If you aren’t an analyst in the print industry then it’s unlikely that you have heard about the Supreme Court case involving Lexmark and Impression Products. Furthermore, it’s probably unlikely that you have even heard of Impression Products, which is completely normal considering that the company manufactures non-OEM ink and toner supplies. Both companies are currently arguing a case that began in 2013 when Lexmark sued Impression Products for infringing on its toner patents. The case has since garnered attention from trade groups and businesses that span industries as the court’s decision could have major implications on how products are used after they are sold. Why is this case important? The outcome could potentially restrict what you do with products after you purchase them.
What are the Facts?
Lexmark owns many patents for the production of its toner cartridges, two of which are related to the use of its products after they are sold. The patents cover Lexmark’s regular cartridges and “return program” cartridges that sell within the manufacturer’s lineup. The return program cartridges restrict the use of the cartridge after the initial sale requiring the cartridge be used only once and returned to Lexmark. With the return program cartridges, customers typically purchase the product at a price discount in exchange for agreeing to return the cartridge once it’s empty, which hypothetically eliminates the empty cartridges from reaching landfills , as well as prevents them from ending up in the hands of third party non-OEM manufacturers – both of these outcomes represent wins for Lexmark. The regular cartridges are free of restrictions enabling the cartridges to be used in whatever manner the consumer desires after the initial sale.
Impression Products refilled and refurbished Lexmark printer cartridges, which were initially designated as single-use return program toners, after a third party company physically altered the cartridges in an effort to enable aftermarket usage in Lexmark devices. Impression Products then sold the products in question, which Lexmark argues violated its patent rights.
Lexmark won its first judicial arguments when the US District Court granted a favorable decision for the manufacturer roughly one year ago. Impression Products then appealed the ruling and the current decision in front of the Supreme Court serves as its last chance to argue the case.
What are the Arguments?
According to Impression Products, Lexmark relinquished its authority and title to the cartridges by selling them in the marketplace and therefore the aftermarket sale is non-infringing. Impression Products argues that patents have limits and manufacturers don’t have rights to the patented product after it’s sold. The argument falls under the doctrine of exhaustion, basically saying that even though Lexmark has a patent for the product’s composition, once the consumer purchases that product they have the liberty to do whatever they want with it. On the other side, Lexmark argues that it holds a patent for that toner limiting it to a single-use and return, and additionally, it was marketed and sold as such. Ultimately, the case argues whether a company that sold a product can use a patent to restrict how that product is used after it’s purchased.
Why the Case is Important?
The case essentially challenges an old judicial precedent underlining that patents primarily serve to promote invention and innovation, and that their rights are exhausted once the patented product is first sold. The decision for the Supreme Court is whether US law for patent exhaustion allows for after-sale restrictions. Basically, it’s asking what parts of the old legal doctrine are relevant in today’s environment?
At stake in this case are the legal rights of businesses across industries that use patented components in their products. The case is so important that the Supreme Court asked the US government to provide its thoughts on the decision. For all intents and purposes, Lexmark is the big bully corporation with a large legal department, and Impression Products represents the small business fighting for the rights of other small businesses. Should the court rule with Lexmark, manufacturers will be able to place increased restrictions on what companies and consumers do with patented products after they are sold; similar to the first sale doctrine with copyrights.
The parties re-entered court on March 21, 2017 when judges heard arguments from both sides. Thus far, it appears that the court could rule either way with an official decision likely a few months away. Based on historical precedent and the Justice Department’s support for Impression Products, it’s speculated that the court will side with Impression Products and overturn the District Court’s previous ruling. Interestingly, Lexmark is now owned by one of the world’s largest non-OEM printer supplies manufacturers, China-based Apex, and it’s ironic that this case involves Lexmark suing a non-OEM company for essentially implementing the same type of business operations and practices as their new parent company.
As an analyst in the print supplies industry, I understand both sides of the argument and agree in part with both Lexmark and Impression Products. All-in-all, I don’t agree that Lexmark can use a patent in this particular instance as Impression Products didn’t technically infringe on the patent and create a component that copies Lexmark’s technology. Patent infringement cases are currently very prevalent within the printer supplies industry and typically involve a non-OEM manufacturing a cartridge component that essentially mimics the OEM’s patented technology, which isn’t the case here. I would argue that Lexmark could restrict the use of its cartridges after the initial sale in other ways with contract clauses or copyright protection. Whatever the decision, it’s expected that it will significantly impact both sides of the case and eventually a wide range of industries with similar patent implications. Whose side are you on?