Supreme Court Lexmark Patent Decision A Win for State Right to Repair Legislation

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as scribbles occasional travel pieces for The National.

The United States Supreme Court on Tuesday in Impression Products v Lexmark International struck down restrictions a patent holder sought to place on subsequent use of its products after they are sold. This landmark patent decision has implications for the right to repair movement.

I’ve written about the topic of state right to repair legislation previously in Apple Spends Big to Thwart Right to Repair in New York and Elsewhere  and Waste Not, Want Not: Right to Repair Laws on Agenda in Some States. It is on the consequences the decision implies for these and other right to repair initiatives that I intend to focus in this short post– rather than delve into the minutiae of patent law. (Readers interested in a more comprehensive summary of the decision’s importance– particularly for the doctrine of “patent exhaustion”– might find useful this Scotusblog account, Opinion analysis: Federal Circuit loses again, as justices categorically reject enforcement of post-sale patent restrictions.)

Lexmark Decision

Chief Justice John G. Roberts Jr. authored the majority opinion, with which 6 other justices joined in full. Justice Ruth Bader Ginsburg concurred in part with the majority opinion, and dissented only with respect to the cross-border applicability of the decision (an issue I won’t explore further here). Neil Gorsuch, the newest justice, did not participate in this decision.

Lexmark makes printer cartridges, the design of which allows them to be refilled and reused. Lexmark imposed contractual conditions on buyers preventing subsequent sale or use of its cartridges, specifically, that in exchange for a discount, a buyer would agree both to use  a cartridge only once and also, not to transfer the empty cartridge to anyone but Lexmark.  I won’t delve into details of how Lexmark sought to enforce these contractual provisions– but these included embedding microchips in the cartridges.

Now whereas the Court acknowledged that Lexmark may have had a legitimate claim against buyers for violating these contractual conditions by going to companies that would refill the contracts at a lower cost than would Lexmark, the company didn’t try and enforce those claims. Instead, Lexmark’s lawsuit targeted companies that refilled the cartridges. Since Lexmark had no contractual claim against these companies, it brought a patent action. As reported by the Wall Street Journal in Supreme Court Rules Lexmark Can’t Sue Toner-Cartridge Fillers for Patent Infringement, this legal strategy seemed to provide Lexmark with advantages,

Patents give their owners a 20-year monopoly over their inventions, something that can be enforced with damages and injunctions against those who infringe. In contrast, contractual damages typically are more limited and only are enforceable against a party that agrees to a contract.

Or it would have had these advantages, if the Court had accepted the company’s patent law arguments. Unfortunately,  the Court categorically rejected them, relying on the doctrine of “patent exhaustion”.

Put most simply, that doctrine limits the patent holder’s ability to control an item after it sells that item. Per the majority opinion (which does perhaps muddle the issue for non-lawyers by referring to the “patentee” rather than the more widely-used– and understood expression,  the “patent holder”):

When a patentee sells one of its products, however, the patentee can no longer control that item through the patent laws—its patent rights are said to “exhaust. The purchaser and all subsequent owners are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit (p. 1).

Let me turn to a summary  by the Electronic Frontier Foundation (EFF)– which filed amicus briefs at various stages of the Lexmark case– laying out what is at stake in simpler terms in Patents Are A Big Part Of Why We Can’t Own Nice Things: the Supreme Court Should Fix That:

When you buy something physical—a toaster, a book, or a printer, for example—you expect to be free to use it as you see fit: to adapt it to suit your needs, fix it when it breaks, re-use it, lend it, sell it, or give it away when you’re done with it. Your freedom to do those things is a necessary aspect of your ownership of those objects. If you can’t do them, because the seller or manufacturer has imposed restrictions or limitations on your use of the product, then you don’t really own them. Traditionally, the law safeguards these freedoms by discouraging sellers from imposing certain conditions or restrictions on the sale of goods and property, and limiting the circumstances in which those restrictions may be imposed by contract.

The Court’s opinion is reasonably clear– at least as legal language goes– but is not as vividly written as the EFF passage. Let’s give credit where credit is due, however, since the Court clearly decided that Lexmark could not use its patent to impose future restrictions on use or sale of its cartridges by purchasers:

When a patentee chooses to sell an item, that product is “no longer within the limits of the monopoly” and instead becomes “the private, individual property” of the purchaser, with the rights and benefits that come along with ownership. A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser. The sale terminates all patent rights to that item (citations omitted)(p.6).

Please stick with me, dear readers, because it’s in this next section– where Roberts gets a bit more down to earth– that the implications for right to repair initiatives become apparent:

Take a shop that restores and sells used cars. The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale. Those companies might, for instance, re- strict resale rights and sue the shop owner for patent infringement. And even if they refrained from imposing such restrictions, the very threat of patent liability would force the shop to invest in efforts to protect itself from hidden lawsuits. Either way, extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain. And advances in technology, along with increasingly complex supply chains, magnify the problem (See Brief for Costco Wholesale Corp. et al. as Amici Curiae 7–9; Brief for Intel Corp. et al. as Amici Curiae 17, n. 5 (“A generic smartphone assembled from various high-tech components could practice an estimated 250,000 patents”)(p. 8).

Jerri-Lynn here: I’ve deliberately included the citation, and the parenthetical, to make it clear that the Court understood that its decision would apply to products such as smartphones, and not just to more traditional products such as car repairs.

Bottom Line: Right to Repair Legislation

As I’ve previously written, at least five states– Massachusetts, Minnesota, Nebraska, and New York– have pending right to repair legislation. Let me quote from my earlier piece, Waste Not, Want Not: Right to Repair Laws on Agenda in Some States:

The bills would require companies to make replacement parts available to independent repair shops, as well as make public diagnostic and servicing manuals, and are aimed to dismantle the exclusive aftermarket repair market that limits repairs to the original manufacturers.

Allowing such monopoly arrangements to continue unchallenged allows original manufacturers to dominate aftermarket repairs. And this status quo imposes more than mere economic costs on consumers. It also creates unnecessary electronics waste that burdens the environment: first in consuming more resources to produce unnecessary products, and in requiring disposal of devices that are at best imperfectly recycled and contain many hazardous materials. Manufacturer control over original spare parts forces independent repair shops either to scavenge broken devices for parts, or to turn to grey market sources of supply….

The Lexmark decision is a big win for the rights of tinkerers and the just plain curious, as the EFF noted in Impression Products, Inc. v. Lexmark International Inc., describing this case  as “an important ruling affirming your right to own the things you buy.” The EFF continued:

The case involved the doctrine of “patent exhaustion,” which says that once a patent owner sells a product, it cannot later claim the product’s use or sale is infringing. This principle prevents patent owners from controlling goods after sale and interfering with your right to resell, tinker with, and understand the things you own.

In its article cited above, the NYT reported:

Mark Lemley, director of the Stanford Program in Law, Science and Technology, said that anyone who refurbished, repaired or resold used products would now be protected from patent infringement claims. The ruling will also prevent manufacturers from forcing consumers to buy supplies only from the original source.

Let’s see what states with pending right of repair legislation– not to mention other states– do next.

 

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35 comments

  1. neighbor7

    “Patent holder” is best. But at the very least, shouldn’t it be “patenter” and not “patentee”?

    I’m wondering about how code will play into this, re the internet of things.

    1. Divadab

      Nope. The US government is the grantor of a patent to the inventor – who in receiving this privilege is the “patentee “.

      Similarly, the borrower who grants a mortgage on her real property to a lender is the “mortgagor ” ; the lender who received the mortgage grant is the mortgagee.

      A bit confusing but the key is to determine who grants and who receives the legal instrument.

      1. philnc

        Nothing that a year of 1L can’t fix. The first year of law school is mostly a matter of intense indoctrination into legal terminology and process. It is so thorough in many cases that the law student can lose the ability to explain what they’ve learned in words that non-lawyers can understand. Think Cultural Revolution re-education camps without the physical abuse, or one of those “free” real estate investment seminars on Florida’s west coast. Thankfully, some are able to emerge without that affliction.

  2. visitor

    I am considerably less sanguine about the impact of the Supreme Court decision regarding the “right to repair”.

    This principle [of patent exhaustion] prevents patent owners from controlling goods after sale and interfering with your right to resell, tinker with, and understand the things you own.

    Not exactly. What the Supreme Court established is that it prevents patent owners from controlling goods after sale and interfering with your right to resell, tinker with, and understand the things you own through the patent laws.

    But it still can exert a control of how buyers use the products through contract law.

    For instance, through something like those infamous “End-User License Agreements”.

    At this point, nothing in the Supreme Court decision prevents Lexmark to go after individual buyers who resell its cartridges on the basis of the restrictive sales conditions. Nothing, except the sheer cost of litigating individuals scattered throughout the USA…

    1. Disturbed Voter

      Great point! Contract law will always exist, to entangle buyers in the restrictive covenants of sellers. Your only recourse is to not sign the damn contract.

    2. reslez

      Indeed. It puzzles me why this case went all the way to the Supreme Court when the case should have been thrown out (with a hearty guffaw) on day one.

      The ruling does nothing about egregious contractual restrictions as visitor points out. Plus the DMCA lurks in the wilderness to snare any researcher or end user who dares circumvent the dumbest of encryption for the purest and least objectionable of reasons. How dare we act like we own something after we’ve bought it?

      1. Jerri-Lynn Scofield Post author

        I did point out at the beginning of paragraph 5 that there is a potential contract law claim here, as the Court indeed acknowledged: “Now whereas the Court acknowledged that Lexmark may have had a legitimate claim against buyers for violating these contractual conditions by going to companies that would refill the contracts at a lower cost than would Lexmark, the company didn’t try and enforce those claims.” The WSJ article cited suggests…drum roll, scarey music… that Lexmark may choose to pursue contract claims against individual buyers. But in addition to the PR hit, as visitor points out, that course of action would likely be scotched by the “sheer cost of litigating individuals scattered throughout the USA…” (I elected not to address this point in the post since I think it unlikely that Lexmark or any sane IP holder would pursue this course of action and b/c I was trying to keep the post short, and focused.)

      2. visitor

        My understanding is that Lexmark tried the IPR approach against other corporations because attacking individual buyers would be prohibitively cumbersome, costly, and inefficient.

        IP law is handled by specialized courts, and the issue ended up in some circuit court that is, like, exceedingly receptive to arguments by patent holders. The appeal to the Supreme Court followed.

        Apparently, in the recent years the Supreme Court repeatedly slapped the wrists of that circuit court because of its uncommon tendency to stretch the interpretation of patent law to excessive lengths.

        And yes, to ensure a “right to repair”, things like contract law and DMCA represent major stumbling blocks.

        1. Jim A.

          Even worse, IMHO is when people attempt to stretch copyright to grant patent like rights….It isn’t some sort of mistake that while copyright protection is much easier to get than patents are it doesn’t provide the same sorts of protection.

    3. Carolinian

      So if you buy a printer cartridge at Best Buy you are agreeing to a EULA? How does that work?

      Apparently courts are all over the map re the enforceability of EULAs including the “shrink wrap” variety.

      https://en.wikipedia.org/wiki/End-user_license_agreement

      Perhaps in the end it’s simply a question of consumer goodwill versus corporate greed. For awhile movie companies tried to enforce the drastic anti-copying provisions of the DMCA but seem to have put that aside due to the negative publicity. That said, don’t take a camcorder into a movie theater as happened in that episode of Seinfeld. People have been arrested for this.

  3. Carolinian

    Great news. But I was under the impression that this issue–and particularly the legality of printer cartridge refilling–was settled law already. But that may have only applied to warranties.

    Of course given the ability companies would like to own and patent everything including the dna in our bodies. Sanity must reign.

    1. hunkerdown

      Static Control Products was a copyright question regarding functionality vs. creativity. This was a patent question.

  4. flora

    This is very good news. This bit is particularly interesting in terms of what it suggests about the potential scope of the Court’s decision . ” (“A generic smartphone assembled from various high-tech components could practice an estimated 250,000 patents”)(p. 8).”

    Thanks for this post.

  5. Reader

    I hope the right to repair movement takes on manufacturers of mobility equipment (like scooters and power chairs) who restrict the availability of parts and service to their dealers who charge exorbitant prices.

      1. Reader

        Sorry, no link, just my experience living in a metro area of around 1 million people. It is my experience that manufacturers refuse to talk to end users or make parts or repair information available. After much searching, I’ve found one online vendor that sells some parts but again prices are extremely high.

        This is infuriating but it’s consistent with my experience that the prices of many medical supplies and equipment are grossly inflated.

  6. Loblolly

    This is good news, but patents are still in need of a great deal of reform. The current system costs us dearly, and is fraught with abuse.

  7. Jay

    Just for laughs I wonder what justifications dissenting opinion(s) contained. Seems like Alito and Thomas are always on the wrong side of everything.

    1. LarryB

      This was a unanimous opinion. There was no dissent. Goresuch did not participate in the decision, likely the case was argued before he joined the court.

      1. Jerri-Lynn Scofield Post author

        Not entirely accurate– Ginsburg concurred in part, and wrote a 3 page dissent on the cross-border issue, as I mentioned in the post. You’re entirely correct about Gorsuch.

  8. Sluggeaux

    I haven’t had time to read Roberts’ full opinion, but this is an important area for discussion, and a terrific bookend to Michael Hudson’s discussion of student debt peonage elsewhere on NC today. The pervasive and absolute corruption of our legislative and executive institutions has allowed the perversion by rentiers of patent, contract, and bankruptcy law in order to financialize the most trivial aspects of daily life.

    I’ve had the experience of sitting as a judge pro tempore and have forced myself to look at some of the contracts being foisted on us all (even judges) by the rentier class. They fall under the classic definition of “Contracts of Adhesion” defined as:

    If the term was outside of the reasonable expectations of the person who did not write the contract, and if the parties were contracting on an unequal basis, then it will not be enforceable. The reasonable expectation is assessed objectively, looking at the prominence of the term, the purpose of the term and the circumstances surrounding acceptance of the contract.

    I believe that it’s high time for our courts to stop enforcing these sort of patent claims, contract claims, and attempts to negate legitimate bankruptcies. Debt peonage and Contracts of Adhesion seem to violate basic human rights and dignity — and to offend the 13th Amendment to the U.S. Constitution:

    Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

      1. Mel

        Discussed in a book _Fatal Subtraction_, by Pierce O’Donnell, about the case of Art Buchwald against Paramount Pictures. Turned into an expose of Hollywood contracts. Loosely, a contract of adhesion is one that contains strangely unfair terms, and seems to have been signed because one of the parties had no other choice. The parties to such a contract are vastly unequal in power.

        1. visitor

          Formally, it has nothing to do with “strangely unfair terms”. These would be more a “leonine contract”.

          A contract of adhesion is basically a “take it or leave it” agreement offered by one of the parties, the other being only able to accept the terms as they are or not signing the contract.

          When you buy a plane, train or bus ticket, subscribe to a TV, Internet, or magazine, contract for electricity, gas, or water, you are basically signing a contract of adhesion, whose stipulations you cannot alter.

  9. Mickey Hickey

    Patents give corporations the right to levy taxes and fine anybody that transgresses their terms and conditions. As the number of patents granted abroad greatly exceeds the number granted domestically I can see a patriotic backlash in the making.

  10. George Phillies

    There is another interesting possible implication of this litigation. It was long the case that if I were a retailer and bought goods at wholesale it was my privilege as owner of the goods to set the final price, or to resell to others who might sell at such price as they chose. Some time back, say a decade, there was a little-noted case that reached the Supreme Court in which it was found that the manufacturer could put limitations on how or at what price I was allowed to sell the goods. This decision may perhaps reverse that decision.

  11. Lambert Strether

    My Mac repair guy is of the opinion that Apple “engineers” (if that is the term I want) its laptops to make repair by the owner impossible, and worse, repair by a professional more expensive than it needs to be (e.g., a whole keyboard must be replaced, not a single key).

    I’m very glad to have J-LS tracking this important issue. This also reminds me of the IP tactics Monsanto uses to control the seed supply.

    1. Tim

      “Put most simply, that doctrine limits the patent holder’s ability to control an item after it sells that item.”

      I was thinking the same thing about Monsanto seeds blowing across the great plains. Maybe they need to revisit that opinion, or maybe Leximark was a fool to think they had the clout of a Monsanto to get their way.

    2. Carolinian

      I recall articles back when Japan was the focus of all our trade disputes that said it was ok for the Japanese to take over manufacturing because we live in an “information age” and the future belonged to the knowledge economy (i.e. the ip rentiers). One wonders whether this mentality still rules American big business.

    3. Brian

      Some of the repairs involve miniature and micro miniature objects. Without the knowledge of what tools are necessary a roadmap, the electronic taxonomy of volts, amps and ohms to verify function. Without these, repair is limited to a small percentage of the whole. With smaller electronics many of these are made in such a way that the components are soldered to one another, and to the case it resides in. Among people that repair electronics are those that replace a circuit board because their tester says something is bad, and those that have to find that invidual component in the circuit board by testing the pathways. It can be very wasteful to replace the entire board when only a resistor has failed.
      Will the companies come up with the required information for the repair legions to do their job? Or will a private repair person write such a book, and then be sued for doing so?

  12. Cal

    So what happens when a product that has patents applied to it post-purchase maims or kills someone?

    Can the “owner” simply walk away and say,
    “I was only leasing a product which I didn’t really own?”

    1. visitor

      No, because

      1) If the damage occurred because of improper use (outside its specs), or negligent handling of the product, the user is still responsible.

      2) The seller can stipulate in the sales contract that the buyer indemnifies the seller for any damage caused when utilizing the product.

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