rights to pursue infringement remedies both against the buyer and downstream buyers with knowledge of the restrictions, and (2) a patentee’s or licensee’s foreign sales of a patented article do not exhaust the U.S. patent rights in the article sold, even if no reservation of those rights accompanies the sale. The 10-2 decision comes as a surprise to many observers, at least as to its restricted sales holding, as it creates some tension with recent Supreme Court authority on intellectual property exhaustion.

Of particular interest to ITC watchers, the decision re-affirmed the Federal Circuit’s opinion in Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), finding that U.S. patent rights are exhausted only by a first sale in the United States, not by sales abroad.

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