Oct. 2 — The full Federal Circuit membership of 12 judges heard on Oct. 2 five distinct views on whether a patented product can be sold overseas and then imported into the U.S. without compensation to the patentee (Lexmark Int'l, Inc. v. Impression Prods., Inc., Fed. Cir., No. 2014-1617, argued10/2/15).
The general reason for the court's decision to review the issue en banc was the U.S. Supreme Court's 2013 Kirtsaeng ruling that the Copyright Act's first-sale doctrine—copyright law's parallel to the patent exhaustion doctrine—allows importation of a copyrighted item without the permission of the copyright holder.
Most members of the court appeared prepared to distinguish patent law because there is no Patent Act statutory equivalent to the Copyright Act's provision.
However, the discussion turned more to policy questions as the 90-minute argument proceeded. Some judges essentially said that the harm to the copyright holder in Kirtsaeng—books priced more cheaply overseas and imported for less than the U.S. price—was minimal compared to the harm to, for example, AIDS patients in Africa, unless patentees can engage in drug price discrimination.
The court is simultaneously considering its rule that conditions can be put on a sale of a patented product, and the interplay of that question and patent exhaustion permeated the hearing.
The facts of the current case were barely mentioned. Lexmark International Inc. sells patented inkjet cartridges overseas, and Impression Products Inc. acquired and remanufactured used Lexmark cartridges for sale in the U.S.
Andrew J. Pincus of Mayer Brown LLP, Washington, was given time to argue in favor of companies like Impressions, because the supply chain of manufacturers he represents—making goods such as cell phones—requires putting multiple components together. The manufacturers worry that the U.S. patentee of each component might try to assert rights over the imported end product.
Representing the Biotechnology Industry Organization, which was given time to argue in favor of Lexmark's desire to stop such importation, Barbara A. Fiacco of Foley Hoag LLP, Boston, had little difficulty convincing the court that the problem goes well beyond cartridges and cell phones.
She did, however, have difficulty—as did Pincus—with the court's view that the importation problems have largely been overcome.
Court's Precedents Contrary to Kirtsaeng
The Federal Circuit ruled in 2001 that a sale of a patented item outside the U.S. does not exhaust the patentee's rights, in Jazz Photo Corp. v. ITC, 264 F.3d 1094, 59 U.S.P.Q.2d 1907 (Fed. Cir. 2001) (171 PTD, 9/5/01).
Lexmark's counsel, Constantine L. Trela Jr. of Sidley Austin, Chicago, questioned what the supply chain manufacturers could be complaining about when they've had 15 years to develop contracts, such as global licensing rights, that have largely circumvented the problem.
BIO and Fiacco's problem was different. The Federal Circuit has also held, in Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 24 U.S.P.Q.2d 1173 (Fed. Cir. 1992), that it is lawful to put a restriction on a sale of a patented article. Judge Timothy B. Dyk argued that—so long as the court maintains that rule—drug patent holders can still price discriminate by making a condition of the sale that it only be used in the specific overseas region where it is sold.
Fiacco said that many drugs have already been distributed overseas without any sale conditions, but Judge Richard G. Taranto countered that most drugs have a short shelf life anyway. Therefore, he said, most of the problem BIO faces is looking forward, and—so long as the court doesn't overturn Mallinckrodt—the manufacturers simply have to start setting restrictions as a practice.
Judge Alan D. Lourie, who frequently authors the Federal Circuit's drug patent opinions, came to Fiacco's defense.
First he said that not all drugs have a short shelf life. And, he added, BIO members and other drug patent holders are “selling in 150 countries,” some which have very different patent laws. The drug makers “may not be able to put a reservation of [patent] rights” in many such countries, he said.
Edward F. O'Connor of Avyno Law P.C., Encino, Calif., representing Impressions, said that questions such as those about HIV in Africa were not the province of patent law, and that contract law could give patent holders what they wanted in terms of restrictions on a sale.
Pincus's brief—on behalf of LG Electronics, Dell, Google, Intel, Samsung and others—said “federal law specifically bars reimportation of drugs into the United States by entities other than the manufacturer.”
Judge Pauline Newman led the charge against that argument. Newman saw overturning Jazz Photo as the court saying, “School's out. You can do [whatever you want]. Enter the jungle.”
And she wrote the opinion in Mallinckrodt, which involved a health and safety issue, in the reuse of a nebulizer. She contended that patent law should not simply ignore such practical concerns. Arguing for a more varied approach that take different circumstances into account, she said, “We need some simple, straightforward rules where, every step you take, you don't have to write a 50-page contract.”
Judge Kimberly A. Moore took up the same cause, making the distinction between the lesser copyright harm and not getting drugs to AIDS patients.
But What Is Default?
Melissa N. Patterson of the U.S. Department of Justice also argued, presenting the government's views. The government doesn't go as far as Impressions, as it would allow patentees to put restrictions on sales. But absent such restrictions, she said, the “default rule” should be that the purchaser of any product should assume it has unlimited resale rights.
Judge Todd M. Hughes saw no reason why the default shouldn't be the opposite—that a buyer should assume the product is only for use in the country in which it is bought.
Each member of the court asked at least one question, but none of the judges, not specifically mentioned previously, gave a clear indication of how he or she would rule in this case.
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Fiacco is a member of this journal's advisory board.