lexmark (continued): why jazz photo is a … · wegner, lexmark (continued): why jazz photo is a...

LEXMARK (CONTINUED): WHY JAZZ PHOTO IS A FLAWED OPINION *

Harold C. Wegner**

This paper is an extension of a main paper, Lexmark: Jazz Photo Denial of

Patent Exhaustion (April 15, 2015)(attached as a first appendix), which deals with

the upcoming en banc reconsideration of the doctrine of international patent

exhaustion keyed to the case of first impression of the Federal Circuit in Jazz

Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094 (Fed.Cir.2001) (Newman, J.).

Missing in the main paper is an analysis of the Jazz Photo opinion. The

analysis is found in International Patent Exhaustion: Whither the Supreme Court?

(2010), attached as a second appendix.

Jazz Photo, a Seriously Flawed Opinion

Whether the holding in Jazz Photo is right or wrong is not the point of the

present paper.

Rather, the issue for this writer, here, is that when the Federal Circuit speaks

on a very important point in a case of first impression as it did in Jazz Photo it

should present a reasoned opinion that goes first of all through the legal precedent

of the Supreme Court that may be relevant and then, at its option, go into policy

reasons for or against a particular position.

__________________

*April 16, 2015.

**Biographical information is included in the first appendix.

Wegner, Lexmark (Continued): Why Jazz Photo Is A Flawed Opinion

2

What happened in Jazz Photo is that there was a paucity of any significant

discussion at all. For domestic exhaustion to occur the first sale must be from the

patentee or his licensee or other person who took title from the patentee. The

international exhaustion issue in Jazz Photo is whether taking title from the

patentee of goods in a foreign country triggers exhaustion.

The entire basis for the holding denying international exhaustion in Jazz

Photo is set forth in less than seventy-five words:

United States patent rights are not exhausted by products of foreign provenance.

To invoke the protection of the first sale doctrine, the authorized first sale must

have occurred under the United States patent. See Boesch v. Graff, 133 U.S. 697,

701-703 (1890) (a lawful foreign purchase does not obviate the need for license

from the United States patentee before importation into and sale in the United

States).

Jazz Photo, 264 F.3d at 1105.

If Jazz Photo had been on all fours with Boesch v. Graff then the brief

opinion in Jazz Photo would have been correctly reasoned. But, as discussed in

the second appendix paper, Boesch v. Graff had absolutely nothing to do with an

offshore purchase from the patentee but, instead, involved a purchase from the

patentee’s competitor.

Should Lexmark Modify Jazz Photo?

The holding in Jazz Photo is of paramount importance particularly to the

pharmaceutical industry; but, this is not the point of the present paper: Without

en banc clarification of Jazz Photo it would be inevitable that at some point the

Supreme Court would grant review of Jazz Photo.

Wegner, Lexmark (Continued): Why Jazz Photo Is A Flawed Opinion

3

To the extent that one agrees with the holding in Jazz Photo that there is no

international patent exhaustion, such a person should welcome the en banc

opportunity to provide a reasoned basis for sustaining the holding in the case.

Anyone who disagrees with the holding in Jazz Photo should also be pleased

with en banc review and the chance to seek a course correction in the case law.

This writer expresses no opinion at this time on the merits as to whether Jazz

Photo was correctly decided as to its holding. The writer acknowledges, however,

that his views on the subject have been well known in domestic and international

circles for many years.*

* F. Müller & H. Wegner, Negram: The Common Market-Wide Exhaustion of Patent Rights

Through Territorial Licenses, 57 JOUR. PAT. & TRADEMARK OFF. SOC'Y 46 (1975); Parallel

Imports of Patented Goods: Killing the Technology Transfer Goose, paper presented to the

Licensing Executives Society (France), Paris, May 1998; and presentation at the Fordham

University School of Law, Sixth Annual Conference on International Intellectual Property Law &

Policy, Apr. 16-17, 1998; Parallel Imports, lecture to Peking University Law Faculty, May 1994;

Parallel Import Practice Restored in Japan: Negating the Implied License to Resell a Patented

Product, privately circulated analysis of the 1997 Japanese Supreme Court opinion keyed to the

writer’s appearance by affidavit as expert in pleadings before the court; Japan AIPPI Gotemba

Intellectual Property Law Conference, Gotemba, Japan, September 29-30, 1995; Patent Parallel

Imports in Japan, Conusmer Promise or Patent Peril: The Aluminum Wheels Parallel Import Case

(www.foleylardner.com) (1995); Japan Violation of Patent Trade Principles - Impact,

Consequences and Dealing with the Decision Permitting Patent Parallel Imports into Japan,

Dinwoodey Center White Paper, April 28, 1995; Interview, Victoria Slind-Flor, Japanese Ruling

Upsets Importers and IP Lawyers: Patent Holders Fear Losing Fair Market Prices, NATIONAL

LAW JOURNAL, p. A7 (May 1, 1995); Parallel importe unter der Einfluß der Japanischen

Rechtsprechung Dazu (Parallel Imports and the Influence of Japanese Judicial Pronouncements)

(GRUR Vortragsabend, October 24, 1995, Frankfurt).

LEXMARK: JAZZ PHOTO DENIAL OF PATENT EXHAUSTION*

Harold C. Wegner**

I. OVERVIEW 2

II. THE JAZZ PHOTO EXHAUSTION ISSUE IN LEXMARK 3

III. HISTORIC INTERNATIONAL PATENT EXHAUSTION 4

IV. FEDERAL CIRCUIT DENIAL OF THE DOCTRINE 5

V. GLOBAL FOCUS ON INTERNATIONAL EXHAUSTION 7

VI. A POST-KIRSTAENG OPPORTUNITY FOR CLARIFICATION 9

VII. CONCLUSION 11

About the Author 12

______ *This paper represents the personal views of the author.

This version: April 12, 2015.

**

Biographical information appears at page 12.

Wegner, Lexmark: Jazz Photo Denial of Patent Exhaustion

2

I. OVERVIEW

Should an overseas “first sale” exhaust patent rights? Should

international patent exhaustion be introduced into United States law? This is the

first issue presented for en banc consideration in Lexmark International, Inc. v.

Impression Products, Inc., No. 2014-1617, unpublished (Fed. Cir. April 14,

2015)(en banc)(Order granting en banc review). The Federal Circuit asks whether

its denial of this doctrine established in Jazz Photo Corp. v. Int'l Trade Comm'n,

264 F.3d 1094 (Fed.Cir.2001) (Newman, J.), should be reconsidered in view of the

Supreme Court decision in Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351

(2013). See § II, The Jazz Photo Exhaustion Issue in Lexmark.

This paper next considers the “first sale” or “patent exhaustion” doctrine in

the context of international patent exhaustion. See § III, International Patent

Exhaustion. While there have been numerous Supreme Court patent exhaustion

cases dating back to the nineteenth century, there has never been a Supreme Court

holding either confirming or denying the existence of international patent

exhaustion. In the absence of Supreme Court precedent, this vacuum was filled by

Jazz Photo. See § IV, Federal Circuit Denial of the Doctrine.

While the United States law of international patent exhaustion is in a

relatively nascent state, the topic has been one of intense international debate that

has split the developed and developing worlds. See § V, Global Focus on

International Exhaustion. While the Federal Circuit has passed on opportunities to

clarify Jazz Photo in the past, it has granted review at this stage because of the

close parallels between the international patent exhaustion doctrine and the parallel

issues relating to copyright law in Kirtsaeng. See § VI, A Post-Kirstaeng

Opportunity for Clarification.


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II. THE JAZZ PHOTO EXHAUSTION ISSUE IN LEXMARK

Per the Order in Lexmark, this is a “case [which] involves certain sales,

made abroad, of articles patented in the United States”. The first issue presented

for en banc briefing asks whether the rule of international patent exhaustion should

apply to the United States:

“In light of Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2012) should

this court overrule Jazz Photo v. International Trade Commission, 264 F.3d 1094

(Fed. Cir. 2001), to the extent [Jazz Photo] ruled that a sale of a patented item

outside the United States never gives rise to United States patent exhaustion.”

The Order was granted prior to any panel decision in the case without

dissent or any other separate opinion.

(The Order also includes a second issue that asks: “In light of Quanta

Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court

overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the

extent [that Mallinckrodt] ruled that a sale of a patented article, when the sale is

made under a restriction that is otherwise lawful and within the scope of the patent

grant, does not give rise to patent exhaustion?”)


4

III. HISTORIC INTERNATIONAL PATENT EXHAUSTION

“Patent exhaustion” is the doctrine whereby a patent owner on his “first

sale” loses all right to control the use or resale of patented goods. After the patent

owner has received whatever reward through the purchase price or otherwise in the

first sale, the customer is then free to resell or otherwise dispose of the patented

product free from the patent right.

As explained by the Supreme Court in Quanta Computer:

“The longstanding doctrine of patent exhaustion provides that the initial authorized

sale of a patented item terminates all patent rights to that item. This Court first

applied the doctrine in 19th-century cases addressing patent extensions on the

Woodworth planing machine. Purchasers of licenses to sell and use the machine

for the duration of the original patent term sought to continue using the licenses

through the extended term. The Court held that the extension of the patent term did

not affect the rights already secured by purchasers who bought the item for use ‘in

the ordinary pursuits of life.’ Bloomer v. McQuewan, 55 U.S. (14 How.) 539, 549

(1853); see also ibid. (‘[W]hen the machine passes to the hands of the purchaser, it

is no longer within the limits of the monopoly’); Bloomer v. Millinger, 68 U.S. (1

Wall.) 340, 351 (1864). In Adams v. Burke, 84 U.S. (17 Wall.) 453 (1873), the

Court affirmed the dismissal of a patent holder's suit alleging that a licensee had

violated postsale restrictions on where patented coffin-lids could be used. ‘[W]here

a person ha[s] purchased a patented machine of the patentee or his assignee,’ the

Court held, ‘this purchase carrie[s] with it the right to the use of that machine so

long as it [is] capable of use.’ Id., 84 U.S. (17 Wall.) at 455.”

Quanta Computer, 533 U.S.at 625.

International patent exhaustion refers to the situation where the patentee

holds parallel patents in two countries, a first sale occurs in the first country, and

the purchaser then resells the patented product in the second country without

further permission from the patentee.


5

Countries that permit such resale are said to follow a doctrine of

international patent exhaustion.

Other countries say that the territorial limits of the patent right mean that a

separate royalty or tribute is necessary for each country. This is a denial of the

doctrine of international patent exhaustion.

IV. FEDERAL CIRCUIT DENIAL OF THE DOCTRINE

In the United States, the Supreme Court has never had a holding on all fours

to either embrace or deny the doctrine of international patent exhaustion, despite a

rich history of domestic patent exhaustion jurisprudence.

Filling this vacuum, the Federal Circuit denied the application of

international patent exhaustion in its 2001 Jazz Photo Corp. decision, supra,

followed in FujiFilm Corp. v. Benum, 605 F.3d 1366 (Fed. Cir. 2010)(per

curiam)(Michel, C.J., Mayer, Linn, JJ.); see Fuji Photo Film Co., Ltd. v.

International Trade Com'n, 474 F.3d 1281, 1285 (Fed. Cir. 2007)(Dyk,

J.)(discussing Jazz Photo Corp. v. United States, 439 F.3d 1344 (Fed.Cir.2006);

Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368 (Fed.Cir.2005); Fuji

Photo Film Co. v. Int'l Trade Comm'n, 386 F.3d 1095 (Fed.Cir.2004).


6

Jazz Photo has had a remarkable history as precedent, given the shallow

treatment of the issue. It survived review in the wake of Quanta Computer, Inc. v.

LG Electronics, Inc., 533 U.S. 617 (2008). See Harold C. Wegner, Post-Quanta,

Post-Sale Patentee Controls, 7 J. Marshall Rev. Intell. Prop. L. 682, 698 (2008).

Given the importance of an issue of first impression at the Supreme Court

first arising in the twenty-first century, it would be thought that there would have

been an extensive discussion of public policy and previous case law in the

deliberations by the Federal Circuit.

Instead, there is no such discussion but rather the simple statement that “[t]o

invoke the protection of the first sale doctrine [of exhaustion], the authorized first

sale must have occurred under the United States patent.” Jazz Photo, 264 F.3d at

1105. The court gives no reason but merely cites to Boesch v. Graff with a

parenthetical statement of what it viewed as the holding of that case: “[A] lawful

foreign purchase does not obviate the need for license from the United States

patentee before importation into and sale in the United States.” Id., citing Boesch v.

Graff, 133 U.S. at 701-03.

But, Boesch v. Graff has nothing to do with international patent exhaustion,

because the patentee never sold the patented product at issue so he never

“exhausted” any right under any patent.


7

What happened in Boesch v. Graff is that the patentee owned patents in both

countries “A” and “B”, but the patentee did not sell the Framus in Country “A”.

Rather, the seller in Country “A” was an independent competitor of the patentee

who was able to lawfully sell the Framus in Country “A” because he had defeated

a patent infringement lawsuit in Germany on the basis that he had independently

invented the Framus prior to the critical date for establishment of a prior user right.

Thus, the independent competitor sold his Framus without permission or reward

from the patentee based upon the German national prior user right statute.

V. GLOBAL FOCUS ON INTERNATIONAL EXHAUSTION

International exhaustion is one of the most contentious points of

international patent trade discussions. While many developing countries have

adopted international patent exhaustion, there has also been adoption of

international patent exhaustion within the developed countries of the world.

Within the European Union, there is now a doctrine of international patent

exhaustion for a first sale in a member state so that, for example, the purchaser of

pharmaceuticals on the open market in the United Kingdom is able to export the

thus-purchased products to Germany and Holland free from patent infringement.

Japan has adopted international patent exhaustion with the exception that there is

no exhaustion where the purchaser in Country “A” is on notice of the patent right.


8

In the negotiations leading up to the 1994 Marakesh Agreement establishing

the TRIPS, the United States was able to lead a coalition of developed countries to

striking victories to establish minimum standards of patent protection that favored

strong patent rights.

The one area where victory could not be achieved was the establishment of a

standard denying international patent exhaustion. To avoid any possibility that

future panels of the World Trade Organization deciding disputes under the TRIPS

could reach this decision, the developing countries insisted upon an express

provision in the TRIPS that makes it clear that international exhaustion was not a

topic of agreement. Hence, the express statement is found in the Marakesh Treaty

itself that “[f]or the purposes of dispute settlement under this Agreement, subject to

the provisions of [TRIPS] Articles 3 [providing for national treatment] and 4

[providing most-favored-nation treatment,] nothing in this [TRIPS] Agreement

shall be used to address the issue of the exhaustion of intellectual property rights.”

TRIPS, Article 6.


9

VI. A POST-KIRSTAENG OPPORTUNITY FOR CLARIFICATION

The Kirtsaeng establishment of a doctrine of international intellectual

property rights exhaustion was in the context of copyright law.

The issue in Kirtsaeng as phrased by the majority was “whether the ‘first

sale’ doctrine applies to protect a buyer or other lawful owner of a copy (of a

copyrighted work) lawfully manufactured abroad. Can that buyer bring that copy

into the United States (and sell it or give it away) without obtaining permission to

do so from the copyright owner? Can, for example, someone who purchases, say at

a used bookstore, a book printed abroad subsequently resell it without the

copyright owner's permission?” Kirtsaeng, 133 S.Ct. at 1355.

The Court held that international exhaustion does apply: “ In our view, the

answers to these questions are, yes. We hold that the ‘first sale’ doctrine applies to

copies of a copyrighted work lawfully made abroad. “Kirtsaeng, 133 S.Ct. at 1355-

56.

While the Kirtsaeng case dealt with specific statutory language relevant to

copyright law, nevertheless the majority opinion delved deeply into policy

considerations including the history of the law in England:

The “first sale” doctrine is a common-law doctrine with an impeccable

historic pedigree. In the early 17th century Lord Coke explained the common law's

refusal to permit restraints on the alienation of chattels. Referring to Littleton, who

wrote in the 15th century, Gray, Two Contributions to Coke Studies, 72 U. Chi.

L.Rev. 1127, 1135 (2005), Lord Coke wrote:

“[If] a man be possessed of ... a horse, or of any other chattell ... and give or

sell his whole interest ... therein upon condition that the Donee or Vendee shall not


10

alien[ate] the same, the [condition] is voi[d], because his whole interest ... is out of

him, so as he hath no possibilit[y] of a Reverter, and it is against Trade and

Traffi[c], and bargaining and contracting betwee[n] man and man: and it is within

the reason of our Author that it should ouster him of all power given to him.” 1 E.

Coke, Institutes of the Laws of England § 360, p. 223 (1628).

A law that permits a copyright holder to control the resale or other disposition

of a chattel once sold is similarly “against Trade and Traffi[c], and bargaining and

contracting.” Ibid.

With these last few words, Coke emphasizes the importance of leaving buyers

of goods free to compete with each other when reselling or otherwise disposing of

those goods. American law too has generally thought that competition, including

freedom to resell, can work to the advantage of the consumer. See, e.g., Leegin

Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007)(restraints

with “manifestly anticompetitive effects” are per se illegal; others are subject to the

rule of reason (internal quotation marks omitted)); 1 P. Areeda & H. Hovenkamp,

Antitrust Law ¶ 100, p. 4 (3d ed. 2006) (“[T]he principal objective of antitrust

policy is to maximize consumer welfare by encouraging firms to behave

competitively”).

The “first sale” doctrine also frees courts from the administrative burden of

trying to enforce restrictions upon difficult-to-trace, readily movable goods. And it

avoids the selective enforcement inherent in any such effort. Thus, it is not

surprising that for at least a century the “first sale” doctrine has played an

important role in American copyright law. See Bobbs–Merrill Co. v. Straus, 210

U.S. 339 (1908); Copyright Act of 1909, § 41, 35 Stat. 1084. See also Copyright

Law Revision, Further Discussions and Comments on Preliminary Draft for

Revised U.S. Copyright Law, 88th Cong., 2d Sess., pt. 4, p. 212 (Comm. Print

1964) (Irwin Karp of Authors' League of America expressing concern for “the very

basic concept of copyright law that, once you've sold a copy legally, you can't

restrict its resale”).

Kirtsaeng, 133 S.Ct. at 1363.


11

VII. CONCLUSION

The Federal Circuit took the right approach in granting en banc review of

Jazz Photo. Whether the holding in that case was right or wrong, the reasoning of

Jazz Photo was clearly open to criticism. The Federal Circuit now has an

opportunity to revisit Jazz Photo anew and either conform its decision to Kirtsaeng

or provide a better supported argument favoring retention of its holding.


12

About the Author

HAROLD C. WEGNER is an

Expert Patent Consultant

operating from his home in

Naples, Florida.

Prof. Wegner is available to

cooperate with corporate and

law firm colleagues on matters

involving patent drafting and

procurement strategies,

appellate matters, opinions and

expert testimony.

Prof. Wegner also provides

continuing education services

tailored to individual

organizational needs.

Professor Wegner is a former

Patent Examiner who recently

concluded a more than twenty

year relationship with the

George Washington University

Law School where he had been

Director of the Intellectual

Property Law Program and

Professor of Law.

Professor Wegner operates as an

independent consultant

following his retirement from

Foley & Lardner LLP following

twenty years with the firm.

contact info:

Harold C. Wegner

Expert Patent Consultant

8805 Tamiami Trail North-PMB-150

Naples, Florida 34108

[email protected]

INTERNATIONAL PATENT EXHAUSTION:

WHITHER THE SUPREME COURT?*

Harold C. Wegner**

I. OVERVIEW

The Federal Circuit in FujiFilm Corp. v. Benum, __ F.3d __ (Fed. Cir.

2010)(per curiam)(Michel, C.J., Mayer, Linn, JJ.), under binding precedent of Jazz

Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094 (Fed.Cir.2001)(Newman, J.),

has reconfirmed the view of this circuit that there is no international patent

exhaustion. Overshadowing Fujifilm is the Supreme Court grant of certiorari to

permit consideration during the October 2010 Term of a merits appeal in yet

another international exhaustion case, Costco Wholesale Corp. v. Omega, S.A.,

Supreme Court No. 08-1423, opinion below, Omega S.A. v. Costco Wholesale

Corp., 541 F.3d 982 (9th Cir. 2008)(Smith, Jr., J.), which considers the issue in

the context of copyright exhaustion.

“Patent exhaustion” in simple terms means that once a patentee sells his

patented Framus, the purchaser holds title free and clear of the patent including the

right to resell the Framus to anyone. The gist of patent exhaustion is that the

patentee receives his reward by his first sale of the product, after which he has no

claim to control commerce in that already-sold product. The matter becomes more

complicated when the patentee holds global patent rights through parallel patents

* The views expressed herein are solely those of the author and do not necessarily

reflect the views of any colleague, organization or client thereof. This version: May 27, 2010.. Previous version: April 19, 2010 **Former Director of the Intellectual Property Law Program and Professor of Law,

George Washington University Law School. Partner, Foley & Lardner LLP. comments: [email protected].

Wegner, International Patent Exhaustion: Whither the Supreme Court?

2

in several countries: Does the sale of the patented Framus in Country “A” mean

that the purchaser of the Country “A” Framus is free to sell that Framus anywhere

in the world? Under a theory of international patent exhaustion, the answer is

yes: The patentee has received his reward through the first sale in Country “A”;

now, he should not be able to control the resale of that same Framus in

Country “B”.

The Supreme Court has never ruled on international patent exhaustion.

Boesch v. Graff, 133 U.S. 697 (1890), is incorrectly cited as having dealt with

international exhaustion. Rather, Boesch v. Graff had nothing at all to do with an

authorized first sale by the patent owner but rather was a case dealing with prior

user rights.

Recently, the Court has given a broad interpretation to the scope of patent

exhaustion in the domestic context of Quanta Computer, Inc. v. LG Electronics,

Inc., 128 S.Ct. 2109 (2008), although international implications are found in this

case on remand, . LG Electronics, Inc. v. Hitachi, Ltd., 2009 WL 667232 (N.D.Cal.

2009)(Wilken, J.). See § II, Supreme Court International Patent Exhaustion.

While the Supreme Court has never ruled on international patent exhaustion,

there has been activity in the area of other international intellectual property

exhaustion issues in the context of copyright and trademark law. On April 19,

2010, the Court granted the petition for review in Costco v. Omega, which could

have profound implications for international patent exhaustion. See § III, The

Costco Case Now at the Supreme Court.


3

In the wake of Quanta, the Federal Circuit has issued an opinion in

TransCore, LP v. Electronic Transaction Consultants Corp., 563 F.3d 1271

(2009)(Gajarsa, J.), which gives a broad interpretation to patent exhaustion in the

setting of a domestic exhaustion fact pattern, while denying that Quanta compels a

change in Federal Circuit law to create a doctrine of international patent

exhaustion.

The Federal Circuit also does not operate on a clean slate in its consideration

of international patent exhaustion as the court in Jazz Photo. The ruling in Jazz

Photo gives a one sentence conclusion, with no explanation of any kind. In lieu of

an explanation for its holding, the court cites Boesch v. Graff, although this case is

one dealing with a prior user right and has absolutely nothing to do with an

authorized first sale by the patentee and a fortiori nothing to do with international

patent exhaustion. See § IV, Exhaustion Post-Quanta at the Federal Circuit.

Whatever decision on international patent exhaustion that the Supreme Court

will ultimately reach, there will be global implications as the United States during

the negotiations leading up to the Marrakesh Agreement establishing the World

Trade Organization and the “TRIPS” – the Trade Related Aspects of Intellectual

Property – took a strong stance against international exhaustion. The topic

remains one of great global interest. See § V, The Internationally Open Question

of Exhaustion.


4

II. SUPREME COURT INTERNATIONAL PATENT EXHAUSTION

The Supreme Court has never ruled on international patent exhaustion.

To be sure, the case of Boesch v. Graff, 133 U.S. 697 (1890), is sometimes

mistakenly cited for the proposition that there is no international exhaustion, but

the case has absolutely nothing to do with a first sale by the patentee. Thus,

international patent exhaustion would involve the patentee selling his Framus in

Country “A” (Germany) after which the patentee’s purchaser would resell the

Framus in Country “B” (the United States).

In Boesch v. Graff it is true that the patentee owned patents in both

countries “A” and “B”, but the patentee did not sell the Framus in Country “A”.

Rather, the seller in Country “A” was an independent competitor of the patentee

who was able to lawfully sell the Framus in Country “A” because he had defeated

a patent infringement lawsuit in Germany on the basis that he had independently

invented the Framus prior to the critical date for establishment of a prior user right.

Thus, the independent competitor sold his Framus without permission or reward

from the patentee based upon the German national prior user right statute.

More recently, the Supreme Court has provided guidance on its view of

exhaustion in general in Quanta, which involves both domestic and international

exhaustion issues, although only domestic exhaustion was directly involved in the

Supreme Court‟s decision.


5

The expectation that eventually the Supreme Court will review international

patent exhaustion in the wake of Quanta immediately became apparent from the

opinion. See Harold C. Wegner, Post-Quanta, Post-Sale Patentee Controls,

7 J. Marshall Rev. Intell. Prop. L. 682, 698 (2008). On remand in Quanta (now

styled as LG Electronics, Inc. v. Hitachi), the international exhaustion issue was

taken up with the trial court holding that a ruling in favor of international patent

exhaustion is mandated by the Supreme Court opinion.

III. THE COSTCO CASE NOW AT THE SUPREME COURT

While the Supreme Court has never dealt with international patent

exhaustion, the Court on several occasions has dealt with international intellectual

property exhaustion issues in the context of copyright and trademark law. In a case

before the Court on a merits appeal during the October 2010 Term, Costco raises

the question of international exhaustion of intellectual property rights in the

context of copyright law.

The specific Question Presented in the petition to the Court is stated thusly:

“Under the Copyright Act's first-sale doctrine, 17 U.S.C. § 109(a), the owner of

any particular copy „lawfully made under this title‟ may resell that good without

the authority of the copyright holder. In Quality King Distribs., Inc. v. L'Anza

Research Int'l, Inc., 523 U.S. 135, 138 (1998), this Court posed the question

presented as „whether the „first sale‟ doctrine endorsed in § 109(a) is applicable to

imported copies.‟ In the decision below, the Ninth Circuit held that Quality King

(which answered that question affirmatively) is limited to its facts, which involved

goods manufactured in the United States, sold abroad, and then re-imported. The

question presented here is:

“Whether the Ninth Circuit correctly held that the first-sale doctrine does not apply

to imported goods manufactured abroad.”


6

The great interest that at least four members of the Court have in the issue is

manifested by the fact that certiorari was granted despite a negative

recommendation whether to grant review by the Solicitor General, responsive to a

CVSG Order from the Court last year.

IV. EXHAUSTION POST-QUANTA AT THE FEDERAL CIRCUIT

FujiFilm v. Benum represents the first post-Quanta confrontation at the

Federal Circuit over the issue of international patent exhaustion, although the

Court in TransCore has already given Quanta a broad interpretation.

In Transcore, a panel broadly interpreted the scope of exhaustion under

Quanta. It stated that in Quanta, “the Supreme Court reiterated unequivocally that

„[t]he longstanding doctrine of patent exhaustion provides that the initial

authorized sale of a patented item terminates all patent rights to that item[.],‟”

TransCore, 563 F.3d at 1274 (quoting Quanta, 128 S.Ct. at 2115, 2121)(emphasis

added).

(As previously noted, in the Quanta case itself, when the case was returned

to the district court for consideration of international patent exhaustion, the trial

court ruled that international exhaustion does apply to extinguish patent rights.)

Prior to Quanta, the Federal Circuit in Jazz Photo Corp. v. Int'l Trade

Comm'n, 264 F.3d 1094 (Fed.Cir.2001)(Newman, J.), a case of first impression on

the issue of international exhaustion, gave no explanation at all for its one sentence

holding that “[t]o invoke the protection of the first sale doctrine [of exhaustion],

the authorized first sale must have occurred under the United States patent.” Jazz

Photo, 264 F.3d at 1105. Instead, the court merely gave the citation to Boesch v.

Graff with a parenthetical statement of what it viewed as the holding of that case

that “a lawful foreign purchase does not obviate the need for license from the


7

United States patentee before importation into and sale in the United States.” Id.

(citing Boesch v. Graff, 133 U.S. at 701-703). While it is entirely correct that this

was the holding of the case in the context of a lawful sale by the patentee’s

competitor the holding had nothing to do with international exhaustion which

would have implicated a sale by the patentee.

With Jazz Photo as binding circuit precedent, there have been several pre-

Quanta opinions reaching the same conclusion. See Fuji Photo Film Co., Ltd. v.

International Trade Com'n, 474 F.3d 1281, 1285 (Fed. Cir. 2007)(Dyk,

J.)(discussing Jazz Photo Corp. v. United States, 439 F.3d 1344 (Fed.Cir.2006);

Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368 (Fed.Cir.2005); Fuji

Photo Film Co. v. Int'l Trade Comm'n, 386 F.3d 1095 (Fed.Cir.2004).

In Transcore, the court distanced itself from cases like Boesch v. Graff

dealing with a mere lawful sale by anyone, interpreting Quanta as ruling that

“[e]xhaustion is triggered only by a sale authorized by the patent holder[.]”

TransCore, 563 F.3d at 1274 (quoting Quanta, 128 S.Ct. at 2115, 2121)(emphasis

added).

In Fujifilm Corp. v. Benum, __ F.3d __ (Fed. Cir. 2010)(per

curiam)(Michel, C.J., Mayer, Linn, JJ.), the court continued the rule of Jazz Photo,

denying the existence of international patent exhaustion. The Court denied the

applicability to this case of Quanta Computer, Inc. v. LG Electronics, Inc., 553

U.S. __, 128 S. Ct. 2109 (2008), which did not involve international exhaustion:

“Holding the case governed by United States v. Univis Lens Co., 316 U.S. 241

(1942) (exhaustion occurs when the only reasonable and intended use of the

products sold is to complete the patented combination), the Court [in Quanta]

found that Intel‟s chips substantially embodied the patented invention and their

unconditional, authorized sale by Intel thereby exhausted LG‟s patents. Quanta

Computer, Inc., 553 U.S. at , 128 S. Ct. at 2122.


8

“Defendants assert that Quanta created a rule of „strict exhaustion,‟ that the

Court‟s failure to recite the territoriality requirement eliminated it. That case,

however, did not involve foreign sales. Defendants rely on Quanta’s footnote 6

because it contains the phrase „[w]hether outside the country.‟ [footnote omitted]

This phrase, however, emphasizes that Univis required the product‟s only use be

for practicing–not infringing–the patent; and a practicing use may be “outside the

country,” while an infringing use must occur in the country where the patent is

enforceable. Read properly, the phrase defendants rely on supports, rather than

undermines, the exhaustion doctrine‟s territoriality requirement. LGE suggests

that the Intel Products would not infringe its patents if they were sold overseas,

used as replacement parts, or engineered so that use with non-Intel products would

disable their patented features. But Univis teaches that the question is whether the

product is „capable of use only in practicing the patent,‟ not whether those uses are

infringing. Whether outside the country or functioning as replacement parts, the

Intel Products would still be practicing the patent, even if not infringing it.”

Quanta Computer, Inc., 553 U.S. at __, 128 S. Ct. at 2119 n.6 (citations omitted)

(emphasis in original)”.

A petition for certiorari for Supreme Court review is due August 25, 2010.

V. THE INTERNATIONALLY OPEN QUESTION OF EXHAUSTION

International exhaustion is one of the most contentious points of

international patent trade discussions. While many developing countries have

adopted international patent exhaustion, there has also been adoption of

international patent exhaustion within the developed countries of the world.

Within the European Union, there is now a doctrine of international patent

exhaustion for a first sale in a member state so that, for example, the purchaser of

pharmaceuticals on the open market in the United Kingdom is able to export the

thus-purchased products to Germany and Holland free from patent infringement.

Japan has adopted international patent exhaustion with the exception that there is

no exhaustion where the purchaser in Country “A” is on notice of the patent right.


9

In the negotiations leading up to the 1994 Marrakesh Agreement

establishing the TRIPS, the United States was able to lead a coalition of developed

countries to striking victories to establish minimum standards of patent protection

that favored strong patent rights. The one area where victory could not be

achieved was the establishment of a standard denying international patent

exhaustion. To avoid any possibility that future panels of the World Trade

Organization deciding disputes under the TRIPS could reach this decision, the

developing countries insisted upon an express provision in the TRIPS that makes it

clear that international exhaustion was not a topic of agreement. Hence, the

express statement is found in the Marakesh Treaty itself that “[f]or the purposes of

dispute settlement under this Agreement, subject to the provisions of [TRIPS]

Articles 3 [providing for national treatment] and 4 [providing most-favored-nation

treatment,] nothing in this [TRIPS] Agreement shall be used to address the issue of

the exhaustion of intellectual property rights.” TRIPS, Article 6.

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