Reasonable Patent Exhaustion

A lengthy tug of war between the Supreme Court and the Federal Circuit Court of Appeals may have ended with Impression Products v. Lexmark. The Supreme Court held that the sale of a patented thing exhausts the patentee seller’s rights to enforce restrictions on that thing through patent infringement suits. Further, the parties cannot bargain around this rule through the seller’s specification of conditions, no matter how clear. No inquiry need be made into the patentee’s market power, anticompetitive effects, or other types of harms, whether enforcement of the condition is socially costly or valuable, or whether the condition has a positive or negative impact on innovation. None of this is relevant.

Impression Products reveals an economic deficiency that manifests all too frequently when patent law is brought to bear on market practices. Economic concepts that are commonly used in antitrust law, such as market power or output effects, are virtually unknown in patent law. This fact has inclined courts to go to wild extremes—such as equating every patent with monopoly, or concluding that a patent is a mere property right and that anything done within the scope of the patent is permissible. The result, as in this case, can be draconian rules that are indifferent to effects on innovation, competition, economic efficiency, or any other measure that seems relevant to innovation policy. This Article argues that the Supreme Court would have been wise to develop a more nuanced exhaustion rule that examined actual effects likely to result from a particular restraint.