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.)
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.