Case: 1:10-cv-00564-MRB Doc #: 617 Filed: 03/27/14 Page: 1 of 12 PAGEID #: 14429
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF OHIO
`WESTERN DIVISION
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`LEXMARK INTERNATIONAL, INC.
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`Plaintiff,
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`v.
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`CASE NO.: 1:10-cv-564
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`Judge Michael R. Barrett
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`INK TECHNOLOGIES PRINTER SUPPLIES,
`LLC, et al.,
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`Defendants.
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`OPINION AND ORDER
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`This matter is before the Court on the Motion to Dismiss of Defendant Impression
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`Products, Inc. (Doc. 335). Plaintiff Lexmark International, Inc. has filed a response in
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`opposition (Doc. 367) and Defendant Impression Products, Inc. has filed a reply (Doc. 368).1
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`Defendant Impression Products, Inc. subsequently filed a Notice of Additional Authority (Doc.
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`485) to which Plaintiff Lexmark International, Inc. filed a response (Doc. 488). Defendant
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`Impression Products, Inc. then filed a reply in support of its notice of additional authority. (Doc.
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`491). This matter is now ripe for review.
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`I.
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`BACKGROUND
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`This case concerns the alleged infringement of Plaintiff Lexmark International, Inc.'s
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`("Lexmark") patented toner cartridges. Lexmark alleges that it first sold the patented inkjet
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`cartridges at issue outside of the United States. It claims that those patented inkjet cartridges
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`were acquired and remanufactured by one or more foreign defendants that then sold the
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`remanufactured inkjet cartridges to other defendants. Those defendants, in turn, sold the
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`1 Plaintiff Lexmark International, Inc. subsequently filed a motion for leave to file a surreply (Doc. 378),
`which Defendant Impression Products, Inc. opposed (Doc. 379). That motion for leave has been denied.
`1
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`remanufactured inkjet cartridges to others, including customers in the United States. Lexmark
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`contends that Defendant Impression Products, Inc. ("Impression Products") was one of those
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`defendants that sold in the United States remanufactured inkjet cartridges that had originally
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`been sold outside of the United States thereby infringing Lexmark's patent.
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`II.
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`LEGAL STANDARD
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`In reviewing a motion to dismiss for failure to state a claim, this Court must "construe the
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`complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all
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`reasonable inferences in favor of the plaintiff." Bassett v. Nat'l Collegiate Athletic Ass'n, 528
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`F.3d 426, 430 (6th Cir. 2008) (quoting Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir.
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`2007)). "[T]o survive a motion to dismiss[,] a complaint must contain (1) 'enough facts to state a
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`claim to relief that is plausible,' (2) more than 'a formulaic recitation of a cause of action's
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`elements,' and (3) allegations that suggest a 'right to relief above a speculative level.'" Tackett v.
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`M&G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (quoting Bell Atlantic Corp. v.
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`Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1965, 1974, 167 L. Ed. 2d 929 (2007)). A claim has
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`facial plausibility when the pleaded factual content allows the court to draw the reasonable
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`inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662,
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`663, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009). Although the plausibility standard is not
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`equivalent to a "'probability requirement,' . . . it asks for more than a sheer possibility that a
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`defendant has acted unlawfully." Id. at 678 (quoting Twombly, 550 U.S. at 556). However, the
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`Court is "not bound to accept as true a legal conclusion couched as a factual allegation."
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`Papasan v. Allain, 478 U.S. 265, 286, 106 S. Ct. 2932, 92 L.Ed. 2d 209 (1986); see also In re
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`Sofamor Danek Grp., 123 F.3d 394, 400 (6th Cir. 1997) (stating that a court "'need not accept as
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`true legal conclusions or unwarranted factual inferences'") (quoting Morgan v. Church's Fried
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`Chicken, 829 F.3d 10, 12 (6th Cir. 1987)).
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`III. ANALYSIS
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`The patent exhaustion doctrine generally provides that once a patentee has made an
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`unrestricted sale of a patented article, the patentee loses its right to control the sale, offer for sale,
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`or use of the article. Bowman v. Monsanto Co., __ U.S. __, 133 S. Ct. 1761, 1764, 185 L. Ed. 2d
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`931 (2013); Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 128 S. Ct. 2109, 170 L. Ed.
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`2d 996 (2008). According to a 2001 decision of the Federal Circuit, the patent exhaustion
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`doctrine is territorial. Jazz Photo Corporation v. International Trade Commission, 264 F.3d
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`1094, 1105 (Fed. Cir. 2001). That means that in order for patent exhaustion to apply, the
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`authorized first sale must have occurred in the United States. Id. ("United States patent rights are
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`not exhausted by products of foreign provenance. To invoke the protection of the first sale
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`doctrine, the authorized first sale must have occurred under the United States patent."). The Jazz
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`Photo decision relies upon a United States Supreme Court decision from 1890 in which the
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`Court held that an authorized sale of a good patented by another under the laws of a foreign
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`country does not exhaust the patent rights of the United States patentee, and the United States
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`patentee may sue for infringement when that good is imported into the United States for sale. Id.
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`(citing Boesch v. Graff, 133 U.S. 697, 701-03, 10 S. Ct. 378, 33 L. Ed. 787 (1890)). Thus, under
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`Jazz Photo, an initial authorized sale of a patented product outside of the United States would not
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`exhaust the patent rights of the patent holder. See id.
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`Recently, the Supreme Court addressed the parallel "first sale" doctrine under copyright
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`law. Kirtsaeng v. John Wiley & Sons, Inc., __ U.S. __, 133 S. Ct. 1351, 1354, 185 L. Ed. 2d 392
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`(2012). The Supreme Court's decision was rooted in interpretation of a statutory provision of
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`copyright law. Id. at 1357-71. Specifically, the Supreme Court considered whether the phrase
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`"lawfully made under this title" restricts the scope of the first sale doctrine geographically. Id. at
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`1357 (citing 17 U.S.C. 109(a)). The plaintiff contended that "lawfully made under this title"
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`imposed a geographical limitation that prevented the first sale provision from applying to its
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`books first manufactured and sold overseas. Id. at 1357-58. The defendant, however, read the
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`phrase as imposing a non-geographical limitation that required only that the book be made in
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`compliance with the Copyright Act such that a first manufacture and sale abroad would
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`extinguish the rights of the copyright owner. Id. at 1358. The Supreme Court determined that
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`the plain language of the provision said nothing about geography and that interpreting the
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`provision not to provide a geographical limitation made linguistic sense and did not present the
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`same difficulties as an interpretation that included a geographical limitation. Id. at 1358-71.
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`However, the Supreme Court's analysis did not end there. It next considered the context
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`of the statutory provision. Kirtsaeng, 133 S. Ct. at 1360. According to the Supreme Court, the
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`legislative history of the statutory provision indicates that Congress did not have geography in
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`mind when writing the present version of section 109(a). Id. Additionally, it determined that
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`other provisions of the current statute supported a non-geographical interpretation. Id. at 1361-
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`62. For example, the "manufacturing clause," which limited importation of many copies printed
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`outside the United States, was phased out in an effort to equalize treatment of copies made in
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`America and copies made abroad. Id. The Supreme Court had difficulty squaring that "equal
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`treatment" principle with a first sale doctrine that imposed geographical limitations. Id. at 1362.
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`The Supreme Court also considered whether canons of statutory interpretation favored a
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`geographical limitation. In particular, it considered the common law history of the first sale
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`doctrine by applying the cannon of statutory interpretation that "[w]hen a statute covers an issue
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`previously governed by the common law," it is presumed that "Congress intended to retain the
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`substance of the common law." Kirtsaeng, 133 S. Ct. at 1363 (citing Samantar v. Yousuf, 560
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`U.S. 305, n. 13, 130 S. Ct. 2278, 176 L. Ed. 2d 1047 (2010)). Applying that canon, the Supreme
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`Court traced the doctrine back to the Seventeenth Century where Lord Coke explained the
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`common law's refusal to permit restraints on the alienation of chattels. Id. The Supreme Court
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`noted that a law permitting a copyright holder to control the resale or other disposition of a
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`chattel once sold is "'against Trade and Traffi[c], and bargaining and contracting." Id. (quoting
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`L. E. Coke, Institutes of the Laws of England, § 360, p. 223 (1628)). It further recognized the
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`same principle of freedom to resell can work to the advantage of the consumer and frees the
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`courts from the administrative burden of trying to enforce restrictions upon difficult-to-trace,
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`readily movable goods, and avoids selective enforcement inherent in any such effort. Id. (citing
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`Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S 877, 127 S. Ct. 2705, 168 L. Ed. 2d 623
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`(2007)). Accordingly, the Supreme Court determined that common law of the first sale doctrine
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`"makes no geographical distinctions." Id.
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`The Supreme Court then considered the practical difficulties of placing geographical
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`limitations on the first sale doctrine. Kirtsaeng, 133 S. Ct. at 1364. The libraries, in particular,
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`would have difficulty maintaining their collections of foreign books that do not contain a
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`copyright holder's present address or in negotiating fees for those copyrights after first sale. Id.
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`at 1365-66. Other manufacturers and retailers of goods would face similar restrictions. Id. at
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`1365. A geographical limitation would prevent the resale of a car without the permission of the
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`holder of each copyright on each piece of copyrighted automobile software, and it also would
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`prevent retailers from buying and selling goods packaged abroad that contain copyrighted logos,
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`labels, and instructions. Id. Similarly, museums would have to obtain the permission of a
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`copyright owner to display a foreign work, even if the copyright owner already sold or donated
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`the work to a foreign museum. Id. Also of some importance was that many had relied on the
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`first sale doctrine's protection in their businesses due to the unsettled nature of the doctrine. Id.
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`at 1366.
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`Finally, the Supreme Court considered the defendant's arguments that a geographical
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`interpretation was favored. Kirtsaeng, 133 S. Ct. at 1367-71. One particular issue addressed was
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`the division of markets. Id. at 1370. The Supreme Court determined that there was "no basic
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`principle of copyright law that suggests that publishers are especially entitled to such rights." Id.
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`at 1370. Rather, "Congress enacted a copyright law that (through the 'first sale' doctrine) limits
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`copyright holders' ability to divide domestic markets." Id. at 1371. That limitation is consistent
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`with antitrust laws. Id. In the Supreme Court's view, "[w]hether copyright owners should, or
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`should not, have more than ordinary commercial power to divide international markets is a
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`matter for Congress to decide . . . [and the Supreme Court does] no more here than try to
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`determine what decision Congress has taken." Id.
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`Based on the entirety of its analysis, the Supreme Court held that "[i]n our view, §
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`109(a)'s language, its context, and the common-law history of the first sale doctrine, taken
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`together, favor a non-geographical interpretation. We also doubt that Congress would have
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`intended to create the practical copyright-related harms with which a geographical interpretation
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`would threaten ordinary scholarly, artistic, commercial and consumer activities." Id. at 1358
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`(emphasis added).
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`Here, the core dispute between Lexmark and Impression Products is whether the United
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`States Supreme Court's March 19, 2013 decision in Kirtsaeng, 133 S. Ct. 1351, overturns the
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`Federal Circuit's decision in Jazz Photo, 264 F.3d 1094, such that Lexmark's patent rights were
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`exhausted upon the first authorized sale abroad.2 Other courts that have considered the
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`continuing validity of an appellate court decision in light of new Supreme Court precedent have
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`suggested that an appellate court decision should not be overturned unless it is plainly
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`inconsistent with the Supreme Court precedent. See Ninestar Tech. Co. v. Int'l Trade Comm'n,
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`667 F.3d 1373, 1378 (Fed. Cir. 2012); Fujifilm Corp. v. Benun, 605 F.3d 1366, 1371 (Fed. Cir.
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`2010); Static Control Components, Inc. v. Lexmark Int’l, Inc., 615 F. Supp. 2d 575 (E.D. Ky.
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`2009).
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`In this instance, the balance of considerations weighs in favor of finding that Kirtsaeng is
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`not plainly inconsistent with Jazz Photo. An obvious distinction between the two cases is that
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`Jazz Photo involved patent law whereas Kirtsaeng involved only copyright law. Indeed,
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`nowhere in Kirtsaeng is there any express mention or consideration of patents, the patent
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`exhaustion doctrine, or patent exhaustion's territoriality requirement. Although a lack of express
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`mention or consideration of the patent exhaustion doctrine does not automatically preclude
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`application of Kirtsaeng to patent law, the Federal Circuit recently has reinforced that copyright
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`cases are not "controlling" regarding patent issues. Lifescan Scotland, Ltd. v. Shasta Techs.,
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`LLC, 734 F.3d 1361, 2013 U.S. App. LEXIS 22332, at *38 (Fed. Cir. Nov. 4, 2013) (citing
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`Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 346, 28 S. Ct. 722, 52 L. Ed. 1086 (1908)). In fact,
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`the Supreme Court historically has been reluctant to readily consider copyright cases and patent
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`cases interchangeably, noting that the protections afforded by copyright law and patent law are
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`different. See Bobbs-Merrill, 210 U.S. at 346.3 Moreover, the Federal Circuit has acknowledged
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`2 In the context of patents, courts have used the term "patent exhaustion" interchangeably with "first sale."
`For clarity purposes, the Court primarily will refer to "first sale" in the context of copyrights and to "exhaustion" in
`the context of patents, except where otherwise necessary or appropriate.
`3 In Bobbs-Merrill, the Supreme Court was reluctant to accept patent law cases on first sale as being
`directly binding for copyright law. 210 U.S. at 345-46. There, the copyright owner relied on prior patent cases as
`supporting a right to impose conditions on sale. Id. at 342. The Supreme Court recognized that there were
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`that the patent exhaustion doctrine does not squarely align with first sale provision of the
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`Copyright Act, even though they are similar doctrines. Fuji Photo Film Co., Ltd. v. Int'l Trade
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`Comm'n, 474 F.3d 1281, 1294 (Fed. Cir. 2007) (acknowledging that patent rights are exhausted
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`through a first sale in the United States whereas "[a] different rule applies in the copyright
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`context"). In that respect, the law weighs against finding that Kirtsaeng overturned Jazz Photo
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`sub silentio.
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`Other factors also weigh against a finding that Kirtsaeng overturned Jazz Photo. The
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`decision in Kirtsaeng is rooted in statutory and legislative interpretation of section 109(a) of the
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`Copyright Act. 17 U.S.C. § 109(a). Noticeably absent from patent law is a codification of the
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`exhaustion doctrine. Rather, the patent exhaustion doctrine, including its territoriality
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`requirement, is grounded in judicial precedent. See Jazz Photo, 264 F.3d at 1105. As such,
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`unlike in Kirtsaeng, there is no statutory provision or legislative history of the exhaustion
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`doctrine that favors a non-geographical interpretation. Thus, the core statutory text that weighed
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`in favor of a non-geographical interpretation is non-existent in the context of patent law.
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`The lack of a codified patent exhaustion doctrine means that there may be more leeway
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`for understanding and interpreting the doctrine. While Lord Coke's policy provides a natural
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`starting place since that policy undergirds the patent exhaustion doctrine, it is not the only factor
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`to be considered. See Lifescan Scotland, 2013 U.S. App. LEXIS 22332, at *39-40 (recognizing
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`that the same policy underlying the first sale doctrine also undergirds the doctrine of patent
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`exhaustion) (citing Straus v. Victor Talking Mach. Co., 243 U.S. 490, 500-01, 37 S. Ct. 412, 61
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`L. Ed. 866 (1917)). Importantly, the patent exhaustion doctrine's history differs from the history
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`differences in the extent of protections granted by copyright law and patent law. Id. at 346. As such, Bobbs teaches
`that the common law on patent exhaustion does not automatically transfer to copyright law. The contrary
`presumably also is true – that is, that law on copyright's first sale doctrine does not automatically transfer to patent
`law's exhaustion doctrine.
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`Case: 1:10-cv-00564-MRB Doc #: 617 Filed: 03/27/14 Page: 9 of 12 PAGEID #: 14437
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`of the first sale doctrine addressed in Kirtsaeng. In Kirtsaeng, the Supreme Court considered
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`what common law of the first sale doctrine existed prior to the codification of the doctrine in the
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`Copyright Act of 1909, which subsequently was superseded by the Copyright Act of 1976.
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`Kirtsaeng, 133 S. Ct. at 1363. In doing so, it looked to the last Supreme Court decision prior to
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`the 1909 codification to determine if it indicated any intent to impose a geographical restriction.
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`Id. at 1353. Finding no geographical restriction in that Supreme Court precedent, the Supreme
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`Court concluded that the common law principles set forth by Lord Coke still were followed at
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`the time of codification and had never been modified by Congress. Id. at 1363. Since the
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`doctrine of patent exhaustion is not codified, the same reasons for considering and applying Lord
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`Coke's principles are not present.
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`In contrast to the first sale doctrine, the patent exhaustion doctrine has evolved through
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`Supreme Court and lower court decisions, and it remains premised upon those decisions. In
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`particular, Jazz Photo, 264 F.3d 1094, is a decision that interprets the prior Supreme Court
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`precedent on patent exhaustion to determine how it applies in the context of first sales abroad.
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`The Supreme Court in Kirtsaeng did not specifically consider the evolution of a common law
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`principle through Supreme Court decisions on patent exhaustion and the subsequent
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`interpretations thereof. It also did not foreclose the possibility that the first sale principles
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`articulated by Lord Coke could be and were modified by the Supreme Court and lower courts in
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`the patent context. See Kirtsaeng, 133 S. Ct. at 1353 (considering whether a geographical
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`distinction could be found in the Supreme Court case that first applied the first sale provision one
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`year prior to its codification).
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`Moreover, Kirtsaeng suggests that Lord Coke's principles should not be applied in a
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`vacuum. Rather, it is necessary to consider the context, history and practical considerations to
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`determine the proper application of the patent exhaustion doctrine to first sales abroad. See
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`Kirtsaeng, 133 S. Ct. at 1358. Part of that context and history is Jazz Photo and its progeny, the
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`Supreme Court precedent on which Jazz Photo relies, other judicial decisions concerning the
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`patent exhaustion doctrine, and the practical patent-specific implications of a territoriality
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`requirement for patent exhaustion. Those particular considerations were not addressed in
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`Kirtsaeng nor were they thoroughly explained or analyzed by Impression Products.
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`While the Federal Circuit's recent decision in Lifescan, 2013 U.S. App. LEXIS 22332,
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`may provide guidance as to how the Federal Circuit may apply Kirtsaeng upon reconsideration
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`of Jazz Photo, it does not conclusively demonstrate that Jazz Photo is no longer good law.
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`Lifescan did not concern the territoriality requirement of patent exhaustion. See Lifescan, 2013
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`U.S. App. LEXIS 22332. Instead, it raised a matter of first impression for the Federal Circuit –
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`whether patent exhaustion applied to a product distributed for free. Id. at *33. Since there was
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`no Supreme Court guidance directly on point, the Federal Circuit looked to prior Supreme Court
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`precedent on the patent exhaustion doctrine in reaching its decision. Id. at *32-38 (citing
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`Bowman v. Monsanto Co., __ U.S. __, 133 S. Ct. 1761, 1766, 185 L. Ed. 2d 931 (2013); United
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`States v. Univis Lens Co., 316 U.S. 241, 62 S. Ct. 1088, 86 L. Ed. 1408 (1942); Adams v. Burke,
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`84 U.S. (17 Wall.) 453, 21 L. Ed. 700 (1873); Bloomer v. McQuewan, 55 U.S. (14 How.) 539, 14
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`L. Ed. 532 (1852)). After determining that the Supreme Court had never limited the patent
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`exhaustion doctrine to sales only, it then looked to the holding in Kirtsaeng merely to reinforce
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`its conclusion that the doctrine was not so limited, even though Kirtsaeng was not controlling on
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`issues of patent law. Id. at *38. In particular, the Federal Circuit recognized that Lord Coke's
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`principles undergird the patent exhaustion doctrine and do not draw any distinction between gifts
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`and sales. Id. at *39-40. Therefore, considering the totality of the circumstances, the Federal
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`Circuit determined a patentee cannot "circumvent the application of patent exhaustion principles
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`by distributing a product embodying a patent for free." Id. at *42.
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`Here, in contrast to Lifescan, the Federal Circuit has determined in Jazz Photo that
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`Supreme Court precedent supports a territoriality requirement for patent exhaustion. Thus, Lord
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`Coke's principles are not as easily relied upon as they are in regards to the matter before the
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`Federal Circuit in Lifescan. While it is possible that upon revisiting Jazz Photo and its cursory
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`reasoning, the Federal Circuit will now give more weight to Lord Coke's policy and the
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`reasoning set forth in Kirtsaeng, it is not a foregone conclusion that the policy or the reasoning
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`will be strictly applied. This Court adheres to the view that copyright law and patent law are not
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`identical and offer different protections. Thus, it would be amiss to overlook the distinctions by
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`adopting Impression Products' position that Lord Coke's principles, as applied to the Copyright
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`Act's first sale provision, conclusively demonstrate that Kirtsaeng overrules Jazz Photo sub
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`silentio.
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`Reinforcing this Court's reluctance to apply Kirtsaeng to patent law is the Supreme
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`Court's denial of certiorari in a case that raised the precise issue currently before this Court.
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`Ninestar Technology Co., Ltd. v. International Trade Commission, 667 F.3d 1373 (Fed. Cir.
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`2012), cert. denied, 2013 U.S. LEXIS 2409 (U.S., Mar. 25, 2013).4 That denial of certiorari was
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`issued on the same day the Supreme Court remanded two others copyright cases to be considered
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`in light of its decision in Kirtsaeng. See Kumar v. Pearson Educ., Inc., __ U.S. __, 133 S. Ct.
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`1631, 185 L. Ed. 2d 614 (2013); Liu v. Pearson Educ. Inc., __ U.S. __, 133 S. Ct. 1630, 185 L.
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`4 The Federal Circuit had relied upon Jazz Photo in holding that United States patent rights are not exhausted by
`products of foreign provenance. Ninestar Tech. Co. v. ITC, 667 F.3d 1373, 1378 (Fed. Cir. 2012). In so holding, it
`rejected the argument that Jazz Photo had been overruled by Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S.
`617, 632 n.6, 128 S. Ct. 2109, 170 L. Ed. 2d 996 (2008) because neither the facts nor the law in Quanta concerned
`the importation into the United States of a product not made or sold under a United States patent. Id. Thus, while
`the principles of Quanta may be subject to application for products first sold domestically, the Federal Circuit has
`rejected their application for products first sold overseas.
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`Ed. 2d 613 (2013). That denial of certiorari, while not conclusive, certainly suggests that Jazz
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`Photo remains for now the controlling case on whether patent rights are exhausted by a first
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`authorized sale abroad.
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`In so ruling, however, the Court does not intend to determine that Jazz Photo ultimately
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`should stand in light of Kirtsaeng. The Court is cognizant that many of the reasons for rejecting
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`a territoriality requirement for copyright law may apply equally to patent law. Nevertheless,
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`given the complete lack of consideration of the context, history and practical implications of
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`international patent exhaustion in Kirtsaeng, the Court concludes that the Supreme Court did not
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`intend to implicitly overrule Jazz Photo and that Jazz Photo remains controlling precedent on
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`patent exhaustion abroad.
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`IV. CONCLUSION
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`Accordingly, Impression Products' Motion to Dismiss (Doc. 335) is DENIED.
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`IT IS SO ORDERED.
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`s/Michael R. Barrett
`Michael R. Barrett, Judge
`United States District Court
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`12