SAS Institute Inc. v. Iancu

Inter partes review allows private parties to challenge previously issued patent claims in an adversarial process before the Patent Office. At the outset, a party must file a petition to institute review, 35 U. S. C. §311(a), that identifies the challenged claims and the grounds for challenge with particularity, §312(a)(3). The patent owner, in turn, may file a response. §313. If the Director of the Patent Office determines “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition,” §314(a), he decides “whether to institute . . . review . . . pursuant to [the] petition,” §314(b). “If . . . review is instituted and not dismissed,” at the end of the litigation the Patent Trial and Appeal Board “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” §318(a).

Petitioner SAS sought review of respondent ComplementSoft’s software patent, alleging that all 16 of the patent’s claims were unpatentable. Relying on a Patent Office regulation recognizing a power of “partial institution,” 37 CFR §42.108(a), the Director instituted review on some of the claims and denied review on the rest. The Board’s final decision addressed only the claims on which the Director had instituted review. On appeal, the Federal Circuit rejected SAS’s argument that §318(a) required the Board to decide the patentability of every claim challenged in the petition.

Held:

When the Patent Office institutes an inter partes review, it must decide the patentability of all of the claims the petitioner has challenged. The plain text of §318(a) resolves this case. Its directive is both mandatory and comprehensive. The word “shall” generally imposes a nondiscretionary duty, and the word “any” ordinarily implies every member of a group. Thus, §318(a) means that the Board must address every claim the petitioner has challenged. The Director’s “partial institution” power appears nowhere in the statutory text. And both text and context strongly counsel against inferring such a power.

The statute envisions an inter partes review guided by the initial petition. See §312(a)(3). Congress structured the process such that the petitioner, not the Director, defines the proceeding’s contours. The ex parte reexamination statute shows that Congress knew exactly how to authorize the Director to investigate patentability questions “[o]n his own initiative, and at any time,” §303(a). The inter partes review statute indicates that the Director’s decision “whether” to institute review “pursuant to [the] petition” is a yes-or-no choice. §314(b).

Section 314(a)’s requirement that the Director find “a reasonable likelihood” that the petitioner will prevail on “at least 1 of the claims challenged in the petition” suggests, if anything, a regime where a reasonable prospect of success on a single claim justifies review of them all. Again, if Congress had wanted to adopt the Director’s claim-by-claim approach, it knew how to do so. See §304. Nor does it follow that, because §314(a) invests the Director with discretion on the question whether to institute review, it also invests him with discretion regarding what claims that review will encompass. The rest of the statute confirms, too, that the petitioner’s petition, not the Director’s discretion, should guide the life of the litigation. See, e.g., §316(a)(8).

The Director suggests that a textual discrepancy between §314(a)— which addresses whether to institute review based on claims found “in the petition”—and §318(a)—which addresses the Board’s final resolution of the claims challenged “by the petitioner”—means that the Director enjoys the power to institute a review covering fewer than all of the claims challenged in the petition. However, the statute’s winnowing mechanism—which allows a patent owner to concede one part of a petitioner’s challenge and “[c]ancel any challenged patent claim,” §316(d)(1)(A)—fully explains why Congress adopted the slightly different language.

The Director’s policy argument—that partial institution is efficient because it permits the Board to focus on the most promising challenges and avoid spending time and resources on others—is properly addressed to Congress, not this Court. And the Director’s asserted “partial institution” power, which is wholly unmentioned in the statute, is not entitled to deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837. Finally, notwithstanding §314(d)—which makes the Director’s determination whether to institute an inter partes review “final and nonappealable”—judicial review remains available consistent with the Administrative Procedure Act to ensure that the Patent Office does not exceed its statutory bounds. Cuozzo Speed Technologies, LLC v. Lee, 579 U. S. ___, distinguished. Pp. 4–14.

825 F. 3d 1341, reversed and remanded.

Download SAS Institute Inc. v. Iancu

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

Oil States Energy Services, LLC v. Greene’s Energy Group, LLC

Inter partes review authorizes the United States Patent and Trademark Office (PTO) to reconsider and cancel an already-issued patent claim in limited circumstances. See 35 U. S. C. §§311–319. Any person who is not the owner of the patent may petition for review. §311(a). If review is instituted, the process entitles the petitioner and the patent owner to conduct certain discovery, §316(a)(5); to file affidavits, declarations, and written memoranda, §316(a)(8); and to receive an oral hearing before the Patent Trial and Appeal Board, §316(a)(10). A final decision by the Board is subject to Federal Circuit review. §§318, 319.

Petitioner Oil States Energy Services, LLC, obtained a patent relating to technology for protecting wellhead equipment used in hydraulic fracturing. It sued respondent Greene’s Energy Group, LLC, in Federal District Court for infringement. Greene’s Energy challenged the patent’s validity in the District Court and also petitioned the PTO for inter partes review. Both proceedings progressed in parallel. The District Court issued a claim-construction order favoring Oil States, while the Board issued a decision concluding that Oil States’ claims were unpatentable. Oil States appealed to the Federal Circuit. In addition to its patentability arguments, it challenged the constitutionality of inter partes review, arguing that actions to revoke a patent must be tried in an Article III court before a jury. While the case was pending, the Federal Circuit issued a decision in a separate case, rejecting the same constitutional arguments raised by Oil States. The court then summarily affirmed the Board’s decision in this case.

Held: 

  1. Inter partes review does not violate Article III. Pp. 5–17.

(a) Under this Court’s precedents, Congress has significant latitude to assign adjudication of public rights to entities other than Article III courts. Executive Benefits Ins. Agency v. Arkison, 573 U. S. ___, ___. Inter partes review falls squarely within the public-rights doctrine. The decision to grant a patent is a matter involving public rights. Inter partes review is simply a reconsideration of that grant, and Congress has permissibly reserved the PTO’s authority to conduct that reconsideration. Pp. 5–10.

(i) The grant of a patent falls within the public-rights doctrine. United States v. Duell, 172 U. S. 576, 582–583. Granting a patent involves a matter “arising between the government and others.” Ex parte Bakelite Corp., 279 U. S. 438, 451. Specifically, patents are “public franchises.” Seymour v. Osborne, 11 Wall. 516, 533. Additionally, granting patents is one of “the constitutional functions” that can be carried out by “the executive or legislative departments” without “‘judicial determination.’” Crowell v. Benson, 285 U. S. 22, 50– 51. Pp. 7–8.

(ii) Inter partes review involves the same basic matter as the grant of a patent. It is “a second look at an earlier . . . grant,” Cuozzo Speed Technologies, LLC v. Lee, 579 U. S. ___, ___, and it involves the same interests as the original grant, see Duell, supra, at 586. That inter partes review occurs after the patent has issued does not make a difference here. Patents remain “subject to [the Board’s] authority” to cancel outside of an Article III court, Crowell, supra, at 50, and this Court has recognized that franchises can be qualified in this manner, see, e.g., Louisville Bridge Co. v. United States, 242 U. S. 409, 421. Pp. 8–10.

(b) Three decisions that recognize patent rights as the “private property of the patentee,” United States v. American Bell Telephone Co., 128 U. S. 315, 370, do not contradict this conclusion. See also McCormick Harvesting Machine Co. v. Aultman, 169 U. S. 606, 609; Brown v. Duchesne, 19 How. 183, 197. Nor do they foreclose the kind of post-issuance administrative review that Congress has authorized here. Those cases were decided under the Patent Act of 1870 and are best read as describing the statutory scheme that existed at that time. Pp. 10–11.

(c) Although patent validity was often decided in 18th-century English courts of law, that history does not establish that inter partes review violates the “general” principle that “Congress may not ‘withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law,” Stern v. Marshall, 564 U. S. 462, 484. Another means of canceling a patent at that time—a petition to the Privy Council to vacate a patent—closely resembles inter partes review. The parties have cited nothing to suggest that the Framers were not aware of this common practice when writing the Patent Clause, or that they excluded the practice from the scope of the Clause. Relatedly, the fact that American courts have traditionally adjudicated patent validity in this country does not mean that they must forever do so. See post, at 8–10. Historical practice is not decisive here because matters governed by the publicrights doctrine may be assigned to the Legislature, the Executive, or the Judiciary. Ex parte Bakelite Corp., supra, at 451. That Congress chose the courts in the past does not foreclose its choice of the PTO today. Pp. 12–15.

(d) Finally, the similarities between the various procedures used in inter partes review and procedures typically used in courts does not lead to the conclusion that inter partes review violates Article III. This Court has never adopted a “looks like” test to determine if an adjudication has improperly occurred outside an Article III court. See, e.g., Williams v. United States, 289 U. S. 553, 563. Pp. 15–16. (e) This holding is narrow. The Court addresses only the constitutionality of inter partes review and the precise constitutional challenges that Oil States raised here. The decision should not be misconstrued as suggesting that patents are not property for purposes of the Due Process Clause or the Takings Clause. Pp. 16–17.

2. Inter partes review does not violate the Seventh Amendment. When Congress properly assigns a matter to adjudication in a nonArticle III tribunal, “the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury factfinder.” Granfinanciera, S. A. v. Nordberg, 492 U. S. 33, 52–53. Thus, the rejection of Oil States’ Article III challenge also resolves its Seventh Amendment challenge. P. 17.

639 Fed. Appx. 639, affirmed.

Download Oil States Energy Services LLC v. Greene’s Energy Group LLC

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

Elenza, Inc. v. Alcon Laboratories Holding Corporation

Replacement lenses used to treat eye cataracts have a limitation—the new lenses focus only at one distance. In most cases, reading glasses are still required after surgery. Elenza, Inc. thought it had a solution to the problem—an electroactive intraocular lens (“EAIOL”) that used electric power and changes in eye pupil size to “trigger” the focus of an artificial lens. If it worked, patients could see clearly at multiple distances without glasses.

Alcon Laboratories Holding Corporation, a developer of artificial lenses, was also exploring EAIOL lenses. Elenza and Alcon decided to jointly pursue the technology, first by signing a Non-Disclosure Agreement (“NDA”), followed by a Stock Purchase Agreement (“SPA”). Unfortunately, the project fizzled after Elenza failed to meet development milestones in the SPA. Much to Elenza’s surprise, two years later, Alcon filed a patent application for an EAIOL and announced that it was working with Google, Inc. to develop an EAIOL.

Elenza filed suit in Superior Court and claimed that Alcon breached its agreements with Elenza and misappropriated Elenza’s EAIOL trade secrets. Before trial, the Superior Court granted in part Alcon’s motion for summary judgment, finding that Elenza failed to support its trade secret claims. The court also limited Elenza’s damage claims. Elenza’s contract claims went to trial. A jury found against Elenza on all claims.

On appeal, Elenza argues that the Superior Court erred when it granted summary judgment on its trade secret claims. According to Elenza, at the summary judgment stage, its trade secret disclosures were sufficient to prove that trade secrets existed and that Alcon used or disclosed those secrets in its later development efforts. We need not, however, reach Elenza’s claim on appeal that it raised disputed factual issues about the existence of trade secrets because we agree with the Superior Court that, at summary judgment, Elenza failed to support its claim that Alcon improperly used or disclosed any of Elenza’s alleged trade secrets. Thus, we affirm the Superior Court’s judgment.

Download Elenza Inc. v. Alcon Laboratories Holding Corporation

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

Digital Ally v. Utility Associates

Plaintiff-Appellant Digital Ally, Inc. appeals from the district court’s grant of summary judgment in favor of Defendant-Appellee Utility Associates, Inc. Digital Ally, Inc. v. Utility Assocs., Inc., No. 2:14-cv-02262-CM, 2017 WL 1197561 (D. Kan. Mar. 30, 2017). Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

Download Digital Ally v. Utility Associates

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

Motion Medical Technologies, LLC v. Thermotek, Inc.

ThermoTek, Inc. convinced a jury that Mike Wilford and his companies engaged in unfair competition and fraud in violation of Texas law. The district court, however, granted judgment as a matter of law to the defendants, concluding that federal law preempted the unfair competition claim and that ThermoTek failed to prove its damages for fraud. We affirm.

Download Motion Medical Technologies LLC v. Thermotek Inc.

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

Lipitor Antitrust Litigation

This opinion addresses two sets of consolidated appeals concerning two pharmaceutical drugs: Lipitor and Effexor XR. In both sets of consolidated appeals, plaintiffs allege that the companies holding the patents related to Lipitor and Effexor XR fraudulently procured and enforced certain of those patents. Plaintiffs further allege that those companies holding the patents entered into unlawful, monopolistic settlement agreements with potential manufacturers of generic versions of Lipitor and Effexor XR. The same District Court Judge dismissed the complaints in the Lipitor litigation and dismissed certain allegations in the Effexor litigation. Those decisions relied on plausibility determinations that are now challenged on appeal.

We begin with a brief summary of the relevant regulatory scheme applicable to pharmaceutical drugs and then detail the factual and procedural backgrounds of these two sets of consolidated appeals. The remainder of the opinion broadly covers two issues. First, in F.T.C. v. Actavis, Inc., 133 S. Ct. 2223 (2013), the Supreme Court concluded that payments from patentees to infringers through “reverse payment settlement agreements” are subject to antitrust scrutiny. Id. at 2227. In both sets of consolidated appeals, plaintiffs allege that the companies holding the pharmaceutical patents and the generic manufacturers entered into such agreements. We are asked to decide whether those allegations are plausible. We conclude, as to both sets of appeals, that they are. Second, regarding only the Lipitor consolidated appeals, we address whether plaintiffs in those appeals pled plausible allegations of fraudulent patent procurement and enforcement, as well as other related misconduct. We again determine that those allegations are indeed plausible. Accordingly, we will reverse the District Court’s dismissal of the complaints in the Lipitor litigation, reverse its dismissal of the allegations in the Effexor litigation, and remand for further proceedings.

Download Lipitor Antitrust Litigation

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

Sandoz Inc. v. Amgen Inc.

The Biologics Price Competition and Innovation Act of 2009 (BPCIA or Act) provides an abbreviated pathway for obtaining Food and Drug Administration (FDA) approval of a drug that is biosimilar to an already licensed biological product (reference product). 42 U. S. C. §262(k). It also provides procedures for resolving patent disputes between biosimilar manufacturers (applicants) and manufacturers of reference products (sponsors). §262(l). The Act treats the mere submission of a biosimilar application as an “artificial” act of infringement, enabling parties to bring patent infringement actions at certain points in the application process even if the applicant has not committed a traditional act of patent infringement. See 35 U. S. C. §§271(e)(2)(C)(i), (ii).

Under §262(l)(2)(A), an applicant seeking FDA approval of a biosimilar must provide its application and manufacturing information to the sponsor within 20 days of the date the FDA notifies the applicant that it has accepted the application for review. This triggers an exchange of information between the applicant and sponsor designed to create lists of relevant patents and flesh out potential legal arguments. §262(l)(3). The BPCIA then channels the parties into two phases of patent litigation. In the first, the parties collaborate to identify patents on the lists for immediate litigation. The second phase—triggered when the applicant, pursuant to §262(l)(8)(A), gives the sponsor notice at least 180 days before commercially marketing the biosimilar—involves any listed patents not litigated in the first phase. The applicant has substantial control over the timing and scope of both phases of litigation. Failure to comply with these procedural requirements may lead to two consequences relevant here. Under §262(l)(9)(C), if an applicant fails to provide its application and manufacturing information to the sponsor under §262(l)(2)(A), then the sponsor, but not the applicant, may immediately bring an action “for a declaration of infringement, validity, or enforceability of any patent that claims the biological product or a use of the biological product.” And under §262(l)(9)(B), if an applicant provides the application and manufacturing information but fails to complete a subsequent step in the process, the sponsor, but not the applicant, may bring a declaratory-judgment action with respect to any patent included on the sponsor’s list of relevant patents.

Neupogen is a filgrastim product marketed by Amgen, which claims to hold patents on methods of manufacturing and using filgrastim. Sandoz sought FDA approval to market a biosimilar filgrastim product under the brand name Zarxio, with Neupogen as the reference product. A day after the FDA informed Sandoz that its application had been accepted for review, Sandoz notified Amgen that it had submitted an application and that it intended to market Zarxio immediately upon receiving FDA approval. It later informed Amgen that it did not intend to provide the application and manufacturing information required by §262(l)(2)(A) and that Amgen could sue immediately for infringement under §262(l)(9)(C).

Amgen sued Sandoz for patent infringement and also asserted that Sandoz engaged in “unlawful” conduct in violation of California’s unfair competition law. This latter claim was predicated on two alleged violations of the BPCIA: Sandoz’s failure to provide its application and manufacturing information under §262(l)(2)(A), and its provision of notice of commercial marketing under §262(l)(8)(A) prior to obtaining licensure from the FDA. Amgen sought injunctions to enforce both BPCIA requirements. Sandoz counterclaimed for declaratory judgments that the asserted patent was invalid and not infringed and that it had not violated the BPCIA.

While the case was pending, the FDA licensed Zarxio, and Sandoz provided Amgen a further notice of commercial marketing. The District Court subsequently granted partial judgment on the pleadings to Sandoz on its BPCIA counterclaims and dismissed Amgen’s unfair competition claims with prejudice. The Federal Circuit affirmed in part, vacated in part, and remanded. The court affirmed the dismissal of Amgen’s state-law claim based on Sandoz’s alleged violation of §262(l)(2)(A), holding that Sandoz did not violate the BPCIA in failing to disclose its application and manufacturing information and that the BPCIA provides the exclusive remedies for failure to comply with this requirement. The court also held that under §262(l)(8)(A) an applicant must provide notice of commercial marketing after obtaining licensure, and that this requirement is mandatory. It thus enjoined Sandoz from marketing Zarxio until 180 days after the date it provided its second notice.

Held: Section 262(l)(2)(A) is not enforceable by injunction under federal law, but the Federal Circuit on remand should determine whether a state-law injunction is available. An applicant may provide notice under §262(l)(8)(A) prior to obtaining licensure. Pp. 10–18.

(a) Section 262(l)(2)(A)’s requirement that an applicant provide the sponsor with its application and manufacturing information is not enforceable by an injunction under federal law. The Federal Circuit reached the proper result on this point, but its reasoning was flawed. It cited §271(e)(4), which expressly provides the “only remedies” for an act of artificial infringement. In light of this language, the court reasoned that no remedy other than those specified in the text—such as an injunction to compel the applicant to provide its application and manufacturing information—was available. The problem with this reasoning is that Sandoz’s failure to disclose was not an act of artificial infringement remediable under §271(e)(4). Submitting an application constitutes an act of artificial infringement; failing to disclose the application and manufacturing information required by §262(l)(2)(A) does not.

Another provision, §262(l)(9)(C), provides a remedy for an applicant’s failure to turn over its application and manufacturing information. It authorizes the sponsor, but not the applicant, to bring an immediate declaratory-judgment action for artificial infringement, thus vesting in the sponsor the control that the applicant would otherwise have exercised over the scope and timing of the patent litigation and depriving the applicant of the certainty it could have obtained by bringing a declaratory-judgment action prior to marketing its product. The presence of this remedy, coupled with the absence of any other textually specified remedies, indicates that Congress did not intend sponsors to have access to injunctive relief, at least as a matter of federal law, to enforce the disclosure requirement. See Great-West Life & Annuity Ins. Co. v. Knudson, 534 U. S. 204, 209. Statutory context further confirms that Congress did not authorize courts to enforce §262(l)(2)(A) by injunction. Pp. 10–13.

(b) The Federal Circuit should determine on remand whether an injunction is available under state law to enforce §262(l)(2)(A). Whether Sandoz’s conduct was “unlawful” under California’s unfair competition statute is a question of state law, and the Federal Circuit thus erred in attempting to answer that question by referring only to the BPCIA. There is no dispute about how the federal scheme actually works on the facts of this case: Sandoz failed to disclose the requisite information under §262(l)(2)(A), and was accordingly subject to the consequence specified in §262(l)(9)(C). As a result, there is nothing to decide on this point as a matter of federal law. The court on remand should determine whether California law would treat noncompliance with §262(l)(2)(A) as “unlawful,” and whether the BPCIA pre-empts any additional state-law remedy for failure to comply with §262(l)(2)(A). Pp. 13–15.

(c) An applicant may provide notice of commercial marketing before obtaining a license. Section 262(l)(8)(A) states that the applicant “shall provide notice to the reference product sponsor not later than 180 days before the date of the first commercial marketing of the biological product licensed under subsection (k).” Because the phrase “of the biological product licensed under subsection (k)” modifies “commercial marketing” rather than “notice,” “commercial marketing” is the point in time by which the biosimilar must be “licensed.” Accordingly, the applicant may provide notice either before or after receiving FDA approval. Statutory context confirms that §262(l)(8)(A) contains a single timing requirement (180 days before marketing), rather than the two requirements posited by the Federal Circuit (after licensing, and 180 days before marketing). “Had Congress intended to” impose two timing requirements in §262(l)(8)(A), “it presumably would have done so expressly as it did in the” adjacent provision, §262(l)(8)(B). Russello v. United States, 464 U. S. 16, 23. Amgen’s contrary arguments are unpersuasive, and its various policy arguments cannot overcome the statute’s plain language. Pp. 15–18.

794 F. 3d 1347, vacated in part, reversed in part, and remanded.

THOMAS, J., delivered the opinion for a unanimous Court. BREYER, J., filed a concurring opinion.

Download Sandoz Inc. v. Amgen Inc.

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

Impression Products, Inc. v. Lexmark International, Inc.

Held:

1. Lexmark exhausted its patent rights in the Return Program cartridges that it sold in the United States. A patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose. As a result, even if the restrictions in Lexmark’s contracts with its customers were clear and enforceable under contract law, they do not entitle Lexmark to retain patent rights in an item that it has elected to sell. Pp. 5–13.

(a) The Patent Act grants patentees the “right to exclude others from making, using, offering for sale, or selling [their] invention[s].” 35 U. S. C. §154(a). For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude: When a patentee sells an item, that product “is no longer within the limits of the [patent] monopoly” and instead becomes the “private, individual property” of the purchaser. Bloomer v. McQuewan, 14 How. 539, 549–550. If the patentee negotiates a contract restricting the purchaser’s right to use or resell the item, it may be able to enforce that restriction as a matter of contract law, but may not do so through a patent infringement lawsuit.

The exhaustion rule marks the point where patent rights yield to the common law principle against restraints on alienation. The Patent Act promotes innovation by allowing inventors to secure the financial rewards for their inventions. Once a patentee sells an item, it has secured that reward, and the patent laws provide no basis for restraining the use and enjoyment of the product. Allowing further restrictions would run afoul of the “common law’s refusal to permit restraints on the alienation of chattels.” Kirtsaeng v. John Wiley & Sons, Inc., 568 U. S. 519, 538. As Lord Coke put it in the 17th century, if an owner restricts the resale or use of an item after selling it, that restriction “is voide, because . . . it is against Trade and Traffique, and bargaining and contracting betweene man and man.” 1 E. Coke, Institutes of the Laws of England §360, p. 223 (1628). Congress enacted and has repeatedly revised the Patent Act against the backdrop of this hostility toward restraints on alienation, which is reflected in the exhaustion doctrine.

This Court accordingly has long held that, even when a patentee sells an item under an express, otherwise lawful restriction, the patentee does not retain patent rights in that product. See, e.g., Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617. And that well settled line of precedent allows for only one answer in this case: Lexmark cannot bring a patent infringement suit against Impression Products with respect to the Return Program cartridges sold in the United States because, once Lexmark sold those cartridges, it exhausted its right to control them through the patent laws. Pp. 5–9.

(b) The Federal Circuit reached a different result because it started from the premise that the exhaustion doctrine is an interpretation of the patent infringement statute, which prohibits anyone from using or selling a patented article “without authority” from the patentee. According to the Federal Circuit, exhaustion reflects a default rule that selling an item “presumptively grant[s] ‘authority’ for the purchaser to use it and resell it.” 816 F. 3d 721, 742. But if a patentee withholds some authority by expressly limiting the purchaser’s rights, the patentee may enforce that restriction through patent infringement lawsuits. See id., at 741.

The problem with the Federal Circuit’s logic is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is a limit on the scope of the patentee’s rights. The Patent Act gives patentees a limited exclusionary power, and exhaustion extinguishes that power. A purchaser has the right to use, sell, or import an item because those are the rights that come along with ownership, not because it purchased authority to engage in those practices from the patentee. Pp. 9–13.

2. Lexmark also sold toner cartridges abroad, which Impression Products acquired from purchasers and imported into the United States. Lexmark cannot sue Impression Products for infringement with respect to these cartridges. An authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.

The question about international exhaustion of intellectual property rights has arisen in the context of copyright law. Under the first sale doctrine, when a copyright owner sells a lawfully made copy of its work, it loses the power to restrict the purchaser’s right “to sell or otherwise dispose of . . . that copy.” 17 U. S. C. §109(a). In Kirtsaeng v. John Wiley & Sons, Inc., 568 U. S. 519, this Court held that the first sale doctrine applies to copies of works made and sold abroad. Central to that decision was the fact that the first sale doctrine has its roots in the common law principle against restraints on alienation. Because that principle makes no geographical distinctions and the text of the Copyright Act did not provide such a distinction, a straightforward application of the first sale doctrine required concluding that it applies overseas.

Applying patent exhaustion to foreign sales is just as straightforward. Patent exhaustion, too, has its roots in the antipathy toward restraints on alienation, and nothing in the Patent Act shows that Congress intended to confine that principle to domestic sales. Differentiating between the patent exhaustion and copyright first sale doctrines would also make little theoretical or practical sense: The two share a “strong similarity . . . and identity of purpose,” Bauer & Cie v. O’Donnell, 229 U. S. 1, 13, and many everyday products are subject to both patent and copyright protections.

Lexmark contends that a foreign sale does not exhaust patent rights because the Patent Act limits a patentee’s power to exclude others from making, using, selling, or importing its products to acts that occur in the United States. Because those exclusionary powers do not apply abroad, the patentee may not be able to sell its products overseas for the same price as it could in the United States, and therefore is not sure to receive the reward guaranteed by American patent laws. Without that reward, says Lexmark, there should be no exhaustion.

The territorial limit on patent rights is no basis for distinguishing copyright protections; those do not have extraterritorial effect either. Nor does the territorial limit support Lexmark’s argument. Exhaustion is a distinct limit on the patent grant, which is triggered by the patentee’s decision to give a patented item up for whatever fee it decides is appropriate. The patentee may not be able to command the same amount for its products abroad as it does in the United States. But the Patent Act does not guarantee a particular price. Instead, the Patent Act just ensures that the patentee receives one reward—of whatever it deems to be satisfactory compensation—for every item that passes outside the scope of its patent monopoly.

This Court’s decision in Boesch v. Gräff, 133 U. S. 697, is not to the contrary. That decision did not, as Lexmark contends, exempt all foreign sales from patent exhaustion. Instead, it held that a sale abroad does not exhaust a patentee’s rights when the patentee had nothing to do with the transaction. That just reaffirms the basic premise that only the patentee can decide whether to make a sale that exhausts its patent rights in an item.

Finally, the United States advocates what it views as a middleground position: that a foreign sale exhausts patent rights unless the patentee expressly reserves those rights. This express-reservation rule is based on the idea that overseas buyers expect to be able to use and resell items freely, so exhaustion should be the presumption. But, at the same time, lower courts have long allowed patentees to expressly reserve their rights, so that option should remain open to patentees. The sparse and inconsistent decisions the Government cites, however, provide no basis for any expectation, let alone a settled one, that patentees can reserve rights when they sell abroad. The theory behind the express-reservation rule also wrongly focuses on the expectations of the patentee and purchaser during a sale. More is at stake when it comes to patent exhaustion than the dealings between the parties, which can be addressed through contracts. Instead, exhaustion occurs because allowing patent rights to stick to an already-sold item as it travels through the market would violate the principle against restraints on alienation. As a result, restrictions and location are irrelevant for patent exhaustion; what matters is the patentee’s decision to make a sale. Pp. 13–18.

816 F. 3d 721, reversed and remanded.

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.

TC Heartland LLC v. Kraft Foods Group Brands LLC

Held: As applied to domestic corporations, “reside[nce]” in §1400(b) refers only to the State of incorporation. The amendments to §1391 did not modify the meaning of §1400(b) as interpreted by Fourco. Pp. 3– 10.

(a) The venue provision of the Judiciary Act of 1789 covered patent cases as well as other civil suits. Stonite Products Co. v. Melvin Lloyd Co., 315 U. S. 561, 563. In 1897, Congress enacted a patent specific venue statute. This new statute (§1400(b)’s predecessor) permitted suit in the district of which the defendant was an “inhabitant” or in which the defendant both maintained a “regular and established place of business” and committed an act of infringement. 29 Stat. 695. A corporation at that time was understood to “inhabit” only the State of incorporation. This Court addressed the scope of §1400(b)’s predecessor in Stonite, concluding that it constituted “the exclusive provision controlling venue in patent infringement proceedings” and thus was not supplemented or modified by the general venue provisions. 315 U. S., at 563.

In 1948, Congress recodified the patent venue statute as §1400(b). That provision, which remains unaltered today, uses “resides” instead of “inhabit[s].” At the same time, Congress also enacted the general venue statute, §1391, which defined “residence” for corporate defendants. In Fourco, this Court reaffirmed Stonite’s holding, observing that Congress enacted §1400(b) as a standalone venue statute and that nothing in the 1948 recodification evidenced an intent to alter that status, even the fact that §1391(c) by “its terms” embraced “all actions,” 353 U. S., at 228. The Court also concluded that “resides” in the recodified version bore the same meaning as “inhabit[s]” in the pre-1948 version. See id., at 226.

This landscape remained effectively unchanged until 1988, when Congress amended the general venue statute, §1391(c). The revised provision stated that it applied “[f]or purposes of venue under this chapter.” In VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574, 1578, the Federal Circuit held that, in light of this amendment, §1391(c) established the definition for all other venue statutes under the same “chapter,” including §1400(b). In 2011, Congress adopted the current version of §1391, which provides that its general definition applies “[f]or all venue purposes.” The Federal Circuit reaffirmed VE Holding in the case below. Pp. 3–7. (b) In Fourco, this Court definitively and unambiguously held that the word “reside[nce]” in §1400(b), as applied to domestic corporations, refers only to the State of incorporation. Because Congress has not amended §1400(b) since Fourco, and neither party asks the Court to reconsider that decision, the only question here is whether Congress changed §1400(b)’s meaning when it amended §1391. When Congress intends to effect a change of that kind, it ordinarily provides a relatively clear indication of its intent in the amended provision’s text. No such indication appears in the current version of §1391.

Respondent points out that the current §1391(c) provides a default rule that, on its face, applies without exception “[f]or all venue purposes.” But the version at issue in Fourco similarly provided a default rule that applied “ ‘for venue purposes,’ ” 353 U. S., at 223, and those phrasings are not materially different in this context. The addition of the word “all” to the already comprehensive provision does not suggest that Congress intended the Court to reconsider its decision in Fourco. Any argument based on this language is even weaker now than it was when the Court rejected it in Fourco. Fourco held that §1400(b) retained a meaning distinct from the default definition contained in §1391(c), even though the latter, by its terms, included no exceptions. The current version of §1391 includes a saving clause, which expressly states that the provision does not apply when “otherwise provided by law,” thus making explicit the qualification that the Fourco Court found implicit in the statute. Finally, there is no indication that Congress in 2011 ratified the Federal Circuit’s decision in VE Holding. Pp. 7–10.

821 F. 3d 1338, reversed and remanded.

Need help protecting your intellectual property? Visit Gehrke & Associates, SC to learn more about how we can help enhance and defend your intellectual property.  Thank you.