On Tuesday, a scary case reached a surprisingly positive outcome in the Supreme Court of the United States. Impression Products, Inc. v. Lexmark International, Inc. was seven-year-long standoff between a small business and an international corporation and stood to upend the world of consumer rights, especially for tech and pharmaceutical companies. Guess what: the little guy won.
At its core, Impression v. Lexmark was a tricky patent case. Impression Products, a 25-employee outlet, built its business by buying used printer cartridges, refilling them, and reselling them to consumers. This introduced some welcome competition into the otherwise twisted and monopolistic world of consumer printers and, as a result, made it possible for consumers to save some coin. Obviously, the massive printer empire that is Lexmark did not like this and started suing small companies like Impression a few years ago, based on an idiosyncratic piece of patent law. Impression, the only company that refused to settle, took the case all the way to the Supreme Court and emerged victorious.
In a quasi-unanimous decision, the Supreme Court ruled that Lexmark exhausted its patent rights as soon as it sold printer cartridges both domestically and abroad. (Justice Ruth Bader Ginsberg dissented on the international issue, and Justice Neil Gorsuch was not involved in the case.) The implications of this ruling aren’t just positive for small printer cartridge-refilling companies either. Had Lexmark won, the decision would’ve changed the way aftermarket sales work in all kinds of industries, namely the pharmaceutical industry.
But let’s back up a second. Lexmark’s lawyers argued that it retained patent rights on its used printer cartridges because it sold them to customers under a so-called “shrink-wrap license.” That meant that customers could pay 20-percent less for the printer cartridges if they agreed never to resell or reuse them after they’d opened the package. In the past, courts have been okay with this as long as the manufacturer “clearly communicated” these rules. However, until this year, the issue never bubbled up to the Supreme Court. That’s the domestic part of the case.
The international sales detail came into play because Impression would buy empty Lexmark printer cartridges abroad and then resell them in the United States. Lexmark called this a violation of its patent as well. This is also the thing that Justice Ginsberg got held up on. In her partial dissension, she argued that companies should be able to retain patent rights on goods sold abroad.
You might be thinking, “Well, who cares about printer cartridges any more?” But this case reaches well beyond Lexmark’s inkjet revenues. It’s a huge deal for tech manufacturers and pharmaceutical companies, each of whom took different sides in the case. International tech companies are surely thrilled by the Supreme Court’s decision, since they would be faced with bureaucratic hell if the justices had ruled that US patents were valid for goods sold abroad. There are so many different components in any given gadget, from so many different companies, the tech manufacturers would have to secure countless licenses to obey the law.
Big pharmaceutical companies, on the other hand, must be pissed right now. Giants like Pfizer and Eli Lilly and Co. PhRMA wanted the court to protect US patents abroad because that would help them prevent Americans from buying their drugs for much cheaper prices in countries like Canada and Mexico and then bringing them back to the States. When a single Viagra pill costs over $60 in the US, you can only imagine how much money was at stake here.
Frontpage October 10, 2019
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