The U.S. Supreme Court on Tuesday made it harder for manufacturers and drug companies to control how their products are used or resold, ruling against printer company Lexmark International Inc in a patent dispute over another company's resale of its used ink cartridges.
The high court said that Lexington, Kentucky-based Lexmark, which holds patents on ink cartridge technology, relinquished its intellectual property rights in those cartridges once it sold them to the public.
The decision came in a dispute between Lexmark and Impression Products Inc, a small business based in Charleston, West Virginia that buys empty Lexmark cartridges from consumers and then resells refurbished cartridges to the public for less than Lexmark charges.
A consortium of investors led by Apex Technology Co Ltd and PAG Asia Capital acquired Lexmark in 2016.
Lexmark sued Impression in Ohio federal court in 2010, saying that because it expressly retained patents rights in its cartridges, Impression's business model infringed on its patents.
The high court disagreed, finding that Lexmark cannot enforce these restrictions through patent infringement lawsuits. The justices also said that holders of U.S. patents cannot control what happens to patented items they sell abroad.
"An authorized sale outside the United States, just as one within the United States, exhausts all (patent) rights," Chief Justice John Roberts wrote for the court.
The ruling was a blow to the Pharmaceutical Research and Manufacturers of America, a trade group whose members include Pfizer Inc and Eli Lilly and Co. PhRMA had urged the court to rule that drugs are still covered by U.S. patents after a sale abroad, arguing that resellers will buy their drugs in poor countries, where they are sold at a discount, and then import them into the United States.
The justices overturned a ruling by the U.S. Court of Appeals for the Federal Circuit favoring Lexmark.
Justice Ruth Bader Ginsburg partially dissented, agreeing with the other seven justices in the majority that Lexmark's post-sale restrictions in its contracts with customers cannot be enforced through patent litigation but saying that patent owners can still assert patent rights in goods they sell abroad.
Justice Neil Gorsuch was not on the court when it heard arguments in the case and did not participate in the decision.
Eric Smith, president of Impression Products, said the ruling vindicates the company's business model. "This has been a long, stressful battle," Smith said. "Nobody wanted to stand up to Lexmark in my industry."
Andrew Pincus, a lawyer for Impression Products, added that the ruling "freed entrepreneurs such as Impression Products from the threat of lawsuits" and "enables these entrepreneurs to compete in secondary markets and provide consumers with quality goods and services at lower prices."
Bob Patton, senior vice president and general counsel for Lexmark, said the company is disappointed by the ruling, adding that Lexmark's post-sale restrictions are "clear and enforceable under contract law."
The dispute was closely watched by the tech and pharmaceutical industries because of its potential impact on how they engage in international trade. Several companies, including Intel Corp and Vizio Inc, asked the court to hear the case.
(Reporting by Jan Wolfe in New York; Editing by Noeleen Walder and Will Dunham)
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