Supreme Court Corner Q2 2017

by DLA Piper

DLA Piper


Impression Products, Inc. v. Lexmark International, Inc.
– Decided: May 30, 2017

HOLDING: All patent rights of a product are exhausted when the product is sold, "regardless of any restrictions the patentee purports to impose or the location of the sale."

The patent exhaustion doctrine imposes a limit on the "right to exclude others from making, using, offering for sale, or selling." An en banc Federal Circuit had confirmed two exceptions to the scope of patent exhaustion: (1) patent holders may impose lawful restrictions as to post-sale use or resale because patent holders do not exhaust all their rights when such restrictions are agreed upon pre-sale; and (2) exhaustion does not apply to infringers for products protected by an American patent but sold overseas.

The Supreme Court reversed, finding patent exhaustion applies automatically when a patentee chooses to sell an item, eliminating all patent rights to that item. The Court held that exhaustion is "a limit on the scope of the patentee's rights," stating a sale exhausts "its patent rights, regardless of any post-sale restrictions the patentee purports to impose." Regarding foreign sales, the Court further held that exhaustion "does not depend on the patentee receiving some undefined premium for selling the right to access the American market," but rather "is triggered by the patentee's decision to give that item up and receive whatever fee it decides is appropriate for the article and the invention which it embodies."

Justice Ginsburg concurred with the Court's findings regarding restrictions on reuse or resale, but dissented in part as to international exhaustion.

SAS Institute Inc. v. Lee
– Cert. Granted

ISSUE: Whether the Patent Trial and Appeal Board must issue a final written decision on every claim challenged by the petitioner.

The America Invents Act created the inter partes review (IPR) process, whereby a third party may request review of any patent by the USPTO's Patent Trial and Appeal Board. Section 318(a) states if an IPR is instituted, "the [PTAB] shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner." SAS Institute filed an IPR petition challenging all 16 claims of a patent; the PTAB instituted review on and issued a final written decision regarding 9 of the challenged claims.

The Federal Circuit panel (2-1) held the statute does not require the PTAB to issue a final written decision on all claims challenged in the petition. Judge Pauline Newman dissented, noting partial review of all challenged claims defeats the purpose of IPRs, i.e., to substitute the PTAB's review for district court proceedings on validity.

Echoing Judge Newman's dissent, SAS argues allowing final written decisions on fewer than all challenged claims violates the plain language of the statute and the purpose of IPRs. Respondents argue the issue is not appealable because the AIA bars appellate review of institution decisions; that other provisions in the AIA are claim-specific, contemplating partial review; and the PTO's regulations, permitting institution on fewer than all challenged claims is reasonable and entitled to deference.

TC Heartland LLC v. Kraft Foods Group Brands LLC*
– Decided: May 22, 2017

HOLDING: In the patent venue statute, "resides" as applied to domestic corporations refers only to the state of incorporation.

Patent venue statute 28 U.S.C. § 1400(b) states that venue is appropriate "where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." The Federal Circuit held that, when read with the general venue statute, 28 U.S.C. § 1391, venue for patent suits was proper in any federal district in which the accused product had been sold.

A unanimous Supreme Court reversed, holding the word "resides," with respect to domestic corporations, is limited to the state of incorporation. The Court confirmed that this question was answered 60 years ago in Fourco Glass Co. v. Transmirra Products Corp., 353 U.S. 222 (1957), which held "that 28 U.S.C. § 1400(b) is the sole and exclusive provision controlling venue in patent infringement actions, and that it is not to be supplemented by the provisions of 28 U.S.C. §1391(c)." The Court explained it had "definitively and unambiguously held that the word 'residence'… refers only to the state of incorporation. Congress has not amended §1400(b) since Fourco, and neither party asks us to reconsider our holding in that case."

Accordingly, for domestic corporations, patent cases may only be brought where the defendant is incorporated or where the defendant has a regular and established place of business and has committed acts of infringement. This will have a significant impact on where patent cases are now filed. Many predict the Eastern District of Texas will see a decline in new patent cases, while the Districts of Delaware and Northern California will see an increase.

See more coverage of this decision.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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