Patent and Copyright First-Sale and International Exhaustion Standards to Remain in Conflict … For Now!

On the heels of its March 19, 2013, decision in Kirtsaeng v. John Wiley & Sons, Inc., where the Supreme Court held that international exhaustion , i.e., an ex-U.S. first-sale rule applies to copyrights, the Court has surprisingly denied Ninestar Technology Co. Ltd.’s (“Ninestar”) petition for certiorari to consider whether international exhaustion applies to patents.

In our previous report on the Kirtsaeng decision, we discussed the key points of the Court’s holding. It would seem reasonable to assume that the application of the ex-US first-sale rule should apply similarly to both copyrights and patents. However, a key distinction is that the first-sale rule in copyright law has a statutory basis under the Copyright Act (17 U.S.C. §109), whereas the first-sale rule in patent law is grounded in common law. Interestingly, Justice Breyer, delivering the majority opinion in Kirtsaeng, wrote, “[t]he common law doctrine makes no geographical distinctions . . . .” This appears to conflict with recent Federal Circuit holdings involving the first-sale rule in patent law, such as Jazz Photo Corp. v. Int’l Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001) and Fuji Photo Film Co. v Jazz Photo Corp., 394 F.3d 1368 (Fed. Cir. 2005).

In the present case, Petitioner Ninestar carried out the practice of purchasing used Epson inkjet cartridges outside of the U.S., refilling the cartridges, and then importing the refilled cartridges for sale in the U.S. The International Trade Commission (“ITC”) ruled that Ninestar’s refilled cartridges violated Epson’s U.S. patents and issued general exclusion, limited exclusion, and cease and desist orders, prohibiting Ninestar from importing and selling the cartridges in the U.S. Ninestar continued its practice, and the ITC subsequently levied civil penalties against Ninestar in the amount of $11,110,000. Ninestar appealed the ITC ruling to the Federal Circuit, arguing that the first-sale doctrine extinguished Epson’s U.S. patent rights. The Federal Circuit affirmed the ITC’s ruling, applying the Jazz Photo standard that ex-US sales or manufacturing activity does not exhaust U.S. patents.

With the ruling in Kirtsaeng, and the subsequent non-decision in Ninestar, the discrepancy in the treatment of the first-sale doctrine and international exhaustion between copyright and patent law appears to be in conflict. This topic will likely be in play in subsequent Federal Circuit patent decisions.

In the meantime, it would be prudent for companies conducting international sales of U.S. patented products to carefully consider their business practices and their contract and licensing agreements, should the courts change patent first-sale doctrine and international exhaustion standards in light of Kirtsaeng.

Gibbons will continue to monitor the latest developments regarding the first-sale doctrine and international exhaustion in U.S. patent law, and will report any further developments as they arise.

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