BIO Reacts to Supreme Court opinion in Impression Products, Inc. v. Lexmark International, Inc.

This article was originally published here

On Tuesday, May 30, 2017, the U.S. Supreme Court issued an opinion in  Impression Products, Inc. v. Lexmark International, Inc.

As mentioned in our previous post on this case, the issue before the court was whether or not 1) international sales exhausted patent rights, and 2) if conditional restrictions on the sale of the patent by the patentee exhausted patent rights.

BIO and Croplife International submitted an amicus brief supporting Lexmark International, Inc. in February.

In a 7-1 ruling authored by Chief Justice Roberts, the Court determined that Lexmark had exhausted its patents rights, and could not sue Impression Products for patent infringement with respect to its toner cartridges sold abroad, “because an authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.”

Justice Ginsburg filed an opinion concurring in part and dissenting in part. Justice Gorsuch took no part in the consideration or decision of the case.

In a post for IP Watchdog, Melissa Brand, BIO’s Associate Counsel and Director, Intellectual Property Policy provided this reaction:

“The Court’s decision will change decades of established commercial practice essential to the U.S. economy.  The Court provided no analysis of whether such sweeping changes are necessary or even beneficial.  Instead, relying on theories of property rights articulated in the 17th Century—a time at which our country was burning people for witchcraft—and a superficial similarity to copyright law, the Court upends established practices, opening the floodgates of grey marketed products to the detriment of consumers in less affluent markets.

With respect to the domestic component, the Court’s decision greatly reduces the incentive for patentees to utilize conditional sales.  This penalizes manufacturers who sell products at preferential prices to special users who could not otherwise afford the product.  For example, manufacturers will have to rethink whether sales for “research use only” to universities at lower cost will continue to be commercially viable.  This could make it more difficult for the end products of such research endeavors to be made available to the public.

The consequences of the Court’s ruling on international exhaustion run counter to decades of U.S. trade negotiations and will have countless unintended and unforeseen consequences.  By extending U.S. patent law to foreign transactions that have nothing to do with the United States, the Court has called into question thousands of existing contracts between patentees and foreign distributors, many of which will now need to be renegotiated.  Further, because regional pricing will now be virtually eliminated, consumers in less affluent markets will be disadvantaged.  This will inevitably lead to an increase in grey marketed goods in the U.S.  FDA regulations and emphasis on drug safety will currently mitigate the potential harm in the pharmaceutical sector, but other industries with less regulation will be immediately impacted.  And it should be noted that, despite the Court’s suggestion to the contrary, this case itself illustrates that contract law will not be an effective alternative: Lexmark was not in privity with Impression Products, and therefore Lexmark could not have sued Impression Products for breach of contract.  Lexmark’s recourse would have been to sue the individual consumers who entered into the Return Program contracts with Lexmark.  Not only would suing individual consumers be unrealistic and expensive, but the remedies available to Lexmark and the ability of the individual consumers to satisfy judgments against them are unclear.”

In a press release, BIO CEO Jim Greenwood issued the following statement:

“BIO is concerned that today’s U.S. Supreme Court ruling in the case of Impression Products  v. Lexmark International could make it more difficult for patients across the world to gain access to critical therapies. The biotechnology industry is overwhelmingly comprised of small companies that rely on the stability and dependability of the patent system to bring innovative technologies to market. We fear this ruling will undermine that stability. The decision systematically undercuts innovative companies willing to sell their products at discounted prices for special uses, such as furthering scientific research and helping underserved populations. By extending the reach of U.S. patent law to foreign transactions that have nothing to do with domestic markets, the Court’s decision creates counterproductive uncertainty for U.S. innovators and their customers.

“BIO will work with our member companies to help them understand and comply with this ruling and adjust their intellectual property strategies accordingly.”

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