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

\ AND

BRIEFS No. 15-1189

— IN THE

Supreme Court of the United States

IMPRESSION PRODUCTS, INC.,

Petitioner,

v.

LEXMARK INTERNATIONAL, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

BRIEF OF INTEL CORP. AND VIZIO INC. AS

AMICI CURIAE IN SUPPORT OF PETITIONER

Matthew R. Hulse Mark S. Davies

INTEL CORPORATION Counsel of Record

2200 Mission College Blvd. Thomas M. Bondy

Santa Clara, CA 95054 Logan Q. Dwyer

ORRICK, HERRINGTON &

Avraham Schwartz SUTCLIFFE LLP

VIZIO, INc. 1152 15th Street, N.W.

39 Tesla Washington, DC 20006

Irvine, CA 92618 (202) 339-8400

mark. .davies@orrick.com

Richard F. Martinelli

Rachel Wainer Apter

Elizabeth R. Moulton

ORRICK, HERRINGTON &

SUTCLIFFE LLP

51 West 52nd Street

New York, NY 10019

Counsel for Amici Curiae

Likery of Coopen

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....00.........:::cccseeeeeereeeeees il

BUT I GE ncessccccescccesecsscceccnessncscsencesensoes 1

SUMMARY OF ARGUMENT......0000......000000.ccccceceeeees 3

IE edsctbscinsiciortinnedsennsvecuncsconssascinbiantsinnsscsserns 4

Il. The Court Should Review The Federal

Circuit’s Ruling That An Authorized

Foreign Sale Does Not Exhaust U.S.

EE ie Ee 8

A. The Federal Circuit's endorsement of

Jazz Photo presents a particular threat

to the technology industry ......................-..--. 8

B. The Federal Circuit’s endorsement of

Jazz Photo conflicts with Supreme

Court precedent, the common law, and

the international patent system................. 14

III. The Court Should Review The Federal

Circuit’s Ruling That Post-Sale

Restrictions May Be Enforced Through

TID ditintcntatiiibiisteliitaiamahiiaieeilinaedereseens 18

A. The Federal Circuit’s endorsement of

Mallinckrodt would allow patent

holders to end secondary markets in

TIE tsidsitsticunasntecscticinitdvecnsncssscenten 19

‘3

B. The Federal Circuit's endorsement of

Mallinckrodt is wrong because

exhaustion applies identically to

practicing-entity patentees and non-

practicing-entity patentees.........................

PEEP eccccceccsrescsaessuseecooesnersvonsstcsoonebeseneonpses

TABLE OF AUTHORITIES

Page(s)

Cases

Betts v. Willmott,

og a Eh

Bloomer v. McQuewan,

ETE HS AOE Es DO! 5

Boesch v. Graff,

a 4,14, 15

Boston Store v. Am. Gramophone Co.,

AA

Bowman v. Monsanto,

EAN a DOr 6

British Telecomms. PLC v.

Coxcom, Inc.,

9 F. Supp. 3d 423 (D. Del. 2014) .............0......00. 12

Curtiss Aeroplane & Motor Corp. v.

United Aircraft Eng’g Corp.,

Sy EE ic ircsccncccccssssccvcnsatmecosousees 16

Deepsouth Packing Co. v.

Laitram Corp.,

i teal 18

eBay Inc. v. MercExchange, L.L.C.,

ee i rsiccicissnsnssnnseeneevesionterdvunii 11

1V

Gen. Talking Pictures Corp. v. Western

Elec. Co.,

NS Od i cicnncccsccsscsstorccansenccess

Gen. Talking Pictures Corp. v. Western

Elec. Co.,

Ee Ge Pccecscesenssocesincsessceenece

Harkness v. Russell,

Se crtincinesociivaseminsaseein

Henry v. A.B. Dick Co.,

IIE 0 Gi itnctccicdosvesvessestsatoensedaes

Holiday v. Mattheson,

24 F. 185 (C.C.S.D.N.Y. 1885)..............

Isbrandisen Co. v. Johnson,

SP ES 0 PRP i rcasecsessscnninescesescecsese

Jazz Photo Corp. v. Int'l Trade Comm'n,

264 F.3d 1094 (Fed. Cir. 2001).............

Kabushiki Kaisha Hattori Seiko v.

Refac Tech. Dev. Corp.,

690 F. Supp. 1339 (S.D.N.Y. 1988) ......

Keeler v. Standard Folding Bed Co.,

fr

Kirtsaeng v. John Wiley & Sons, Inc.,

133 S. Ct. 1351 (2013)...............0...cesceee

Mallinckrodt, Inc. v. Medipart, Inc.,

976 F.2d 700 (Fed. Cir. 1992)...............

v

Microsoft Corp. v. i4i Ltd. P’ship,

ee ee re Ee irctterenesccecerseccsrecees

Mitchell v. Hawley,

os icceressnadiecctiiminnentr vecainess

Motion Picture Patents Co. v. Universal

Film Manuf. Co.,

I

Multimedia Patent Trust v. Apple Inc.,

No. 10-CV-2618, 2012 WL 6863471

8 ge BS) eee

Quanta Computer, Inc. v. LG Elecs., Inc.,

I ncicensiiniaieisienshincnniccensses

SanDisk Corp. v. Round Rock

Research LLC,

No. 11-CV-5243, 2014 WL 2700583

(N.D. Cal. June 13, 2014)...

Sanofi, S.A. v. Med-Tech Veterinarian

Prods., Inc.,

565 F. Supp. 931 (D.N.J. 1983) .........0..-..

Straus v. Victor Talking Mach. Co.,

ey CEE ccciencsccnsccescocscsesevenscens

United States v. Gen. Elec. Co.,

i rriecresenstesmnccndvecuessons

United States v. Univis Lens Co.,

Se I iis ccnncdnsncinionnsesensiiensies

vi

Vermont v. MPHJ Tech. Investments, LLC,

803 F.3d 635 (Fed. Cir. 2015) .........c.ceccsce-cesoe+ee0e- 13

Statutes

ss neaeuenmasaioinanad 6

Other Authorities

1 E. Coke, Institutes of the Laws of

a scielidiiecnssineaine 7

Agreement on Trade-Related Aspects of

Intellectual Property Rights, Apr.

TI i ircctcesccnnsntscnscnccsncnscasescia 17

Brian J. Love & James C. Yoon,

Expanding Patent Law’s Customer

Suit Exception, 93 B.U. L. Rev. 1605

SESH Cg ES A Sa Oe ee 14

Daniel Erlikhman, Jazz Photo and the

Doctrine of Patent Exhaustion:

Implications to TRIPS and

International Harmonization of

Patent Protection, 25 Hastings

Comm. & Ent. L.J. 307 (2008)............................. 17

Ian Barker, The Global Supply Chain

Behind the iPhone 6, betanews

(Sept. 23, 2014),

http://tinyrul.com/jrexpxd..............ccccc.c-sececceseccecees 9

vi

Intellectual Property Owners

Association, 2014 Top

300 Patent Owners,

https://www.ipo.org/index.php/

publications/top-300-patent-owners/..................... 2

John M. Golden, Principles for Patent

Remedies, 88 Tex. L. Rev. 505 (2010).................. 11

Mark R. Patterson, Contractual

Expansion of the Scope of Patent

Infringement Through Field-of-Use

Licensing, 49 Wm. & Mary L. Rev.

Ee TEE AR Ee SSSI AIO

Mark S. Popofsky and Michael D.

Laufert, Patent Assertion Entities

and Antitrust: Operating Company

Patent Transfers, The Antitrust

Source (American Bar Ass’n, 2013)

Mark Zetter, Economic Drivers,

Challenges Creating Regional

Electronics Industry, Venture

Outsource,

http://tinyurl.com/zokrprg

(last visited April 20, 2016)............

RPX Corp. Registration Statement

(Form S-1) (Sept. 2, 2011),

http://tinyurl.com/gnilzbr9 ..............

jentaaiunpeciepecninisiinial 9

coe

U.S. Fed. Trade Comm'n, The Evolving

IP Marketplace: Aligning Patent

Notice and Remedies with

Competition (March 2011).....................

USPTO Patent Full-Text and Image

Database, Class 36/114,

http:/Ainyurl.com/63ng3n (last

visited April 20, 2016) ..........--0-..-000.-0000-

USPTO Patent Full-Text and Image

Database, Class 604/358,

http://tinyurl.com/orwy26y (last

visited April 20, 2016) ................s00eeeeee--

WIPO Committee on Development and

Intellectual Property (CDIP), Patent

Related Flexibilities in the

Multilateral Legal Framework and

Their Legislative Implementation at

the National and Regional Levels,

CDIP/5/4 (Mar. 1, 2010),

http://tinyurl.com/2fgqm96.....................

INTEREST OF AMICI

Intel Corp. is a world-renowned designer,

manufacturer, and seller of microprocessors,

communication chips, flash memory products, solid-

state drives, and other high technology products and

services.! VIZIO, Inc. is a leading U.S. consumer

electronics company whose products include

televisions, displays, and audio equipment.

Computers, visual hardware, and other high

technology products typically contain numerous

components. These components are often designed in

one country, manufactured in another, tested and

assembled with other components in a third, and then

exported as subassemblies or finished products

worldwide. Many of these components are protected

by U.S. patents.

Amici participate in and rely on a well operating

global marketplace. Intel owns and operates

manufacturing facilities in the United States,

Ireland, Israel, and China. Its multitiered supply

chain comprises more than 16,000 suppliers in over

100 countries. Eighty percent of Intel’s products are

first sold abroad, primarily to original equipment

manufacturers “nd original design manufacturers. So

too, VIZIO relies on foreign manufacturers to procure

components and assemble VIZIO’s complex products.

And when buying components, amici must be sure

1 The parties have consented to the filing of this amicus

brief. No counsel for a party authored the brief in whole or in

part. No party, counsel for a party, or any person other than

amicus and its counsel made a monetary contribution intended

to fund the preparation or submission of this brief.

2

that they are securing freedom to operate for both

themselves and their customers.

At the same time, amici rely on carefully

assembled patent portfolios to protect their many

innovations. “[E]ach Intel microprocessor and chipset

practices thousands of individual patents.” Quanta

Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 635

(2008). Between 2007 and 2012, the U.S. Patent and

Trademark Office granted Intel 11,328 patents.

VIZIO, a much newer company, already owns over

140 patents. High tech companies are consistently

among those holding the most U.S. patents. See, e.z.,

Intellectual Property Owners Association, 2014 Top

300 Patent Owners, https://www.ipo.org/index.php/

publications/top-300-patent-owners/.

Amici thus have a unique perspective on patent

law doctrines. As the owners of a large and diverse

array of patents, amici are acutely sensitive to the

important role intellectual property plays in

encouraging creativity. And as sellers of innovative

products that incorporate hundreds or even

thousands of patented technologies, amici (and the

purchasers of their products) are also potential

defendants in patent infringement suits.

With this balanced perspective in mind, amici

urge the Court to grant review on the two questions

presented. Amici fully support the Court’s patent

exhaustion doctrine. The doctrine holds that one

authorized sale of a patented good exhausts all of the

patent holder’s patent rights in that good. The

Federal Circuit’s en banc decision below announces

two unwarranted exceptions to this sound rule. Both

3

exceptions threaten to cause havoc to the high

technology sector and are without legal basis. Further

review is warranted.

SUMMARY OF ARGUMENT

I. The Court has repeatedly held that U.S. patent

rights are deemed exhausted after the first

authorized sale of a patented good. Under this

doctrine, once a patent holder chooses to part with

title to a patented good, the good is beyond the limits

of the patent law. After the authorized sale, the

purchaser of the good is free to use or sell it however

she chooses.

II. The Court should review the en banc Federal

Circuit’s decision to reaffirm the rule announced in

Jazz Photo Corp. v. International Trade Comm'n, 264

F.3d 1094 (Fed. Cir. 2001). Under the Federal

Circuit’s ruling, a foreign sale of a patented article

does not exhaust the patentee’s U.S. patent rights.

That decision poses a serious threat to the global high

technology industry. High technology products are

often designed in one country, manufactured in

another, assembled into finished products in a third,

and then shipped around the world. These high

technology products include components covered by

thousands of different patents. Under the decision

below, a U.S. patent owner could sell its technology

for use in such a component, and then turn around

and sue the end-user for infringement when the

finished product is sold in the United States. That

provides all the wrong incentives, and is not the law.

The decision below also conflicts with more than a

century of precedent, which focuses only on whether

4

there has been a sale authorized by the U.S. patent

owner, not where such a sale occurred. Boesch v.

Graff, 133 U.S. 697 (1890), is not to the contrary.

Ill. The Court should also review the Federal

Circuit's decision to reaffirm Mallinckrodt, Inc. v.

Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992). There,

the Federal Circuit held that post-sale restrictions

can preclude the operation of patent exhaustion. The

basis of the Federal Circuit’s decision in Mallinckrodt,

and the majority's decision below, was the court’s

belief that a contrary holding would create a

“distinction that gives less control to a practicing-

entity patentee that makes and sells its own product

than to a non-practicing-entity patentee that licenses

others to make and sell the product.” Pet. App. 26a.

That is incorrect. The rule is the same for non-

practicing entities and practicing entities alike: A

first authorized sale of a patented product exhausts

the patent owner's patent rights, whether the sale is

made by the patent holder itself or its licensee.

General Talking Pictures Corp. v. Western Electric

Co., 304 U.S. 175 (1938), created no contrary rule for

licensees. The majority’s decision could allow patent

holders to end secondary markets in patented goods

or prohibit purchasers from reusing patented goods.

This Court’s review is urgently needed.

ARGUMENT

I. The Court Has Repeatedly Held That An

Authorized Sale Exhausts All Patent Rights.

The Court has long recognized that once a patent

holder chooses through an authorized sale to part

5

with title to an article embodying the patented

invention, the patented article is beyond the confines

of the patent law, and the purchaser of the article is

free to use or sell it however she chooses. The premise

of the exhaustion doctrine is the common sense notion

that a patentee should not recover multiple rents for

the same invention. After a patent holder “has

received in the purchase price every benefit of that

monopoly which the patent law secures,” the patent

holder is not entitled to further compensation for the

invention. United States v. Univis Lens Co., 316 U.S.

241, 252 (1942).

In 1852, this Court explained that if an inventor

chooses to “lawfully sell” a patented machine, “when

the machine passes to the hands of the purchaser, it

is no longer within the limits of the monopoly. It

passes outside of it, and is no longer under the

protection of the act of Congress.” Bloomer uv.

McQuewan, 55 U.S. 539, 549 (1852). The Court has

repeatedly reaffirmed this rule. See, e.g., Keeler v.

Standard Folding Bed Co., 157 U.S. 659, 661 (1895).

A patent holder’s “monopoly remains so long as he

retains the ownership of the patented article. But sale

of it exhausts the monopoly in that article and the

patentee may not thereafter, by virtue of his patent,

control the use or disposition of the article.” Univis,

316 U.S. at 250.

The one exception was Henry v. A.B. Dick Co., 224

U.S. 1 (1912). A.B. Dick. Co. held that reasonable

post-sale restrictions that were “not inherently

violative of some substantive law” were “valid and

enforceable” through the patent law, as long as the

purchaser had notice of the restriction when she

6

purchased the patented article. Jd. at 26, 31. But A.B.

Dick. Co. “was short lived”—it was “explicitly

overruled” only five years later in Motion Picture

Patents Co. v. Universal Film Manufacturing Co., 243

U.S. 502, 518 (1917). See Quanta, 553 U.S. at 626.

This Court has been crystal clear, repeatedly,

since. “[O]ne who had sold a patented machine and

received the price and had thus placed the machine so

sold beyond the confines of the patent law, could not

by qualifying restrictions as to use keep under the

patent monopoly a subject to which the monopoly no

longer applied.” Boston Store v. Am. Gramophone Co.,

246 U.S. 8, 25 (1918). Similarly, “[i]t is well settled ...

that where a patentee makes the patented article, and

sells it, he can exercise no future control over what

the purchaser may wish to do with the article after

his purchase. It has passed beyond the scope of the

patentee’s rights.” United States v. Gen. Elec. Co., 272

U.S. 476, 489 (1926). In sum, “[u]nder the doctrine [of

patent exhaustion], ‘the initial authorized sale of a

patented item terminates all patent rights to that

item.” Bowman v. Monsanto, 133 S. Ct. 1761, 1766

(2013) (quoting Quanta, 553 U.S. at 625).

The patent exhaustion doctrine is derived from

the common-law “first sale” rule. The Court recently

examined the rule in Kirtsaeng v. John Wiley & Sons,

Inc., and emphasized its “impeccable historic

pedigree.” 133 S. Ct. 1351, 1363 (2013).2 As Lord Coke

2 In Kirtsaeng, the Court relied on the common law to

support a “non-geographical reading” of 17 U.S.C. § 109(a) of the

Copyright Act. The Act authorizes the purchaser “of a particular

7

explained in the early 17th century, the common law

“refus[ed] to permit restraints on the alienation of

chattels.” Jd. at 1363. Thus, if a man sold his horse

upon the condition that the buyer should not be

permitted to re-sell it, “the [condition] is voifd],”

because the man sold his entire interest in the horse,

and no longer had any power over it. Jd. (quoting 1 E.

Coke, Institutes of the Laws of England § 360, p. 223

(1628)). As this Court correctly noted in 1917,

“{attempting] to place restraints upon [a patented

article’s] further alienation . . . ha[s] been hateful to

the law from Lord Coke’s day to ours.” Straus v. Victor

Talking Mach. Co., 243 U.S. 490, 500-01 (1917).

Because the Patent Act “is silent” on exhaustion,

“it did not alter” this “common-law rule.” Microsoft

Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238, 2254 (2011)

(Thomas, J., concurring in judgment); see also

Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783 (1952)

(“Statutes which invade the common law .. , are to be

read with a presumption favoring the retention of

long-established and familiar principles, except when

a statutory purpose to the contrary is evident.”).

copy ... lawfully made under this title” to sell or dispose of it

“without the authority of the copyright owner.” 133 S. Ct. at

1355. Relying on the common-law first sale doctrine, the Court

held that “lawfully made under this title” included copyrighted

works lawfully made and sold abroad, even under restrictions

precluding resale in the United States. Jd. at 1355-56.

8

Il. The Court Should Review The Federal

Circuit’s Ruling That An Authorized

Foreign Sale Does Not Exhaust U.S. Patent

Rights.

The decision below encourages patentees to seek

two payments for one invention, contradicting over a

century of jurisprudence. The Federal Circuit en banc

majority, endorsing the 2001 decision in Jazz Photo,

held that a foreign sale of a patented article does not

exhaust the patentee’s U.S. patent rights. Pet. App.

81-82a, 90-92a. If this ruling is allowed to stand, a

patentee could sell its patented article for use in a

high tech component, and then turn around and sue

for infringement when the finished product arrives in

the United States.

A. The Federal Circuit's endorsement of

Jazz Photo presents a particular threat

to the technology industry.

The decision below will have a harmful impact on

the global high technology industry, will further

encourage patent assertion entities (“PAEs”) to seek

multiple royalties, and will lead to unwarranted suits

against customers. Responding to this argument

below, the majority believed there was “no basis for

predicting [these] extreme, lop-sided impacts.” Pet.

App. 60a. But the basis for the anticipated adverse

consequences here is even stronger than the grounds

the Court relied upon in Kirtsaeng. 133 S. Ct. at 1363-

65; Pet. App. 131a.

1. The Federal Circuit’s holding threatens to have

a dramatic impact on the global high tech industry.

9

The high technology “patent landscape involves

products containing a multitude of components, each

covered by numerous patents.” U.S. Fed. Trade

Comm’n, The Evolving IP Marketplace: Aligning

Patent Notice and Remedies with Competition, at 55

(“The Evolving IP Marketplace”) (March 2011). Not

only are many high tech products covered by

“thickets” of patents, the number of components and

the complexity of the supply chain needed to assemble

a finished consumer electronic are astounding. /d. at

56. A generic smartphone contains hundreds of

different parts made around the world, covered by an

estimated 250,000 patents. See RPX Corp.,

Registration Statement (Form S-1), at 59 (Sept. 2,

2011), available at http://tinyurl.com/gnizbr9; Ian

Barker, The Global Supply Chain Behind the iPhone

6, betanews (Sept. 23, 2014),

http://tinyurl.com/jrsxpxq.

Here is an image of a typical international supply

chain for a high technology product:

3 See Mark Zetter, Economic Drivers, Challenges Creating

Regional Electronics Industry, Venture Outsource,

http://tinyurl.com/zokrprg (last visited Apr. 20, 2016).

10

(Product Semiconductors | Components

Design Fab & Packaging) steiepeme! ' Aasmnty

As this supply chain shows, a product may be

designed in the United States, assembled in

Singapore from parts made in Costa Rica, Israel, and

China, and then shipped to the United States for

retail sales. High tech manufacturers thus face an

enormous challenge in “trying to identify and clear

patent rights due to the large number of patents that

cover most IT products,” Evolving IP Marketplace at

55, in the international supply chain.

The decision below threatens the expectations of

all parties involved in the high tech global supply

chain. Amici rely on the protection from litigation

that should arise from purchasing components from

authorized sellers and from entering into worldwide

patent licenses. But under the majority's decision,

amici and their customers can no longer be sure that

those protections follow products through to their

ultimate destination. Under the decision below, to

ascertain patent rights amici must review the patent

licenses of their entire supply chain to confirm that

the licenses explicitly state that their authorized

foreign purchases exhaust the U.S. patents. Pet. App.

11

9a. Putting aside the multitude of agreements that

are present in a modern global supply chain, review

of suppliers’ agreements to confirm foreign

exhaustion is effectively impossible because those

agreements are typically confidential. See, e.g., John

M. Golden, Principles for Patent Remedies, 88 Tex. L.

Rev. 505, 550 (2010) (“[T]he terms of patent-licensing

agreements ... are generally confidential.”). The

majority's further assertion that customers could rely

on implied license, Pet. App. 98a, is even more

impractical. The customer would need to review

details of the supplier’s license (often confidential) to

find out if it expressly disclaims an implied license,

and would also need to analyze whether it could

satisfy the legal criteria of the implied license defense.

Ambiguity is inevitable, and that, as practical matter,

means a real risk of patent litigation.

2. An additional factor still further magnifies the

impact the decision below will have on the high

technology community: PAEs. The majority believed

that its ruling would not encourage opportunistic

suits by PAEs because PAEs “have neither made nor

authorized the sale of patent-covered articles.” Pet.

App. 98a. The majority seriously underestimates the

documented resourcefulness of PAEs.

This Court has already taken note of the

“industry” that “has developed in which firms use

patents not as a basis for producing and selling goods

but, instead, primarily for obtaining licensing fees.”

eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 396

(2006) (Kennedy, J., concurring). Ten years later,

there is a growing trend of PAEs acquiring thousands

of patents from operating companies, many of which

12

were previously licensed worldwide to component

manufacturers like amici. See Mark S. Popofsky and

Michael D. Laufert, Patent Assertion Entities and

Antitrust: Operating Company Patent Transfers, The

Antitrust Source, at 1, 3 (American Bar Ass’n, 2013).

The PAEs have now begun to target the

downstream purchasers of licensed devices. See, e.g.,

British Telecomms. PLC v. Coxcom, Inc., 9 F. Supp. 3d

423, 434 (D. Del. 2014) (asserting patents licensed to

Intel, Cisco, and others against downstream

purchaser), vacated following settlement, 2014 WL

1364853 (D. Del. Mar. 7, 2014); SanDisk Corp. v.

Round Rock Research LLC, No. 11-CV-5243, 2014 WL

2700583 (N.D. Cal. June 13, 2014) (targeting

SanDisk, a downstream purchaser of semiconductor

memory devices that were subject to worldwide

license); Multimedia Patent Trust v. Apple Inc., No.

10-CV-2618, 2012 WL 6863471 (S.D. Cal. Nov. 9,

2012) (relying on Jazz Photo to assert patent

infringement against customer of a supplier with a

worldwide patent license). Moreover, once the

patented component has been incorporated into the

design of a consumer product, the manufacturer may

be unable to replace that component without

completely redesigning the entire product. The PAE

can therefore extract a higher payment based not on

the value of the patented invention but on the cost of

redesigning the entire finished product. The Evolving

IP Marketplace at 14 (“ex post licensing to

manufacturers that sell products developed or

obtained independently of the patentee can distort

competition in technology markets and deter

innovation”).

13

The Federal Circuit en banc majority's

endorsement of Jazz Photo is good news for PAEs

because global manufacturers will find it nearly

impossible to determine that their myriad

components are authorized for U.S. sale.

3. Just as this Court warned in Kirtsaeng, the

decision below also invites accidental infringement by

consumers and companies. 133 S. Ct. at 1364-67

(giving examples of possible inadvertent copyright

infringement by libraries, used book stores,

museums, and art dealers). As in Kirtsaeng, a

consumer who purchases a camera, a new pair of

tennis shoes,‘ or even a package of diapers® while on

a trip abroad could find herself potentially liable for

patent infringement upon her return to the United

States. At least in Kirtsaeng, the possible copyright

suits against consumers were hypothetical, 133 S. Ct.

at 1366. Not so in the patent context, where patent

infringement suits against consumers have become

commonplace. See, e.g., Vermont v. MPHJ Tech.

Investments, LLC, 803 F.3d 635, 639 (Fed. Cir. 2015)

(noting patentee’s practice of sending demand letters

to small businesses to extract licensing fees); Brian J.

Love & James C. Yoon, Expanding Patent Law’s

4 The Patent Office has issued 550 patents in classification

36/114 (‘Athletic shoe or attachment therefor”), USPTO Patent

Full-Text and Image Database, http://tinyurl.com/j63ng3n (last

visited April 20, 2016).

5 The Patent Office has issued 1,114 patents in classification

604/358 (“Absorbent pad for external or internal application and

supports therefor (e.g., catamenial devices, diapers, etc.)”),

USPTO Patent Full-Text and Image Database,

http://tinyurl.com/orwy26y (last visited April 20, 2016).

14

Customer Suit Exception, 93 B.U. L. Rev. 1605, 1609-

10 (2013) (describing “a class of patentees that

overwhelmingly acquire old, extremely weak patents

and assert them against the numerous,

unsophisticated purchasers (rather than

manufacturers) of allegedly infringing products in

suits that typically settle for less than defendants’

anticipated litigation costs.”).

B. The Federal Circuit’s endorsement of

Jazz Photo conflicts with Supreme Court

precedent, the common law, and the

international patent system.

Jazz Photo conflicts with the common-law first

sale doctrine. As earlier noted, once a patent holder

chooses to part with title through an authorized sale,

the good is beyond the limits of patent law, and the

purchaser is free to use or sell it however she chooses.

Jazz Photo is also unsupported by precedent or the

international patent law regime.

1. The majority reaffirmed Jazz Photo, which in

turn purported to rely on Boesch v. Graff, 133 U.S. 697

(1890). According to the majority, Boesch held that a

foreign sale of a patented article does not exhaust the

patentee’s rights under U.S. patent law. Pet. App. 81-

82a. The Federal Circuit’s understanding of Boesch is

fundamentally flawed and inconsistent with the case

law both before and after Boesch.

In addressing the scope of patent exhaustion,

courts have drawn no distinction based on where a

eale occurred; they have asked only whether there was

a sale authorized by the U.S. patent owner. In Betts

15

v. Willmott, the first case to apply Lord Coke to patent

law, Lord Hatherley held that “inasmuch as [the

seller] has the right of vending the goods in France or

Belgium or England, or in any other quarter of the

globe, he transfers with the goods necessarily the

license to use them wherever the purchaser pleases.”

[1871] 6 L.R. 239, 245 (Ch. App.) (Eng.) (emphasis

added). Similarly, in Holiday v. Mattheson, 24 F. 185,

186 (C.C.S.D.N.Y. 1885), the court held that the

purchaser “acquire[s] the right of unrestricted

ownership in the article he buys as against the

vendor” even if the article is purchased abroad.

As in Holiday, the determinative issue in Boesch

was whether the foreign sale was authorized by the

U.S. patent holder, not where the authorized sale took

place. In Boesch, the patentee patented an

improvement in lamp burners, both in the United

States and in Germany. 133 U.S. at 698-99.

Defendants purchased the patented burners in

Germany from a person who did not have a license to

sell them under the German patent (or U.S. patent),

but whose sale was nonetheless authorized under

German law because he had already made

preparations to manufacture the burners before the

application for the German patent had been filed. Jd.

at 701. This Court held the patent not exhausted

because the foreign seller had no authority from the

U.S. patentee, and thus, “purchasers from him could

not be thereby authorized to sell the articles in the

United States in defiance of the rights of patentees.”

Id. at 703.

Courts have consistently recognized that the

crucial fact in Boesch was that there was no sale

16

authorized by the U.S. patent holder. In Curtiss

Aeroplane & Motor Corp. v. United Aircraft

Engineering Corp., for instance, the patent owner

manufactured and sold airplanes to the British

government in Canada. 266 F. 71, 72-74 (2d Cir.

1920). Defendant purchased the airplanes from the

British government in Canada and then sold them in

the United States. Jd. at 74. Yet the court held “the

full right to use and sell the article in any and every

country” had properly passed to the purchaser,

reasoning that “[ajs the plaintiff has already been

paid for these aeroplanes the full price it asked, it is

no longer concerned about ... whether the article is

kept in Canada, or in Great Britain, or in the United

States.” Id. at 78-79.

Courts continued to enforce international

exhaustion up until Jazz Photo. For example, in

Kabushiki Kaisha Hattori Seiko v. Refac Tech. Dev.

Corp., the court held that, after a foreign sale by an

authorized licensee, “the holder of United States

patent rights is barred from preventing resale in the

United States or from collecting a royalty when the

foreign customer resells the article here.” 690 F.

Supp. 1339, 1342 (S.D.N-Y. 1988) (citing Holiday, 24

F. 185); see also Sanofi, S.A. v. Med-Tech Veterinarian

Prods., Inc., 565 F. Supp. 931, 937-38 (D.N.J. 1983)

(prohibiting U.S. patentee from restricting

importation after it authorized a foreign sale). Based

on its misreading of Boesch, the Federal Circuit put

an end to this line of cases. Only this Court can correct

the ruling.

2. The Federal Circuit’s decision also puts U.S.

law at odds with the international community, which

17

continues to move toward international exhaustion.®

International exhaustion applies between member

nations of the European Union. See Daniel

Erlikhman, Jazz Photo and the Doctrine of Patent

Exhaustion: Implications to TRIPS and International

Harmonization of Patent Protection, 25 Hastings

Comm. & Ent. L.J. 307, 328 (2003) (noting the

European Court of Justice’s “aggressive[]” application

of exhaustion between EU members). The Supreme

Court of Japan held that overseas sales exhaust

domestic Japanese patents in 1997. Jd. at 325-27. And

many countries, including China and India, have

already implemented broad international exhaustion

by statute. WIPO Committee on Development and

Intellectual Property (CDIP), Patent Related

Flembilities in the Multilateral Legal Framework and

Their Legislative Implementation at the National and

Regional Levels, CDIP/5/4, 9 58 (Mar. 1, 2010),

available at http://tinyurl.com/2fgqm96. The Federal

Circuit's rejection of international patent exhaustion

is at odds with this emerging international consensus.

In any event, the Federal Circuit’s concern that

international exhaustion would ignore the “especially

territorial” nature of U.S. patent law is misplaced.

Pet. App. 86a. The fact that “[ojur patent system

makes no claim to extraterritorial effect” means that

U.S. patents do not provide inventors with “protection

in markets other than those of this country.”

® The Agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS) lets each member nation choose

whether to adopt international exhaustion. See Agreement on

Trade-Related Aspects of Intellectual Property Rights art. 6,

Apr. 15, 1994, 33 I.L.M. 1197.

18

Deepsouth Packing Co. v. Laitram Corp., 406 U.S.

518, 523, 531 (1972) (emphasis added). It does not

mean that U.S. patents cannot be exhausted by

international sales. Because international exhaustion

does not expand the U.S. patent system’s protections

outside of the United States, it is wholly consistent

with the territorial scope of our patent law. Cf.

Quanta, 553 U.S. at 632, n.6 (noting that a patent can

be practiced, but not infringed, outside the United

States).

Ill. The Court Should Review The Federal

Circuit’s Ruling That Post-Sale Restrictions

May Be Enforced Through Patent Law.

The Court should also review the Federal

Circuit’s decision to reaffirm Mallinckrodt. The en

banc majority held that “[a] sale made under a clearly

communicated, otherwise-lawful restriction as to

post-sale use or resale” does not exhaust the

patentee’s patent rights, and instead allows the

patentee to enforce the post-sale restriction through

patent law. The majority believed its holding was

necessary to avoid creating a “distinction that gives

less contro] to a practicing-entity patentee that makes

and sells its own product than to a non-practicing-

entity patentee that licenses others to make and sell

the product.” Pet. App. 26a. But this concern reflects

a basic misunderstanding of this Court’s cases. The

applicable rule is the same for non-practicing entities

and practicing entities alike: The first authorized sale

of a patented article exhausts the patent owner’s

patent rights. The Federal Circuit's contrary

conclusion upends settled expectations and could

19

allow patent holders to end secondary markets in

patented goods.

A. The Federal Circuit’s endorsement of

Mallinckrodt would allow patent holders

to end secondary markets in patented

goods.

The en banc majority found “no proof of a

significant problem” arising from “single-use/no-

resale restriction[s].” Pet. App. 60a. Instead, the

majority believed that no-resale restrictions “can

have benefits.” Jd. Customers can pay a lower price in

exchange for a no-resale limitation. Jd. Companies

like Lexmark can ensure that “lower quality”

replacement cartridges do not harm their

reputations, and medical suppliers like Mallinckrodt

can avoid the “medical[] harm[]” that could come from

reuse of medical devices. Jd. at 61a.

The problem with the majority’s holding is that it

is not limited to situations in which a single-use or no-

resale limitation appears to make sense to a court.

Under the decision below, any patented good could be

labeled for “single use only” and any purchaser could

be sued for patent infringement when he reuses or

resells it. Pet. App. 26a. Indeed, under the Federal

Circuit’s holding, not only could a patent holder shut

down the secondary market in used goods by

prohibiting reuse or resale—think used cars—but it

also could force customers to repurchase the patented

article again and again, rather than reusing it.

An example illustrates the point. The PEZ

dispenser was first patented in the United States in

20

1952. See U.S. Pat. No. 2,620,061. Since then, PEZ

has marked its dispensers with seven other utility

patents on dispenser designs. Under the majority’s

rule, PEZ could choose to sell its dispensers as “single

use only,” and sue anyone who reloaded them with

candies for patent infringement. PEZ could also use

patent law to stop collectors from trading in or

reselling dispensers. This is the precise opposite of the

long established rule: after an authorized sale, the

purchaser of the patented article is free to use it as

she wishes. See Part I, supra.

B. The Federal Circuit's endorsement of

Mallinckrodt is wrong because

exhaustion applies identically to

practicing-entity patentees and non-

practicing-entity patentees.

For 160 years, this Court has held that once a

patent holder chooses to part with title through an

authorized sale, the patented good is beyond the

limits of patent law, and the purchaser is free to use

or sell it however she wishes. See Part I, supra. The

majority dispensed with this Court’s long established

precedent on the theory that it creates a “distinction

that gives less control to a practicing-entity patentee

that makes and sells its own product than to a non-

practicing-entity patentee that licenses others to

make and sell the product.” Pet. App. 26a. The

majority was wrong—there is no distinction in this

Court’s exhaustion doctrine between the patent rights

of practicing-entity patentees and non-practicing-

entity patentees.

21

According to the majority, there was “no basis in

the policy of the patent statute,” and “[n]o Supreme

Court decision,” that required it to “draw a sharp line

between practicing-entity patentees (those who

themselves make and sell the articles at issue) and

non-practicing-entity patentees (those who do not),”

or to give non-practicing entities “greater power to

maintain their patent rights than practicing entities.”

Pet. App. 45a, 49a; see also, e.g., Pet. App. 30a, 32a,

34a, 37a (discussing purported _ patentee-

sale/licensee-sale distinction). Exactly so: the

exhaustion doctrine applies to all. Yet, somehow, the

majority concluded the opposite.

The foundation of the majority's error was its

mistaken belief that had “Lexmark ... granted

another firm a nonexclusive license to make and sell

Return Program cartridges,” rather than selling them

with post-sale restrictions itself, “[i]t is undisputed

and clear under ... the 1938 decision in General

Talking Pictures ... that Lexmark would not have

exhausted its patent rights in those cartridges, upon

the manufacturing licensee’s sale (the first sale), if a

buyer with knowledge of the restrictions resold or

reused them in violation of the restrictions.” Pet. App.

26a.

That is neither undisputed nor clear, and General

Talking Pictures held no such thing. In General

Talking Pictures, the patent holder granted a

nonexclusive license to American Transformer

Company to manufacture and sell its patented sound

amplifiers only for individual home use, not for

commercial use. 304 U.S. at 179-180. Despite the

limited license, American Transformer Company

22

knowingly violated the licensing agreement and sold

the amplifiers to a movie company. The Court held

that the sales “were outside the scope of [the] license

and not under the patent” and thus constituted patent

infringement. Id. at 180-82.

On rehearing, the Court again held that when the

terms of a restricted license are violated by the

licensee, a sale “outside the scope of the license ... is

precisely the same as if no license whatsoever had

been granted.” 305 U.S. at 127. Thus, although the

petition had framed the questions presented as

whether, after an authorized sale (a sale “in the

ordinary channels of trade”), a patentee could enforce

post-sale restrictions through the patent law, the

Court held that neither question “should be

answered.” Id. at 125. The amplifiers were not sold

“under the patents” and did not pass to the purchaser

“in the ordinary channels of trade”—they were sold

illegally, in violation of the license. Jd. The Court

specifically noted that it had “no occasion to consider”

what the outcome would have been had there been an

authorized sale under the license accompanied by a

“notice which purports to restrict the use of [the]

articles lawfully sold.” Id. at 127 (internal quotation

marks omitted).

General Talking Pictures is thus a case where the

patent owner’s patent rights were not exhausted

because there was no authorized sale. It does not hold

that where there has been an authorized sale by a

licensee, patent rights are still not exhausted, and the

patent owner may still use the patent law to enforce

23

post-sale restrictions against downstream users.’ To

the contrary, the rule is the same regardless of who

makes the sale: The first authorized sale exhausts the

patent holder’s patent rights in the article. Similarly,

without an authorized sale, there is no exhaustion.

Thus, a patent holder who manufactures

amplifiers may decide the price at which she wishes

to sell them and sell only at that price. Similarly, a

patent holder who does not manufacture the

amplifiers on her own, but who instead chooses to

license to another company the right to manufacture

and sell them, may set the price at which the licensee

may sell the amplifiers, and may enforce the license

—EE

’ The en banc majority also misunderstood Motion Picture

Patents. That case held that “the right to vend is exhausted by

a single, unconditional sale, the article 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.” 243 U.S. at 516. The Federal Circuit focused on the word

“unconditional,” Pet. App. 42a, but this case is not about a

“conditional” sale—it is about a “restricted” sale. As used in

Motion Picture Patents and in other exhaustion cases (e.g.,

Mitchell v. Hawley, 83 U.S. 544, 547 (1873)), a conditional sale

was an agreement to sell whereby title would not pass until the

performance of a condition precedent. See, e.g., Harkness v.

Russell, 118 U.S. 663, 666 (1886) (describing a “conditional sale”

as an “agreement to sell upon a condition to be performed,” in

which title would only pass once the condition was performed).

It was not every sale subject to a post-sale restriction. That much

is clear from the pertinent sentence in Motion Picture Patents

itself, which explains that an “unconditional sale” renders the

patented article “free of every restriction which the vendor may

attempt to put upon it.” 243 U.S. at 516. Lf the “restriction which

the vendor may attempt to put on” the patented article itself

rendered the sale “conditional,” the sentence would make no

sense.

24

agreement through the patent law. See, e.g., Gen.

Elec. Co., 272 U.S. at 489-90; Mark R. Patterson,

Contractual Expansion of the Scope of Patent

Infringement Through Field-of-Use Licensing, 49

Wm. & Mary L. Rev. 157, 16465 (2007)

(“manufacturing licensees in effect stand in the shoes

of the patentee, and imposing use restrictions on them

can reasonably be treated as economically equivalent

to individual decisions by the patentee itself’). Once

there has been an authorized sale by the patentee, or

a sale within the scope of the license by the licensee,

however, the patent holder may not set the price at

which a purchaser may resell the amplifier or attempt

to enforce a post-sale restriction through the patent

law. See, e.g., Gen. Elec. Co., 272 U.S. at 489;

Patterson, supra, at 165. The rule is the same in both

instances—after one authorized sale, whether by the

patentee or the licensee, a patent owner’s patent

rights are exhausted, and she can no longer control

how the patented article is used or resold.

CONCLUSION

For the reasons stated, the Court should grant the

petition for certiorari.

25

Respectfully submitted,

Matthew R. Hulse Mark S. Davies

INTEL CORPORATION Counsel of Record

2200 Mission College Thomas M. Bondy

Blvd., Logan Q. Dwyer

Santa Clara, CA ORRICK, HERRINGTON &

95054 SUTCLIFFE LLP

1152 15th Street, N.W.

Avraham Schwartz Washington, DC 20005

VIZIO, INC. (202) 339-8400

39 Tesla mark.davies@orrick.com

Irvine, CA 92618

Richard F. Martinelli

Rachel Wainer Apter

Elizabeth R. Moulton

ORRICK, HERRINGTON &

SUTCLIFFE LLP

51 West 52nd Street

New York, NY 10019

Date April 21, 2016