Supreme Court Product Resale Decision a Win for Tech Resellers

The U.S. Supreme Court has recently overturned an appeals court ruling that held printer maker Lexmark could use its patent rights to prevent a third-party from selling discount ink cartridge refills without its permission. The third-party had purchased empty cartridges from Lexmark customers that had signed sales contracts prohibiting resale.

The decision has implications for online-based businesses that resell or repair the products of other companies.

The SCOTUS disagreed with Lexmark’s argument that it should be permitted to impose a host of restrictions and conditions upon the sale of its patented products in the secondary market. In doing so, the Court considered the flow of commerce and the degree to which such conditions would impede consumers’ ability to exercise discretion regarding how they wish to use products that they purchase.

The Court also ruled that companies cannot sue for patent infringement with respect to products sold abroad, which a third-party acquired from purchasers and imported into the United States, because an authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.

Justice Ginsburg authored a partial dissent on the majority opinion’s ruling regarding products sold abroad.

The complete precedential value of this decision in other contexts is presently uncertain. However, this ruling clarifies the limits of patent rights and the amount of control companies are able to maintain over their products after they are sold. Once a company has sold a product, it may not use patent rights to impose conditions on resale or repair, and thereby eliminate aftermarket competition.

Contact a Federal Trade Commission defense lawyer if you would like to discuss the Commission’s recent investigations and enforcement actions, or if you are the subject of a local, state attorney general or federal regulatory matter.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.

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