One of the questions in Impression Prods., Inc. v. Lexmark Int’l, Inc., on which the Supreme Court recently heard oral argument (March 21), is whether the authorized and foreign first sale of a patented item exhausts a U.S. patent holder’s use and distribution rights. The Patent Act of 1952 contains no pertinent provision on the effect of first sale of a patented article, and as a consequence many observers believe that the common law will be especially important in deciding the question. The Petitioner, Impression Products, has gone so far as to argue that the common-law backdrop is dispositive. If the Court agrees and decides that the common law should control or influence the case, then assessing the content of that common law becomes paramount.
So what is the common law-rule?
In Kirsaeng vs. John Wiley & Son, Inc., a copyright case, the court stated that the first sale doctrine was a “common law doctrine with an impeccable historic pedigree” that reached far back as the 17th century and that made no “geographical distinction”. In reaching that conclusion, the court relied in large part on English law, particularly Sir Edward Coke’s 1628 treatise in which he rejected post sale restraints on the alienation of ordinary chattels. Although Coke was not speaking of the chattels encumbered by copyrights and patents, let alone goods made and first sold in a different country, the Court nevertheless stated that this no- restraint principle applied to chattels emboying copyrighted works. Notably, the court offered no other support for its historical account of common law, apart from citing its 1908 decision in Bobbs – Merrill vs. Straus which treated national copyright exhaustion.
Not surprisingly, Impression Products refers to Coke repeatedly in its brief, as do many amici who have submitted supporting briefs. And at the oral argument last week, Impression Products began by stating that the “principle goes back, of course, to the 15th century.” It also ended its argument by referring to Coke But more importantly, as Dennis notes in his recent post recapping the oral argument, Justice Breyer , who wrote the majority opinion in Kirtsaeng, seems very much inclined to continue relying on Coke’s account of English common law. Justice Breyer referred to Coke many times and stated, for example, that a patent rule rejecting mandatory international exhaustion would be “very much contrary to what 300 years of restraints on alienation doctrine had in mind.”
So what do these cases mean for international patent and copyright exhaustion in the United States?
Two consequences follow. First, they call into question the Supreme Court’s decision in Kirtsaeng. Neither the parties nor the Court were aware of these cases and thus the decision issued on an incomplete record of the common law. Second, and most obviously, these newly revealed cases could have an even greater impact in Lexmark. If the Court or any of its members choose to rely on English common law once more whether presented as controlling, persuasive, or simply historical narrative that consultation must now occur with a different view of the common law in mind.
Notably, these cases considered many of the same arguments that Lexmark and Kirtsaeng raise, such as the territoriality of patent rights; free trade among countries; the potential benefit to consumers of competition from imported gray-market goods; the potential harm to consumers who purchase goods in one country without any notice of their inability to bring those goods into another country; and the potential negative effect that gray-market imports could have on a domestic licensee.
Article under SSRN says
In an article posted on SSRN, I examine and reject the Court’s historical account of English common law. Although Kirtsaeng gave the distinct impression that no early cases in England had ever ruled against gray-market importation in an intangible rights case, this is not so in fact. My article discusses two English cases and a few Scottish ones, decided in the long 18th century, and which have thus far escaped the attention of practitioners and scholars. Some of the cases are reported in print, but not all of them appear in traditional law reports, and some of the records only survive in manuscript. I have posted images of the most important manuscripts and less accessible print sources online. The cases demonstrate that the common law did not recognize international exhaustion. On the contrary, the common law observed foreign legal boundaries and permitted right owners and their licensees to stop gray-market goods that embodied intangible rights.