Reasonable Patent Exhaustion

Posted by Social Science Research Network

Reasonable Patent Exhaustion

By Herbert J. Hovenkamp (University of Pennsylvania)

Abstract:      A lengthy tug of war between the Supreme Court and the Federal Circuit Court of Appeals may have ended when the Supreme Court held that the sale of a patented article exhausts the patentee seller’s rights to enforce restrictions on that article through patent infringement suits. Further, reversing the Federal Circuit, the parties cannot bargain around this rule through the seller’s specification of conditions stated at the time of sale, no matter how clear. No inquiry need be made into the patentee’s market power, anticompetitive effects, or other types of harms, whether enforcement of the condition is socially costly or valuable, or has a positive or negative impact on innovation. None of this is relevant.

Lexmark was attempting to use patent law to impose a variable proportion tie – in this case, a requirement that users of its printers also use its own original equipment toner cartridges. The general although not unanimous consensus is that such arrangements are economically beneficial, and largely everyone agrees that they are beneficial when the seller lacks market power, as Lexmark did n this case.

Impression Products reveals an economic deficiency that manifests all too frequently when patent law is brought to bear on market practices. Economic concepts such as market power or output effects which are commonly …

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