BIO and Croplife International Submit Brief of Amicus Curiae in Impression Products Inc. v. Lexmark International Inc. (Supreme Court of the United States)
SUMMARY OF ARGUMENT
The Court faces two important and wholly distinct questions directed to longstanding principles of patent exhaustion. The Federal Circuit’s en banc opinion below joined by ten members of that court, reaffirmed the delicate balance struck between a patent owner’s ability to protect and enforce its patent rights and the public’s interest in access to patented inventions, including for improvements and further innovation. Lexmark International, Inc. v. Impression Products, 816 F.3d 721 (Fed. Cir. 2016).
The decision below affirming the Federal Circuit’s prior holding in Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), is supported by century-old Supreme Court precedent confirming the territoriality of the U.S. patent system and furthering important public policy. Contrary to Petitioner’s argument, nothing in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013), counsels for a change in the territorial limitation of patent exhaustion. Kirtsaeng concerned interpretation of the Copyright Act and has little import for the judicially-created doctrine of patent exhaustion. Key differences between copyright law and patent law diminish Kirtsaeng’s applicability. Among other things, copyright law is far more uniform globally than patent law, such that U.S. patent owners face considerably more uncertainty in protecting their innovations outside the United States than do copyright holders.
The territorial limitation on patent exhaustion advances public policy and economic efficiency. It permits innovators to sell patented products internationally at locally-driven market prices. The ability to deploy regional pricing internationally encourages innovators to maximize the distribution of important biotechnology products, including lifesaving therapies and innovative bioagricultural products, in developing countries. In addition, regional pricing is commercially and socially efficient: market-specific prices account for factors such as the relative value of intellectual property rights in different markets, local demand, wealth distribution, price regulation, local manufacturing requirements, compulsory licensing practices, and special imposts and tariffs.
Not only is the current exhaustion regime beneficial to the public, it also helps the U.S. economy and creates jobs for American workers. As a matter of public policy, the current regime favors domestic exporters over importers of foreign-made products. If U.S. patent owners were to lose control of their U.S. patent rights by selling abroad, the economic incentives would favor importers of foreign goods over U.S. manufacturers. Congress has had many opportunities in recent years to review and amend the patent laws, but it has chosen not to alter the territorial limitation of this enduring doctrine of patent law. Indeed, upending this tenet would harm innovative companies and the benefits of innovation enjoyed by the public, rewarding resellers and importers who seek to profit from arbitrage.
The Federal Circuit’s decision below affirming its prior holding in Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992) also remains good law: conditional sales of patented products do not exhaust patent rights. In Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), this Court declined to modify the Federal Circuit’s holding in Mallinckrodt. That is not surprising. Mallinckrodt rests on longstanding precedent recognizing the right of a patent owner to convey only a portion of the patent right without giving away the rest. The Court should reaffirm this precedent, on which industry members have relied for decades to structure their businesses and to establish the value of rights and products they convey through licenses and sales contracts. See Kimble v. Marvel Entm’t, LLC, 135 S. Ct. 2401, 2409-10 (2015).
Conditional sales are important to the biotechnology industry. They are an integral part of bioagricultural and agrichemical companies’ product stewardship programs. These stewardship programs impose conditions of use on products such as seed, herbicides, and insecticides that are intended to protect the health of farmers and the environment.
Conditional sales also permit buyers and sellers of a patented product to negotiate use of a portion of the patent right at a corresponding price reflecting the buyer’s intended specific use. Under current law, for example, biotechnology companies have an incentive to provide patented products, subject to research-only use restrictions, at a price lower than that of a commercial-use sale in order to further basic research and innovation. If the materials are thereafter conveyed to others who lack privity with the patent owner and who use them for commercial purposes, the patent owner can invoke patent law to enjoin or to seek fair compensation for unauthorized uses beyond the scope of the conditional sale. Without the ability to attach appropriatelypriced conditions to the sale of a patented product, those products could be offered only at uniform, higher prices, effectively eliminating access for limited commercial uses (e.g., veterinary use), diagnostic uses, or purely non-commercial, research uses—including by universities and other research institutions.
Mallinckrodt has stood the test of time, and BIO and CropLife members have relied on its doctrine in structuring their businesses. Petitioner’s dire public policy predictions cannot be reconciled with reality: companies have thrived under the current regime for decades while the public has enjoyed enormous benefits from the resulting innovation. Far from Petitioner’s parade of horribles, restricted domestic sales benefit the industry, the public, and the U.S. economy as a whole.
BIO and CropLife members have long relied on both doctrines to plan their research and development efforts, determine market prices of their patented products, negotiate sales of those products, and reinvest for further innovation. Given the importance of these doctrines and the public policy considerations underlying them, this Court should affirm the holding below.