KEI files amicus brief in case on international patent exhaustion

On Tuesday, 27 November 2012, KEI filed an amicus brief to the Supreme Court of the United States in the case Ninestar Technology Co., et. al. v. International Trade Commission, et. al., supporting the Petitioners' petition for writ of certiorari (essentially asking the Supreme Court to agree to hear the case). This case involves the application of the patent exhaustion doctrine (also known as the first sale doctrine), specifically whether the United States applies a system of international exhaustion of rights or national exhaustion of rights. KEI's brief is available for download here.

Factual Background

Briefly, the facts of the case are as follows. Petitioner, Ninestar, manufactures inkjet printer cartridges, including those for use in printers made by Respondent, Epson. Epson has patented certain aspects of the cartridges it sells for use in the printers. The present case involves "remanufactured" cartridges, that is cartridges that are genuine products that have been used and refilled. Ninestar purchased used Epson cartridges, primarily outside the United States, then refilled them with ink. These cartridges were imported to the United States for sale and Epson then filed a complaint with the International Trade Commission (ITC). The ITC found for Epson and the Court of Appeals for the Federal Circuit affirmed the ITC decision, holding that because the printer cartridges were manufactured and sold abroad, Epson's rights were never exhausted.

Legal Background
Although the first sale doctrine is statutorily codified in the United States Copyright Act, there is no analogous statutory provision applying exhaustion of rights in the Patent Act. Exhaustion of patent rights is therefore a common law doctrine and one that has been applied in the United States since at least 1853.

The Supreme Court of the United States--and lower courts--have long applied a robust patent exhaustion doctrine, limiting a patent holder's rights over a patented good to the first authorized sale. 150 years of precedent by federal courts in the United States support strong patent exhaustion principles, regardless of the place of manufacture or sale. In applying a strong patent exhaustion doctrine, the Supreme Court has repeatedly relied on a "single-reward" principle, permitting the patent holder to seek a single reward but not allowing him to "double-dip" and exact a toll on each future resell of the patented good. Application of international exhaustion of rights supports the single-reward principle. The Second Circuit, Sixth Circuit, Eighth Circuit and numerous district courts, relying on Supreme Court precedent, have all explicitly found in favor of international exhaustion of rights.

Not until the Federal Circuit's decision in the Jazz Photo Corp. v. Int'l Trade Comm'n case in 2001 did a United States court find that national exhaustion rather than international exhaustion applied. In that case, the Federal Circuit relied heavily on the Supreme Court's decision in a case from 1890, Boesch v. Graff, citing the case as support for a system of national exhaustion of rights. However, a closer look at Boesch reveals that the case actually stands for the proposition that where foreign sales are completed without authorization from the United States patent holder, patent rights are not exhausted. Application of this principle from Boesch clearly did not apply to Jazz Photo or the present case because Jazz Photo and Ninestar involve first authorized sales.

In the ten years since the Jazz Photo opinion, a decision that has been criticized as reversing longstanding court precedent in the United States, the Supreme Court has not heard a case that specifically involves international patent exhaustion. The present case could provide an appropriate vehicle for the Supreme Court to revisit this issue.

KEI's amicus brief
KEI's brief supports the Petitioners' petition for writ of certiorari and details the history of patent exhaustion in the United States. It argues that the Federal Circuit's decision applying national exhaustion of rights rather than international exhaustion violates the "single-reward" principle espoused in Supreme Court precedent, reverses longstanding application of international exhaustion, and fails to account for the very purpose of the patent system (to promote the progress of science and useful arts).

Additionally, KEI argues that the Federal Circuit's opinion can have unintended consequences, particularly if applicable to goods that are simply manufactured in a foreign country. Such a holding would result in greater protection given to foreign made works than domestically made works, encouraging companies to move manufacture overseas. It would also harm secondary markets, preventing resell of goods manufactured abroad, and thereby work to strengthen monopolies and raise prices. Even if the decision applies only to foreign sales of goods, price discrimination against United States consumers (including businesses who purchase patented goods for use in their operations) would still occur. Resale of patented products becomes risky for the downstream purchaser who would have need the entire chain of title to ensure that a first authorized sale occurred in the United States, an unworkable standard.

KEI acknowledges that there may be limited circumstances in which good public policy favors national rather than international exhaustion. However, as a general rule, the United States should apply international exhaustion. Where Congress deems it necessary to apply national exhaustion, it has shown that it is capable and willing to do so. For example, in the case of medicines, Congress passed the Prescription Drug Marketing Act of 1987 which included an explicit ban on re-importation of medicines. While the patent exhaustion doctrine limits patent rights, the Prescription Drug Marketing Act of 1987 provides manufacturers of drugs an additional importation right not subject to the same limitations on patent rights. Preventing re-importation of certain classes of patented goods is therefore possible and can be done outside the patent system.

In addition to its discussion regarding exhaustion of rights in the United States, KEI's brief also points out that international law explicitly permits countries to apply systems of international exhaustion. In fact, the majority of countries do not apply national exhaustion, but rather, rely on systems of either international or regional patent exhaustion. Countries that apply international exhaustion include, for example, Andorra, Antigua and Barbuda, Argentina, China, Costa Rica, Dominican Republic, Egypt, Guatemala, Honduras, India, Jordan, Kenya, New Zealand, Nicaragua, Pakistan, Paraguay, Philippines (for drugs and medicines), Singapore (with the exception of pharmaceutical products under certain conditions), South Africa, Uruguay and Vietnam. Although Japan does not include a statutory provision on exhaustion of rights, its case law applies international exhaustion principles absent any contractual restrictions. The European Union and Andean Community apply regional exhaustion. By contrast, examples of countries applying national exhaustion include Ghana, Liberia, Madagascar, Morocco, Mozambique, Namibia, Tunisia, and Uganda. Application of international exhaustion of rights would therefore be compliant with the TRIPS Agreement and in line with numerous other countries.

KEI therefore supports the petition for writ of certiorari, but also supports the Petitioners' request in the alternative to hold the case until the Supreme Court issues its decisions in the copyright exhaustion case, Kirtsaeng v. John Wiley & Sons, and the patent exhaustion case involving the application of exhaustion principles to self-replicating technology, Bowman v. Monsanto. Although those cases involve different issues (copyright rather than patents, or application to self-replicating technology rather than international exhaustion), the Supreme Court's opinions and reasoning in those cases could still be relevant and applicable to Ninestar.

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