# Amicus Curiae Brief — Impression Prods., Inc. v. Lexmark Int'l, Inc., 136 S. Ct. 2501 (2016) (No. 15-1189)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2016

## Text

No. 15-1189 a
IN THE
Supreme Court of the United

IMPRESSION PRODUCTS, INC.,
Petitioner,
v.

LEXMARK INTERNATIONAL, INC.,
Respondent.

On Petrrion For A Writ or CERTIORARI TO THE UNITED
Srates Court or APPEALS FOR THE FEDERAL Crircurr

AMICUS CURIAE BRIEF OF THE
ASSOCIATION OF MEDICAL DEVICE
REPROCESSORS IN SUPPORT OF
IMPRESSION PRODUCTS, INC.

Rosrrt A. SURRETTE

Cc msel of Record
CHR STOPHER M. ScHARFF
McAnpreEws, HELD AND MALLoy, Lp.
500 West Madison Street, Suite 3400
(312) 775-8000
rsurrette@mcandrews-ip.com

Counsel for Amicus Curiae

COUNSEL PRESS 5 Bworw af Cnncueen

i

QUESTIONS PRESENTED

The “patent exhaustion doctrine”—also known as the
“first sale doctrine”—holds that “the initial authorized
sale of a patented item terminates all patent rights to that
item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553
U.S. 617, 625 (2008). This case presents two questions of
great practical significance regarding the scope of this
doctrine on which the sua sponte en banc Federal Circuit
divided below:

1.

Whether a “conditional sale” that transfers
title to the patented item while providing post-
sale restrictions on the article’s use or resale
circumvents the patent exhaustion doctrine
and therefore permits the enforcement of such
post-sale restrictions under penalty of patent

infringement.

Whether a sale of a patented article outside
of the United States—authorized by the U.S.
patentee— exhausts the U.S. patent rights
in that article, in light of this Court’s holding
in Kirtsaeng v. John Wiley & Sons, Inc., 133
S. Ct. 1351, 1363 (2013) that the common law
rule against restraints on alienation “makes no
geographical distinctions.”

it

TABLE OF CONTENTS

Page
QUESTIONS PRESENTED ...................... i
nd cdc ccdcnscveccceseasés ii
TABLE OF CITED AUTHORITIES .............. iv
INTEREST OF THE AMICUS CURIAE ........... 1
SUMMARY OF ARGUMENT..................... 4
bncccencetdebensscnssvccaucedasses 6

I. THE FEDERAL CIRCUIT'S DECISION
WILL SEVERELY IMPACT THE
MARKET FOR FDA CLEARED
REPROCESSED MEDICAL DEVICES...... 6

A. Patent Exclusion Power is Not Needed
as a Policy Matter to Protect the Safety
of Reprocessed Medical Devices.......... 6

B. The Federal Circuit’s “Conditional
Sale” Exception to Patent Exhaustion

C. The Federal Circuit’s Ruling That
Foreign Sales Do Not Result in
Patent Exhaustion Could Disrupt

International Secondary Markets. .... . . . 12

iii
Table of Contents

Page
D. The Federal Circuit's Decision Results in

Untenable Uncertainties for Third Party
Good Faith Purchasers of Products..... . 13

Il. THE FEDERAL CIRCUIT’S
“CONDITIONAL SALE” DOCTRINE
IS CONTRARY TO THIS COURT’S
150-YEAR-OLD PATENT
EXHAUSTION DOCTRINE ............... 16

A. This Court Has Uniformly Held that
Any “Authorized” Sale, Regardless
of Tangential Post-Sale Restrictions,
Triggers Patent Exhaustion ............ 16

1LTHE FEDERAL CIRCUIT’S
RATIONALE FOR ITS “CONDITIONAL
SALE” EXCEPTION TO PATENT
EXHAUSTION IS FLAWED............... 17

IV. THE FEDERAL CIRCUIT
INCORRECTLY HELD THAT
FOREIGN SALES DO NOT TRIGGER
PATENT EXHAUSTION ...............-.- 22

We GET Ser cccesevescncessntesseees 25

WwW

TABLE OF CITED AUTHORITIES

Page

Cases
Bloomer v. McQuewan,

ns cee ccecak eens ceeneeus 10
Boesch v. Graff,

EE MDs vc ncccccscceeescoscee 24
Ergowerz Int'l, LLC v. Maxell Corp. of Am.,

18 F. Supp. 3d 430 (S.D.N-Y. 2014) ............... 17
General Talking Pictures Corp. v.

Western Elec. Co.,

iene phestnce obuces net 20
Harkness v. Russell,

es sb adcedesasbesbecnadeves 21
Henry v. A.B. Dick Co.,

Ng he ae eek eens 19

Intergraph Hardware Techs. Co. v. Dell, Inc.,
2009 U.S. Dist. LEXIS 3193 (E.D. Tex.

IT os Lcienbuebicabescbeeceeiosende 17
Jazz Photo Corp. v. Int’l Trade Commission,

264 F.3d 1094 (Fed. Cir. 2001) .......... 5, 18, 14, 22
Kirtsaeng v. John Wiley & Sons, Inc.,

133 S. Ct. 1861 (2018)...............2-0ee. passim

Vv

Cited Authorities

Mallinckrodt, Inc. v. Medipart, Inc.,
976 F.2d 700 (Fed. Cir. 1992) .............. passim

Motion Picture Patents Co. v.
Universal Film Mfg. Co.,
ccc ccccesepecoceccoese passim

Quanta Computer, Inc. v. LG Electronics, Inc.,
Ss oc bcc cccccesceccescoes passim

Sony Corp. of Am. v.
Universal City Studios, Inc.,
ee icc cicedcdesestccoesnee 23

Static Control Components, Inc. v.
Leamark Int'l, Inc.,
615 F. Supp. 2d 575 (E.D. Ky. 2009).............. 17

United States v. Univis Lens Co.,
a 10, 18, 19

Other Authorities

Alfred C. Server and William J. Casey,
Contract-Based Post-Sale Restrictions
on Patented Products Following Quanta,

64 Hastings L.J. 561 (Apr. 2013) ................ 17

vi

Cited Authorities

FDA Device Advice: Comprehensive Regulatory
Assistance, Reprocessing of Single-Use
Devices, http://www.fda.gov/MedicalDevices/
DeviceRegulationandGuidance/
ReprocessingofSingle-Use Devices/

(last visited April 15, 2016)....................-. 7

Herbert Hovenkamp, /nnovation and the
Domain of Competition Policy, 60 Ala.
oc cacoudunetkestekeberscccse 17

Richard H. Stern, The Unobserved Demise of
the Exhaustion Doctrine in US Patent Law,
15 Eur. Intel. Prop. Rev. 460-65 (1993)........... 11

Thomas G. Hungar, Observations Regarding
the Supreme Court’s Decision in Quanta
Computer, Inc. v. LG Electronics, Inc.,
IDEA—The Intellectual Property Law Review,
Vol. 49, No. 4 @June 7, 2009)... .. 2.2... 2c eens 17, 22

U.S. Government Accountability Office, GAO-
08-147, Reprocessed Single-Use Medical
Devices: FDA Oversight Has Increased, and
Avatlable Information Does Not Indicate that
Use Presents an Elevated Health Risk (Jan.
2008), available at http://www.gao.gov/products/
GAO-08-147 (last visited April 15, 2016)........... 9

Statutes

1
INTEREST OF THE AMICUS CURIAE

The Association of Medical Device Reprocessors
(“AMDR_”) is a trade organization consisting of member
companies that reprocess medical devices.’ Member
companies collect, clean, repair, and re-sterilize (among
other steps) discarded medical devices that can safely
be reused pursuant to FDA regulations. The devices
that AMDR member companies reprocess include used
cardiovascular, patient monitoring and compression
therapy, general surgery, and orthopedic devices, as well
as opened but unused devices. AMDR member companies
provide hospitals with safe and effective reprocessed
devices, which lower healthcare costs and reduce the
impact of medical waste on the environment.

The Food and Drug Administration (FDA) regulates
companies that market medical devices in the United
States, including medical device reprocessors. Before a
reprocessed medical device can be marketed or sold, a
third-party reprocessor must demonstrate—and the FDA
must agree—that the reprocessed device is substantially
equivalent in terms of safety and efficacy to the predicate

1. No party or its counsel authored this brief in whole or in
part, or contributed money to fund preparing or submitting this
brief. No person or their counsel, other than the amicus party
or its members (Stryker Sustainability Solutions, Inc., a wholly-
owned subsidiary of Stryker Corporation, Medline ReNewal,
Innovative Health, Vanguard AG, and Hygia Health Services),
contributed money intended to fund preparing or submitting the
brief. Respondent Lexmark International, Inc. filed a letter of
blanket consent to amici. Petitioner Impression Products, Inc.
granted consent to amicus curiae AMDR on April 13, 2016 via
electronic mail, a copy of which is being submitted herewith.

2

originally-manufactured device. A third-party reprocessor
must comply with the same requirements that apply to
original equipment manufacturers, including:

Registering all reprocessed products
¢ Obtaining premarket approval

¢ Verifying quality assurance

Submitting adverse event reports

Tracking devices whose failure could have serious
outcomes

¢ Correcting or removing from the market unsafe
devices

* Meeting manufacturing and labeling requirements

¢ Submitting the reprocessing facilities to regular
inspection

The savings realized through the use of reprocessed
single-use devices allows hospitals and healthcare
providers to cut costs significantly and redirect those
funds toward hiring more medical professionals or
investing in improved patient care. Many of the hospitals
with whom AMDR members work are able to save more
than $1 million annually by purchasing AMDR members’
reprocessed single-use devices. Smaller community
hospitals report saving more than $250,000 annually.

3

The reprocessing services offered by AMDR members
also have a drastic positive effect on the environment.
AMDR members help hospitals divert millions of pounds
from local landfills per year. On average, medical device
reprocessing can divert over 50,000 pounds of medical
waste from a single hospital each year—the equivalent
weight of more than five elephants. Regulated medical
waste, also known as “red bag” waste, costs up to 5-10
times more to dispose of than regular solid waste.

If, however, an original manufacturer can avoid the
patent exhaustion/first sale doctrine simply by including a
“single-use” restriction with the sale of a patented product,
then reprocessors of such devices would risk liability
for patent infringement. Consumers and businesses,
including the hospitals that AMDR members serve, would
be forced to purchase a new replacement device from the
manufacturer and to dispose of new devices that have
only been used once (which may otherwise be able to be
reprocessed for multiple uses). Similarly, if foreign sales
do not trigger U.S. patent exhaustion, manufacturers
would be able to exact multiple payments for a single
sale of a product (e.g., when it is originally sold abroad
and again when imported or sold into the U.S.) or engage
in more aggressive discriminatory pricing. If the Court
does not reverse the decision of the Federal Circuit,
healthcare costs would multiply, medical waste would pile
up, and competition in the medical device market would
be reduced.

AMDR, therefore, seeks to provide this Court with
the perspective of an industry that the decision in this
case would significantly impact. Specifically, AMDR
submits this amicus curiae brief in support of Petitioner

4

Impression Products, Inc., to address both Questions
Presented.

SUMMARY OF ARGUMENT

For over 150 years, this Court has recognized the
patent exhaustion doctrine as a defining boundary of the
scope of the limited monopoly afforded by a patent. Under
the patent exhaustion doctrine, an authorized sale of a
product substantially embodying the patented invention
exhausts the patent right. Put another way, after title of
a patented product passes to a purchaser through a sale
authorized by the patentee, the purchaser and any down-
stream purchaser or user are free under patent law to use,
dispose of, or repair the product.

The Federal Circuit’s en banc decision, however,
effectively eliminates the patent exhaustion doctrine.
This Court had articulated the doctrine as a limit on a
patentee’s ability to control post-sale use of a patented
product—regardless of a patentee’s desire to control
post-sale activity, patent exhaustion prevented it from
doing so. The Federal Circuit, however, would make patent
exhaustion an optional result—if a patentee does not want
patent exhaustion to be triggered by a sale, it need only
provide “clearly communicated” post-sale restrictions.
A patentee could also use the Federal Circuit’s decision
to exact multiple payments from successive owners of
the same product originally sold outside of the United
States—contrary to the purpose of patent exhaustion.

By first reaffirming its earlier decision in Mallinckrodt,
Inc. v. Medipart, Inc., 976 F.2d 700, 702-706 (Fed. Cir.
1992), the Federal Circuit addressed the impact of

5

“post-sale” restrictions in a purchase agreement and
whether such restrictions could avoid patent exhaustion.
The Federal Circuit interpreted this Court’s precedent
as having addressed only post-sale restrictions that ran
afoul of antitrust law. See Pet. App. at 53a-56a. Under
that reasoning, the Federal Circuit held that other post-
sale restrictions that are not per se illegal under antitrust
law could avoid patent exhaustion. Jd. For example, the
Federal Circuit found that a sale subject to a post-sale
restriction limiting a patented product to a “single-use”
did not trigger patent exhaustion. /d. at 8a.

The Federal Circuit’s holding, however, is directly
contrary to this Court’s repeated articulation of the
patent exhaustion doctrine. As recently as Quanta
Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617,
638 (2008), this Court addressed the effect of post-sale
restrictioi.s on patent exhaustion. The Court in Quanta
applied prior precedent without regard to antitrust law
and stated a broad, bright-line test for patent exhaustion.
Under Quanta, any sale authorized by the patent holder
triggers patent exhaustion, eliminating the patent
holder’s ability to control post-sale activity. Jd. at 638.
The Court did not limit patent exhaustion to sales without
contract restrictions or ones with restrictions that would
be unlawful under antitrust law. Moreover, the Court’s
analysis in Quanta also reveals that the Federal Circuit
misapprehended this Court’s earlier precedent.

Similarly, in reaffirming its earlier decision in Jazz
Photo Corp. v. Int'l Trade Commission, 264 F.3d 1094,
1102-07 (Fed. Cir. 2001), the Federal Circuit addressed
the application of patent exhaustion to foreign sales of
a product patented in the United States. The Federal

6

Circuit held that an authorized sale of a patented product
outside of the United States does not exhaust U.S. patent
rights, notwithstanding the opposite holding of this
Court in Kirtsaeng v. John Wiley & Sons, Inc., 133 8.
Ct. 1351, 1363-64 (2013) (addressing first sale doctrine
under copyright law). This result also misapprehends
this Court’s earlier precedent, ignores the common law
rule against restraints on disposition of goods making
“no geographical distinctions” (133 S. Ct. at 1363), and
illogically and incorrectly distinguishes the holding of
Kirtsaeng. If allowed to stand, the Federal Circuit’s
decision would cripple the international market for
reprocessed or resold goods.

ARGUMENT

I. THE FEDERAL CIRCUIT’S DECISION WILL
SEVERELY IMPACT THE MARKET FOR FDA
CLEARED REPROCESSED MEDICAL DEVICES

A. Patent Exclusion Power is Not Needed as
a Policy Matter to Protect the Safety of
Reprocessed Medical Devices

A holding that “single-use” or “use-and-return”
restrictions cannot circumvent patent exhaustion is
best for commerce. Reprocessed medical devices in
particular are a significant industry. About 3,000 of the
nation’s 5,500 or so acute care hospitals have implemented
reprocessing programs. AMDR’s members reprocess
medical devices for 14 of the 17 hospitals recognized on the
US News & World Report “Honor Roll,” including Mayo
Clinic, Cleveland Clinic, Johns Hopkins, Massachusetts
General, Stanford Healthcare and many others. Analysts,

7

such as Transparency Market Research, estimate that
the total savings to all hospitals from reprocessing
is upwards of $500 million per year. The Healthier
Hospitals Initiative, an alliance of hospitals and health
systems that seeks to boost sustainability in healthcare,
released a report in April 2013 finding that 185 hospitals
saved $32 million in 2012 by reprocessing single-use
medical devices. And Tenet Healthcare Corp. reported
saving $9.4 million and diverting more than 1.5 million
pounds of medical waste from landfills in 2012. For that
reason, customers of AMDR’s members have described
medical device reprocessing as “the right thing to do,
both environmentally and economically.” See http://www.
beckershospitalreview.com/supply-chain/the-ins-and-
outs-of-third-party-reprocessing.html (last visited April
15, 2016). The American Nurses Association, Association
of Peri-Operative Nurses, Healthcare Without Harm, and
Practice Greenhealth have also all written in support of the
environmental benefits of single-use device reprocessing.
See http://www.amdr.org/environmental/ (last visited
April 15, 2016).

Even the F'DA has recognized the significant benefits
of reprocessed medical devices. The F'DA appreciates that
“{rleprocessing and reusing single-use devices (SU Ds) can
save costs and reduce medical waste.” FDA Device Advice:
Comprehensive Regulatory Assistance, Reprocessing of
Single-Use Devices, http://www.fda.gov/MedicalDevices/
DeviceRegulationandGuidance/ReprocessingofSingle-
Use Devices/ (last visited April 15, 2016). Through March
2016 the FDA has cleared approximately 252 single use
medical devices for reprocessing.

8

The FDA ensures that “before medical devices can
be reprocessed and reused, a third-party or hospital
reprocessor must comply with the same requirements
that apply to original equipment manufacturers.” Jd.
The FDA’s former Director of the Center for Devices
and Radiological Health has therefore recognized that
the “FDA believes that reprocessed SUDs [single-use
— tat most FDAS he af requirements are as

nd 3 a new device.” See Testimony of Dr.
Daniel Schultz, at http:/www. fda.gov/Medical Devices
Device Regulation and Guidance/ReprocessingofSingle-
UseDevices/ucm121067.htm (last visited April 15, 2016)
(emphasis added).

In fact, the “pre-market submission of data to the
Agency [for clearance of a reprocessed device] . . . exceeded
the requirements for OEMs.” Jd. (emphasis added).
That is because in 2002, Congress enacted the Medical
Device User Fee and Modernization Act (“MDUFMA”),
which provided in § 302 additional specific regulatory
requirements for reprocessed single-use devices, including
that a reprocessor must:

* “prominently and conspicuously” label the device

as reprocessed;

* allow the FDA to review devices previously

exempted from FDA 510(k) clearance; and

* submit a new, additional category of premarket
submission—the premarket report—for any
reprocessed Class II device.

9

Moreover, there is nothing inherently unsafe in
reprocessing a device that an original manufacturer chose
to designate as single-use-only. The decision to put a
“single use” label on a device’s packaging is made by the
original manufacturer—not the FDA. A manufacturer
typically makes that label designation just to avoid having
to submit evidence supporting re-use to the FDA. See
U.S. Government Accountability Office, GAO-08-147,
Reprocessed Single-Use Medical Devices: FDA Oversight
Has Increased, and Available Information Does Not
Indicate that Use Presents an Elevated Health Risk (Jan.
2008), available at http://www.gao.gov/products/GAO-08-
147 (last visited April 15, 2016).

The Federal Circuit majority nevertheless found as
a policy matter that a patentee should—even after an
authorized sale that relinquishes title to a product—be
able to use patent law to control the conditions under which
that product is later reprocessed, recycled, or reused. Pet.
App. at 61a. Without citing to any factual evidence, the
majority concluded that post-sale restrictions allegedly
make sense because, for example, a medical device
supplier may have “reason to believe that reuse, when
not under its own control, carries a significant risk of
poor or even medically harmful performance, to the
detriment of its customers and its own reputation.” /d. at
60a-61la. According to the Federal Circuit’s unsupported
speculation “[s]uch interests are hardly unrelated to the
interests protected by the patent law—the interests both
of those who benefit from inventions and of those who
make risky investments to arrive at and commercialize
inventions.” Jd. at 61a.

10

The Federal Circuit’s argument, however, overlooks
all of the foregoing discussed consumer, economic, and
environmental benefits of reprocessed devices. And it
overlooks the heavily Tee oat FDA wpe ta in place a
ernie Leprocesse: hots

pepe 8- 9.

Moreover, this Court long ago resolved the proper
policy balance between a patent holder’s interest in using
patent law to control the use of its invention versus the
public’s interest in using their purchased property as they
see fit. That is the very origin of the patent exhaustion
doctrine. See, e.g., Bloomer v. McQuewan, 55 U.S. 539, 14
How. 539, 549, 14 L. Ed. 532 (1853) (“[W Jhen the machine
passes to the hands of the purchaser, it is no longer within
the limits of the monopoly.”); Motion Picture Patents
Co. v. Universal Film Mfg. Co., 243 U.S. 502, 518 (1917)
(observing that “the primary purpose of our patent laws
is not the creation of private fortunes for the owners of
patents but is ‘to promote the progress of science and
useful arts”). This Court has explained the basis for the
doctrine as follows: “[TJhe purpose of the patent law is
fulfilled with respect to any particular article when the
patentee has received his reward . . . by the sale of the
article”; once that “purpose is realized the patent law
affords no basis for restraining the use and enjoyment of
the thing sold.” United States v. Univis Lens Co., 316 U.S.
241, 249-50 (1942). Patent law is not a tool for exacting a
“toll” for every use of a patented product or for regulating
the use of the patented product.

11

B. The Federal Circuit’s “Conditional Sale”
Exception to Patent Exhaustion Could
Potentially Eliminate Secondary Markets in
Patented Goods

The Federal Circuit’s decision below effectively
guts the patent exhaustion doctrine. A patentee could
potentially exclude from exhaustion any sales of a patented
product simply by including a “clearly communicated”
post-sale restriction in the purchase agreement (or
potentially even just in a shrink-wrap agreement on the
packaging). The patentee would be able to threaten patent
infringement liability against all subsequent purchasers
down the chain to either prohibit reuse/resale entirely or
to extract a second, third, or fourth “license” fee. These
very concerns led to the Court’s holding in Quanta. See
Quanta, 553 U.S. 617 at 630 (“This case illustrates the
danger of allowing such an end-run around exhaustion.”)
(emphasis added).

The Federal Circuit brushed off any concerns in
this regard, arguing that this result has purportedly
not come to pass since the decision in Mallinckrodt. See
Pet. App. at 60a. Most observers, however, had believed
that Quanta overruled Mallinckrodt. See infra at p. 17
(discussing articles and district court decisions concluding
that Mallinckrodt was not good law). Moreover, even
before Quanta, it was believed that the three-person
panel decision in Mallinckrodt was wrongly decided, as
it was contrary to earlier precedent of this Court. See,
e.g., Richard H. Stern, The Unobserved Demise of the
Exhaustion Doctrine in US Patent Law, 15 Eur. Intel.
Prop. Rev. 460-65 (1993) (“The flaws in Mallinckrodt’s
legal analysis appear overwhelming. . . . Because

12

Mallinckrodt’s precedential support is negligible, its
viability as a precedent may be limited. Subsequent panel
decisions may distinguish it or limit it to its facts to the
point of irrelevance.”) (emphasis added). Should this Court
decline to reverse the Federal Circuit’s sweeping en banc
decision, however, post-sale restrictions will undoubtedly
become far more common. Secondary market goods for
products such as medical devices, cell phones, home
electronics, automotive parts, and others may largely

disappear.

C. The Federal Circuit’s Ruling That Foreign
Sales Do Not Result in Patent Exhaustion

Could Disrupt International Secondary
Markets

The medical device reprocessing industry—as with
many other secondary markets—is also a world-wide
industry. The Federal Circuit’s ruling that foreign sales
do not result in patent exhaustion would significantly
disrupt that market and harm consumers. At the same
time, it would only benefit patent holders by allowing
them to demand multiple payments on a single tangible
good after it is sold or to enforce country-by-country price
discrimination.

For example, a medical device reprocessor could
face allegations of patent infringement if it were to bring
foreign-sold medical devices into the U.S. to reprocess
those devices in a U.S. reprocessing facility. Even if the
U.S. reprocessor intends to simply take devices from the
original authorized purchaser, import them into the U.S.
to reprocess them as a service for the owner (without a
sale or title changing hands), and send them back to the

13

original purchaser, either the U.S.-based reprocessor or
the foreign purchaser would have to import them into the
U.S. See 35 U.S.C. § 271 (importing a patented good can
be an act of infringement). Therefore, such a U.S.-based
reprocessor—who otherwise performs mere reprocessing-
for-hire services, would now have to trace the patent rights
of every component of that product. Or, the U.S.-based
reprocessor would have to set up duplicative and wasteful
reprocessing facilities around the globe.

The vederal Circuit’s decision may also result in
higher costs for medical devices in the U.S. A U.S.-based
reprocessor who engages in the business of buying lower-
cost medical devices overseas for resale in the U.S. would
be exposed to increased risk of patent infringement
allegations. Meanwhile, the patentee could potentially
charge a lower price outside of the U.S. for a device, but
a much higher price for sales in the U.S. A U.S. hospital
or other consumer would be unable to buy the products at
a lower price outside of the U.S. and import them for use.

D. The Federal Circuit’s Decision Results in
Untenable Uncertainties for Third Party Good
Faith Purchasers of Products

The Federal Circuit majority’s decision also leaves
reprocessing companies guessing as to their rights. The
Federal Circuit’s decisions to affirm Mallinckrodt and
Jazz Photo raises myriad practical barriers.

First, a downstream purchaser that may have no
way of verifying the details of the original sale could
nevertheless be subject to the “conditions” of that sale,
or else be potentially liable as an infringer. The Federal

14

Circuit majority decision partly recognized this danger
and added a requirement of “notice” of any “conditional
sales” to “downstream buyers.” Pet. App. at p. 62a.
The majority decision also requires that the post-sale
restriction be “clearly communicated to the purchaser.”
Pet. App. at 8a. The Federal Circuit, however, provided
no guidance as to what constitutes “notice” or a “clearly
communicated” restriction. Nor did the Federal Circuit
provide any legal reasoning for why the heavy remedy
of patent infringement should be dependent on whether
or not a downstream purchaser knows of a post-sale
restriction in an original sales contract. And the Federal
Circuit did not address what kind of evidence would be
sufficient to prove such knowledge.

For example, the Federal Circuit has previously
held that only post-sale restrictions in a contract can
constitute “conditions” on the sale that would avoid patent
exhaustion. See Jazz Photo Corp. v. ITC, 264 F.3d 1094,
1108 (Fed. Cir. 2001) (“We do not discern an enforceable
restriction on the reuse of these cameras based on the
package statements [stating that the cameras were
for single-use]. These statements are instructions and
warnings of risk, not mutual promises or a condition
placed upon the sale.”) Mere “instructions and warnings”
on packaging cannot themselves constitute a contract and
thus a condition on the sale. See id. If warnings on the
product or product packaging are insufficient, however,
it is unknown how a downstream purchaser would know
of the existence of any “conditions” on the original sale
contract. Moreover, neither Jazz Photo nor the Federal
Circuit decision below addressed the impact of restrictions
in a “shrink-wrap” agreement on the product packaging,
and how a downstream purchaser would have notice of
such an agreement if the original packaging is discarded.

15

Similarly, the Federal Circuit’s ruling that patent
exhaustion does not apply to goods that a U.S. patentee
sells abroad will raise unworkable uncertainties. A
downstream purchaser may often have no way of knowing
whether the first authorized sale of a product occurred in
the U.S. or not. Under the Federal Circuit’s decision, the
fact that a product was first sold abroad does not need to
be “clearly communicated” to a downstream purchaser
in order to avoid patent exhaustion. See Pet. App. at
63a-103a. Further, because a downstream purchaser
of a foreign product would no longer be able to rely on
patent exhaustion, it would now have to engage in costly
examination of whether the goods are patented or not.

The bright-line patent exhaustion doctrine of Quanta
and the bright-line rule of Kirtsaeng against geographical
distinctions on restraints against alienation remove all of
this uncertainty. They strike the proper balance between
patentee and purchaser rights and relegate contract
disputes to their proper place.”

2. This Court in Quanta recognized that post-sale
restrictions are something to be enforced, if at all, through
contract law, rather than patent law. See Quanta, 553 U.S. at 636,
fn. 7 (“We note that the authorized nature of the sale to Quanta
does not necessarily limit LGE’s other contract rights.”)

16

Il. THE FEDERAL CIRCUIT’S “CONDITIONAL
SALE” DOCTRINE IS CONTRARY TO THIS
COURT’S 150-Y EAR-OLD PATENT EXHAUSTION
DOCTRINE

A. This Court Has Uniformly Held that Any
“Authorized” Sale, Regardless of Tangential
Post-Sale Restrictions, Triggers Patent
Exhaustion

This Court’s patent exhaustion standard is both
broad and simple: “[TJhe authorized sale of an article
that substantially embodies a patent exhausts the patent
holder’s rights and prevents the patent holder from
invoking patent law to control postsale use of the article.”
Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617,
638 (U.S. 2008). Once the patentee parts with title to the
product through an authorized sale, it relinquishes all
ability to control post-sale use or resale.

The test in Quanta does not depend on the relationship
of the parties or whether there were any tangential
covenants, warranties, or ongoing duties in a contract.
Nor does it depend on antitrust law or the legality of any
post-sale restrictions. Rather, the Court recognized that
a patentee (LGE) had authorized a manufacturer (Intel)
to manufacture and sell patented products. Jd. at 636. The
Court found what the patentee argued were “conditions”
on the use of the product (i.e., the manufacturer was
required to notify any purchasers that they could not
combine the patented products with non-Intel components)
amounted to mere collateral agreements that did not
render the sales by Intel “unauthorized.” Jd. When the
manufacturer sold the products to a third party (Quanta),
“Tntel’s authorized sale to Quanta thus took its products

17

outside the scope of the patent monopoly” and as a result,
the patentee could “no longer assert its patent rights
against Quanta.” Jd. at 638 (emphasis added).

Accordingly, most commentators agreed that Quanta
put to rest any “conditional sale” exception to patent
exhaustion. See Alfred C. Server and William J. Casey,
Contract-Based Post-Sale Restrictions on Patented
Products Following Quanta, 64 Hastings L.J. 561, 596
(Apr. 2013) (stating that “a majority of commentators” have
adopted the view that Quanta overturned the conditional
sales doctrine); Herbert Hovenkamp, Innovation and the
Domain of Competition Policy, 60 Ala. L. Rev. 103, 111
& n.35 (2008) (claiming Quanta overruled Mallinckrodt);
Thomas G. Hungar, Observations Regarding the Supreme
Court’s Decision in Quanta Computer, Inc. v. LG
Electronics, Inc., IDEA—The Intellectual Property Law
Review, Vol. 49, No. 4 (June 7, 2009) at 529-30 (same); see
also Ergowerz Int’l, LLC v. Mazell Corp. of Am., 18 F.
Supp. 3d 430 (S.D.N-Y. 2014) (same); Intergraph Hardware
Techs. Co. v. Dell, Inc., 2009 U.S. WL 166559, *3 (E.D.
Tex. Jan. 16, 2009) (same); Static Control Components,
Inc. v. Lexmark Int'l, Inc., 615 F. Supp. 2d 575, 585 (E.D.
Ky. 2009) (same).

Ill. THE FEDERAL CIRCUIT’S RATIONALE FOR
ITS “CONDITIONAL SALE” EXCEPTION TO
PATENT EXHAUSTION IS FLAWED

Notwithstanding the broad, clear patent exhaustion
rule articulated by this Court, the Federal Circuit majority
nevertheless found that its “conditional sale” exception to
patent exhaustion was warranted. Its reasoning, however,
misapprehends this Court’s precedent, the patent statute,
and the purpose of patent exhaustion.

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First, the Federal Circuit incorrectly concluded that
Quanta, as well as the earlier decisions in Motion Picture
Patents Co. v. Universal Film Manufacturing Co., 243
U.S. 502, 518 (1917) and United States v. Univis Lens Co.,
316 U.S. 241, 251 (1942), were distinguishable—that the
broad patent exhaustion rule in those decisions was mere
dicta because there was either no restriction imposed or
the restriction would otherwise have violated the antitrust
laws. See Pet. App. at 54a. But as the dissent by Judges
Dyk and Hughes explained, “the cases impose no such
qualification on the rule announced.” Jd. at 118a.

For example, the Federal Circuit attempted to
distinguish Quanta by arguing that it “did not involve
a patentee’s sale at all” or one “subject to a restriction.”
Id. at 30a. But patent exhaustion applies not just to
patentee sales but also to authorized licensee sales. See
Quanta, 533 at 636-37 (authorized sale from licensee Intel
exhausted the patent). And the sales at issue in Quanta
did come with a “restriction”—-Intel (the licensee/seller)
was required by LGE (the patentee) to notify purchasers
(including Quanta) that they were not allowed to combine
the patented products with non-Intel components. See
Quanta, 533 at 624-25. The Court simply held that this
restriction did not override the undeniable fact that the
sale itself was still “authorized” by LGE. See id.

The Federal Circuit similarly incorrectly interpreted
Motion Picture Patents as only establishing that unlawful
post-sale restrictions (e.g., price fixing) did not circumvent
patent exhaustion. See Pet. App. at 53a-54a. The Court in
Motion Picture Patents, however, put no such limitation on
its holding. The Court simply held that “the right to vend
is exhausted by a single, unconditional sale, the article

19

sold being thereby carried outside the monopoly of the
patent law and rendered free of every restriction which
the vendor may attempt to put upon it.” Motion Picture
Patents, 243 U.S. at 516, 518. In doing so, Motion Picture
Patents overruled the entirety of this Court’s short-lived
decision in A.B. Dick that had broadly allowed post-sale
restrictions—not just as to “unlawful” restrictions. See
id. at 518, overruling Henry v. A.B. Dick Co., 224 U.S. 1,
24-25 (1912).

Univis likewise did not turn on whether a post-sale
restriction is legal under antitrust laws. In Univis, the
Court broadly found that where a patent holder has sold
a patented product he has “thus parted with his right to
assert the patent monopoly with respect to it and is no
longer free to control the price at which it may be sold
....” Id. at 251. In arriving at that conclusion, Univis
started its analysis with patent law, stating that “before
considering whether the defendants’ conduct violated
antitrust law, the Court first asked whether that conduct
was excluded by the patent monopoly from the operation of
the Sherman Act.” Univis, 316 U.S. at 244. To answer that
question, the Court turned to patent exhaustion. Jd. In
other words, Univis found that the post-sale restrictions
were also illegal under antitrust law only after concluding
that patent exhaustion first voided them. That is why
Quanta—which did not turn on or discuss any antitrust
issues—recognized that “Univis governs.” Quanta, 553
U.S. at 617.

Second, the Federal Circuit majority incorrectly
reasoned that without a “conditional sale” exception to
patent exhaustion, there would be two different patent
exhaustion tests for (a) “a practicing-entity patentee

20

that makes and sells its own product” versus (b) a “non-
practicing-entity that licenses others to make and sell
the product.” Pet. App. at 26a. But the Federal Circuit
misunderstood the issue. The distinction that exists under
this Court’s exhaustion test is simply between authorized
and unauthorized sales.

The Quanta test itself reflects this distinction.
Quanta requires an “guthorized sale” to exhaust the
patent. Quanta, 553 U.S. at 638. Any sales directly made
by the patentee are of course logically “authorized” by
the patentee. Any sales by an infringing, unrelated third
party are logically “unauthcrized” by the patentee. But
a patentee can also grant a license to another company
to make and sell the patented product. If it wishes, the
patentee can give the manufacturer-licensee permission
to sell the product only within a certain geographic area
or field of use. The patentee has not sold the product to the
manufacturer-licensee and thus there is no “authorized
sale” between them to trigger patent exhaustion.
Thereafter, unauthorized sales by the manufacturer-
licensee in violation of the agreement (e.g., sales outside
of the permitted area or field of use), are unlicensed
and therefore infring‘ng. That was the exact scenario
in General Talking Pictures Corp. v. Western Elec. Co.,
305 U.S. 124, 127 (19388). If, however, the manufacturer-
licensee makes an authorized sale to a customer (e.g., the
manufacturer licensee sells within the scope of its license),
patent exhaustion is then triggered. See Quanta, 553 U.S.
at 625. Any subsequent purchaser after that authorized
first sale is free to use and resell the product as it sees
fit (even outside the manufacturer-licensee’s field of use),
just as if it purchased the product from the patentee itself.
In other words, patent exhaustion does not treat sales

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by a licensee/manufacturer differently from those by a
patentee— it treats authorized and unauthorized sales
differently. See Pet. App. at 121a-123a.

Third, the Federal Circuit majority incorrectly argued
that this Court’s own past use of the term “unconditional
sale” supported a “conditional sale” exception to patent
exhaustion. See Pet. App. at 32a, citing Quanta, 553
U.S. at 626, quoting Motion Picture Patents, 243 U.S.
at 516. But the Federal Circuit misapprehended the way
that this Court has used the term “unconditional sale.”

Traditionally, a “conditional sale” of property was one
in which title did not pass until a condition-precedent
had occurred. See Pet. App. at 115a, Dissenting Opinion
citing Harkness v. Russell, 118 U.S. 663, 665 (1886) (a

“conditional sale” is a security device, i.e., an “agreement
to sell upon a condition to be performed”). In the post-sale
restrictions at issue here, there was no “condition” that
had to occur before title to the patented product passed to
the purchaser. The single-use restrictions here are more
properly characterized as tangential contract provisions
(no different from payment, warranty, or other similar
provisions) rather than a “conditional sale.”

Fourth, the Federal Circuit reasoned that because the
Court in Quanta did not expressly overrule Mallinckrodt’s
“conditional sale” exception to patent exhaustion, it would
be “unwarranted” to believe that the Court disapproved
of it. Pet. App. at 32a. That logic, however, is backwards.
As the Federal Circuit acknowledged, the “evident
explanation is that, at a minimum, no question was
presented for decision” in Quanta regarding overturning
Mallinckrodt. Id. See also Pet. App. at 114a, fn. 3. In
fact, at oral argument, LGE’s counsel was asked: “Q: Am

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I correct in understanding that you do not defend the
Mallinckrodt decision? A: I do not defend the Mallinckrodt
decision, Justice Stevens, and clearly I don’t believe I have
to.” Thomas G. Hungar, Observations Regarding the
Supreme Court's Decision in Quanta Computer, Inc. v.
LG Electronics, Inc., IDEA—The Intellectual Property
Law Review, Vol. 49, No. 4 (June 7, 2009) at 30.

Fifth, the Federal Circuit’s reliance on 35 U.S.C.
§§ 271(a) and 154(a)(1) as allegedly allowing a patent
holder to exclude any use of a patented invention “without
authority” is misplaced. Such an interpretation is contrary
to the very concept of patent exhaustion. For example, in
Motion Picture Patents and Quanta, the patentee had
not given “authority” for the disputed post-sale use of
the patented products. See Motion Pictures Patents, 243
U.S. at 514-15, Quanta, 553 U.S. at 638. Nevertheless,
exhaustion was trigged because there was an “authorized”
first sale—that sale ended the patentee’s ability to exert
any further “authority” over post-sale use. See id.

IV. THE FEDERAL CIRCUIT INCORRECTLY HELD
THAT FOREIGN SALES DO NOT TRIGGER
PATENT EXHAUSTION

The Federal Circuit also incorrectly decided whether
non-U.S. sales of a patented product exhaust the U.S.
patent rights. Namely, the Federal Circuit en banc upheld
the earlier panel decision in Jazz Photo, 264 F.3d at 1102-
07 that such sales do not trigger patent exhaustion. This
decision is contrary to Kirtsaeng, 133 S. Ct. at 1363-64
and the common law articulated therein.

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In Kirtsaeng, the Court concluded that an authorized
sale of a copyrighted book outside the U.S. did give rise
to copyright exhaustion. See id. at 1363-64. Although the
Court there addressed copyright exhaustion based on a
foreign sale, rather than patent exhaustion, it analyzed the
common law regarding restraints on property generally.
See Kirstaeng, 133 S. Ct. at 1363. The Court treated the
copyright first sale doctrine as a “common-law doctrine
with an impeccable historical pedigree” rather than
something unique to the copyright statute. Jd. The Court
broadly recognized that “[a] law that permits a copyright
holder to control the resale or other disposition of a chattel
once sold” is “against Trade and Traffic, and bargaining
and contracting.” Jd. The Court also recognized (1) “the
importance of leaving buyers of goods free to compete
with each other when reselling or otherwise disposing
of those goods” and (2) that a broad first sale doctrine
frees courts from “the administrative burden of trying
to enforce restrictions upon difficult-to-trace, readily
movable goods.” Jd. at 1363-64. The Court then concluded
that “(tlhe common-law doctrine makes no geographical
distinctions” and that a “straightforward application”
of the rule “would not preclude the ‘first sale’ defense
from applying to authorized copies made overseas.” /d.
at 1363-64.

Each of these rationales applies equally to patent
exhaustion. International patent exhaustion—just like
the international copyright first sale doctrine—will
promote the same consumer interests and avoid the same
administrative burdens. The Court has previously noted
parallelisms between the property interests in a copyright
versus a patent. See, e.g., Sony Corp. of Am. v. Universal
City Studios, Ic., 464 U.S. 417, 489 (1984) (recognizing a
“historic kinship between patent law and copyright law”).

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It was only after the Court in Kirstaeng discussed
general common law property principles that it also
analyzed whether the copyright statute (§109(a)) limited
the common law rule disfavoring restraints on alienation
of goods. See Kirstaeng, 133 8S. Ct. at 1364. It found that
although the copyright statute did address first sale, it did
not mandate against exhaustion based on international
sales. See id. Because the patent statute has no applicable
statutory provision that needs analysis, it also does not
limit the broad common law rule disfavoring restraints
on alienation.

Moreover, Boesch v. Graff, 133 U.S. 697, 701-02 (U.S.
1890) does not support the Federal Circuit majority’s
position that international sales do not exhaust a patent.
Boesch did not broadly hold that foreign sales cannot
exhaust a U.S. patent. See id. at 701-02. Rather, in Boesch,
there was no foreign sale that was “authorized” by the U.S.
patentee (e.g., a sale from the U.S. patentee or from an
entity licensed by the U.S. patentee)—rather, the sale in
Boesch was from a third party who was only able to sell
in Germany, under Germany patent law, because it had
been doing so prior to the German patent application for
the same technology. /d. at 701-02. Boesch recognized that
the party attempting to import the patented product into
the U.S. was doing so “without the license or consent of
the owners of the United States patent.” Jd. at 702.

Vv. CONCLUSION

For the reasons discussed, this Court should grant
certiorari to address the above Questions Presented.

April 21, 2016 Respectfully Submitted,
Rosert A. SURRETTE

Counsel for Amicus Curiae
Association of Medical
Device Reprocessors

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0653%3A06. Public record. Not legal advice.