Supreme Court restricts patent holder's bounds - Albuquerque Journal

Supreme Court restricts patent holder’s bounds

The patent system rewards innovation by giving innovators a temporary reprieve from competition.

The patent holder acquires a 20-year monopoly on the manufacture, use, sale and import of the covered product. But does patent law allow the patent holder to control use of the product even after selling it? It’s a surprisingly durable legal question. Patent holders never stop trying to extend their monopoly control past the first sale.

A century ago, the corporate predecessor to Columbia Records sold its patented, cylinder-spinning Graphophones to a dealer with the condition that the dealer would retail them at a fixed price. When the dealer offered the machines at a discount, the corporation sued. But it didn’t sue for the broken contract (which was then illegal under antitrust law). Rather, it claimed that its patent-protected monopoly on the sale of Graphophones allowed it to place conditions on their resale, too.

The retailer’s low price, the company complained, was a form of patent infringement. In 1918, a divided Supreme Court disagreed. It held that a patent provides an exclusive right to sell a product, but only once. As soon as the right to sell is exercised, it is “exhausted.”

In our own day, Lexmark International makes printers that must be supplied with Lexmark’s patented toner cartridges. As most of us know too well, new replacement toner cartridges can be expensive. That high cost has created the conditions for a thriving secondary market in much-cheaper refilled cartridges.

For Lexmark, refilled cartridges are a serious profit drain. So it devised a strategy to discourage its customers from selling their empty cartridges to refillers. It offered an upfront discount of about 20 percent if customers promised, cross their hearts, swear to God, to return the empty cartridges to Lexmark. But, alas, many customers took the upfront discount and then sold their empty cartridges to refillers anyway. Lexmark knew this was happening because it marked the discounted cartridges with a special microchip, and microchipped cartridges kept showing up on the secondary market.

Lexmark might have sued its customers for breach of contract, but that would have been messy and unproductive and a PR disaster. Instead, it sued the refillers, claiming they violated patent law. Lexmark had a patent-protected monopoly on the sale of new cartridges, and it sold the microchipped ones on the express condition that they never be refilled. By reselling them in violation of that express condition, Lexmark argued, the refillers were infringing on Lexmark’s patents.

On May 30, the modern Supreme Court, just like its predecessor from 99 years ago, ruled that patent rights are exhausted by the sale of a product. The patent holder has an exclusive right to make that first sale. But once that sale is made at the patent holder’s dictated price, the patent laws have performed their function. Their role in the commercial play is over. The purchaser of a patented product acquires not just property but the right to dispose of it.

The case has ominous implications for every business model that relies on selling cheap products but expensive supplies. As the Electronic Frontier Foundation points out, many manufacturers of gaming consoles depend on customers buying games from them and them alone, forever and ever. Many connected household products (the “internet of things”) function only if the consumer purchases a subscription from the manufacturer. Such loss-leader pricing strategies may no longer be viable after the Lexmark decision.

The court’s opinion, written by Chief Justice John Roberts, goes out of its way to draw parallels between patent and copyright law. It includes a mind-boggling estimate of the number of patented components stuffed into a generic smartphone: 250,000. But the phone’s operating system and apps are copyrighted, not patented. Cars and microwaves, too, run on copyrighted software as well as patented machinery. The opinion seems to be suggesting the two types of intellectual property should be treated as similarly as possible because in many contexts it is no longer possible to treat them as separate.

If the court continues along that path, the implications quickly become interesting. Take your music collection. If you buy songs from iTunes or in another digital form, can you resell them? Several years ago, a lower federal judge said “no,” holding that a consumer violates copyright law by passing along a song he or she has bought and paid for. That ruling effectively put ReDigi, an online music reseller, out of business. ReDigi itself is in bankruptcy, but its appeal remains pending. The company’s odds of getting the judge’s ruling overturned look much better today than before the Lexmark case was decided.

Joel Jacobsen is an author and has recently retired from a 29-year legal career. If there are topics you would like to see covered in future columns, please write him at

Home » Business » Outlook » Supreme Court restricts patent holder’s bounds

Albuquerque Journal and its reporters are committed to telling the stories of our community.

• Do you have a question you want someone to try to answer for you? Do you have a bright spot you want to share?
   We want to hear from you. Please email

taboola desktop

ABQ event gives solar its day in the sun
ABQnews Seeker
National conference, Solar Fiesta, highlight progress ... National conference, Solar Fiesta, highlight progress and challenges to industry
Find the silver lining in Wall Street turmoil
ABQnews Seeker
The U.S. stock market is having ... The U.S. stock market is having a bad year. It may turn around before year-end, but ...
Inflation complicating tough-on-China arguments
ABQnews Seeker
When a country exports more to ... When a country exports more to other nations than it imports, that country is said to have a trade s ...
Texas begins patchwork of social media regulation
ABQnews Seeker
In the decades following the end ... In the decades following the end of the shooting part of the Civil War, midwestern farmers shipped t ...
UNM Anderson receives $3.2M gift as foundation dissolves
ABQnews Seeker
The University of New Mexico Anderson ... The University of New Mexico Anderson School of Management recently received a $3.2 million gift, the largest cash gift in the school's history, following ...
Target companies, then network to land your dream job
Dear J.T. & Dale: I've been ... Dear J.T. & Dale: I've been unemployed for nearly two years. My last employer decided they didn't need a full-time help desk and laid ...
Tax basis is in question for now-former partner
ABQnews Seeker
Q: I have a partnership tax ... Q: I have a partnership tax depreciation question. The accountant for a partnership that I used to b ...
Cyberattacks pose major risk to businesses, US
ABQnews Seeker
According to the Internet Complaint Center ... According to the Internet Complaint Center of the FBI, cyberattacks are a big and growing business. ...
6 New Mexico firms finalists in Walmart pitch contest
ABQnews Seeker
Six entrepreneurs from New Mexico have ... Six entrepreneurs from New Mexico have joined the list of finalists in Walmart Inc.'s ninth annual open call event, joining nearly 1,200 small- to ...
Rio Rancho entrepreneur nabs cash prize in pitch contest
ABQnews Seeker
A Rio Rancho woman took home ... A Rio Rancho woman took home one of the top prizes in an international start-up competition for entrepreneurs 55 years old and older. Leslie ...