Lexmark International, Inc. v. Ink Technologies Printer Supplies, LLC

9 F. Supp. 3d 830, 2014 U.S. Dist. LEXIS 41046, 2014 WL 1273665

• Court: District Court, S.D. Ohio
• Decided: March 27, 2014
• Docket: Case No. 1:10-cv-564
• Status: Published

Opinion

OPINION AND ORDER

MICHAEL R. BARRETT, District Judge.

This matter is before the Court on the Motion to Dismiss of Defendant Impression Products, Inc. (Doc. 335). Plaintiff Lexmark International, Inc. has filed a response in opposition (Doc. 367) and Defendant Impression Products, Inc. has filed a reply (Doc. 368).¹ Defendant Impression Products, Inc. subsequently filed a Notice of Additional Authority (Doc. 485) to which Plaintiff Lexmark International, Inc. filed a response (Doc. 488). Defendant Impression Products, Inc. then filed a reply in support of its notice of additional authority. (Doc. 491). This matter is now ripe for review.

I. BACKGROUND

This case concerns the alleged infringement of Plaintiff Lexmark International, Inc.’s (“Lexmark”) patented toner cartridges. Lexmark alleges that it first sold the patented inkjet cartridges at issue outside of the United States. It claims that those patented inkjet cartridges were acquired and remanufactured by one or more foreign defendants that then sold the remanufactured inkjet cartridges to other defendants. Those defendants, in turn, sold the remanufactured inkjet cartridges to others, including customers in the United States. Lexmark contends that Defendant Impression Products, Inc. (“Impression Products”) was one of those defendants that sold in the United States remanufactured inkjet cartridges that had originally been sold outside of the United States thereby infringing Lexmark’s patent.

II. LEGAL STANDARD

In reviewing a motion to dismiss for failure to state a claim, this Court must “construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff.” Bassett v. Nat’l Collegiate Athletic Ass’n, 528 F.3d 426, 430 (6th Cir.2008) (quoting Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir.2007)). “[T]o survive a motion to dismiss!,] a complaint must contain (1) ‘enough facts to state a claim to relief that is plausible,’ (2) more than ‘a formulaic recitation of a cause of action’s elements,’ and (3) allegations that suggest a ‘right to relief above a speculative level.’ ” Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir.2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965, 1974, 167 L.Ed.2d 929 (2007)). A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Although the plausibility standard is not equivalent to a “ ‘probability requirement,’ ... it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). However, the Court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); see also In re Sofamor Danek Grp., 123 F.3d 394, 400 (6th Cir.1997) (stating that a court “ ‘need not accept as true legal conclusions or unwarranted factual inferences’ ”) (quoting Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir.1987)).

III. ANALYSIS

The patent exhaustion doctrine generally provides that once a patentee has made an unrestricted sale of a patented article, the patentee loses its right to control the sale, offer for sale, or use of the article. Bowman v. Monsanto Co., — U.S. -, 133 S.Ct. 1761, 1764, 185 L.Ed.2d 931 (2013); Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 128 S.Ct. 2109, 170 L.Ed.2d 996 (2008). According to a 2001 decision of the Federal Circuit, the patent exhaustion doctrine is territorial. Jazz Photo Corporation v. International Trade Commission, 264 F.3d 1094, 1105 (Fed.Cir.2001). That means that in order for patent exhaustion to apply, the authorized first sale must have occurred in the United States. Id. (“United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent.”). The Jazz Photo decision relies upon a United States Supreme Court decision from 1890 in which the Court held that an authorized sale of a good patented by another under the laws of a foreign country does not exhaust the patent rights of the United States patentee, and the United States patentee may sue for infringement when that good is imported into the United States for sale. Id. (citing Boeseh v. Graff, 133 U.S. 697, 701-03, 10 S.Ct. 378, 33 L.Ed. 787 (1890)). Thus, under Jazz Photo, an initial authorized sale of a patented product outside of the United States would not exháust the patent rights of the patent holder. See id.

Recently, the Supreme Court addressed the parallel “first sale” doctrine under copyright law. Kirtsaeng v. John Wiley & Sons, Inc., — U.S.-, 133 S.Ct. 1351, 1354, 185 L.Ed.2d 392 (2012). The Supreme Court’s decision was rooted in interpretation of a statutory provision of copyright law. Id. at 1357-71. Specifically, the Supreme Court considered whether the phrase “lawfully made under this title” restricts the scope of the first sale doctrine geographically. Id. at 1357 (citing 17 U.S.C. § 109(a)). The plaintiff contended that “lawfully made under this title” imposed a geographical limitation that prevented the first sale provision from applying to its books first manufactured and sold overseas. Id. at 1357-58. The defendant, however, read the phrase as imposing a non-geographieal limitation that required only that the book be made in compliance with the Copyright Act such that a first manufacture and sale abroad would extinguish the rights of the copyright owner. Id. at 1358. The Supreme Court determined that the plain language of the provision said nothing about geography and that interpreting the provision not to provide a geographical limitation made linguistic sense and did not present the same difficulties as an interpretation that included a geographical limitation. Id. at 1358-71.

However, the Supreme Court’s analysis did not end there. It next considered the context of the statutory provision. Kirtsaeng, 133 S.Ct. at 1360. According to the Supreme Court, the legislative history of the statutory provision indicates that Congress did not have geography in mind when writing the present version of section 109(a). Id. Additionally, it determined that other provisions of the current statute supported a non-geographical interpretation. Id. at 1361-62. For example, the “manufacturing clause,” which limited importation of many copies printed outside the United States, was phased out in an effort to equalize treatment of copies made in America and copies made abroad. Id. The Supreme Court had difficulty squaring that “equal treatment” principle with a first sale doctrine that imposed geographical limitations. Id. at 1362.

The Supreme Court also considered whether canons of statutory interpretation favored a geographical limitation. In particular, it considered the common law history of the first sale doctrine by applying the cannon of statutory interpretation that “[w]hen a statute covers an issue previously governed by the common law,” it is presumed that “Congress intended to retain the substance of the common law.” Kirtsaeng, 133 S.Ct. at 1363 (citing Somantar v. Yousuf, 560 U.S. 305, n. 13, 130 S.Ct, 2278, 176 L.Ed.2d 1047 (2010)). Applying that canon, the Supreme Court traced the doctrine back to the Seventeenth Century where Lord Coke explained the common law’s refusal to permit restraints on the alienation of chattels. Id. The Supreme Court noted that a law permitting a copyright holder to control the resale or other disposition of a chattel once sold is “ ‘against Trade and Traffic], and bargaining and contracting.’ ” Id. (quoting L.E. Coke, Institutes of the Laws of England, § 360, p. 223 (1628)). It further recognized the same principle of freedom to resell can work to the advantage of the consumer and frees the courts from the administrative burden of trying to enforce restrictions upon diffieult-to-trace, readily movable, goods-, and avoids selective enforcement inherent in any such effort. Id. (citing Leegin Creative Leather Prods. v. PSKS, Inc., 551 U.S. 877, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007)). Accordingly, the Supreme Court determined that common law of the first sale doctrine “makes no geographical distinctions.” Id.

The Supreme Court then considered the practical difficulties of placing geographical limitations on the first sale doctrine. Kirtsaeng, 133 S.Ct. at 1364. The libraries, in particular, would have difficulty maintaining their collections of foreign books that do not contain a copyright holder’s present address or in negotiating fees for those copyrights after first sale. Id. at 1365-66. Other manufacturers and retailers of goods would'face similar restrictions. Id. at 1365. A geographical limitation would prevent the resale of a car without the permission of the holder of each copyright on each piece of copyrighted automobile software, and it also would prevent retailers from buying and selling goods packaged abroad that contain copyrighted logos, labels, and instructions. Id. Similarly, museums would have to obtain the permission of a copyright owner to display a foreign work, even if the copyright owner already sold or donated the work to a foreign museum. Id. Also of some importance was that many had relied on the first sale doctrine’s protection' in their businesses due to the unsettled nature of the doctrine. Id. at 1366.

Finally, the Supreme Court considered the defendant’s arguments that a geographical interpretation was favored. Kirtsaeng, 133 S.Ct. at 1367-71. One particular issue addressed was the division of markets. Id. at 1370. The Supreme Court determined that there was “no basic principle of copyright law that suggests that publishers are especially entitled to such rights.” Id. at 1370. Rather, “Congress enacted a copyright law that (through the ‘first sale’ doctrine) limits copyright holders’ ability to divide domestic markets.” Id. at 1371. That limitation is consistent with antitrust laws. Id. In the- Supreme Court’s view, “[w]hether copyright owners should, or should not, have more than ordinary commercial power to divide international markets is a matter for Congress to decide ... [and the Supreme Court does] no more here than try to determine what decision Congress has taken.” Id.

Based on the entirety of its analysis, the Supreme Court held that “[i]n our view, § 109(a)’s language, its context, and the common-law history of the first sale doctrine, ■taken together, favor a non-geographical interpretation. We also doubt that Congress would have intended to create the practical copyright-related harms with which a geographical interpretation would threaten ordinary scholarly, artistic, commercial and consumer activities.” Id. at 1358 (emphasis added).

Here, the core dispute between Lex-mark and Impression Products is whether the United States Supreme Court’s March 19, 2013 decision in Kirtsaeng, 133 S.Ct. 1351, overturns the Federal Circuit’s decision in Jazz Photo, 264 F.3d 1094, such that Lexmark’s patent rights were exhausted upon the first authorized sale abroad.² Other courts that have considered the continuing validity of an appellate court decision in light of new Supreme Court precedent have suggested that an appellate court decision should not be overturned unless it is plainly inconsistent with the Supreme Court precedent. See Ninestar Tech. Co. v. Int’l Trade Comm’n, 667 F.3d 1373, 1378 (Fed.Cir.2012); Fujifilm Corp. v. Benun, 605 F.3d 1366, 1371 (Fed.Cir.2010); Static Control Components, Inc. v. Lexmark Int’l, Inc., 615 F.Supp.2d 575 (E.D.Ky.2009).

In this instance, the balance of considerations weighs in favor of finding that Kirt-saeng is not plainly inconsistent with Jazz Photo. An obvious distinction between the two cases is that Jazz Photo involved patent law whereas Kirtsaeng involved only copyright law. Indeed, nowhere in Kirtsaeng is there any express mention or consideration of patents, the patent exhaustion doctrine, or patent exhaustion’s territoriality requirement. Although a lack of express mention or consideration of the patent exhaustion doctrine does not automatically preclude application of Kirt-saeng to patent law, the Federal Circuit recently has reinforced that copyright cases are not “controlling” regarding patent issues. LifeScan Scotland, Ltd. v. Shasta Techs., LLC, 734 F.3d 1361, 1375 (Fed.Cir.2013) (citing Bobbs-Merrill Co. v. Straus, 210 U.S. 339, 346, 28 S.Ct. 722, 52 L.Ed. 1086 (1908)). In fact, the Supreme Court historically has been reluctant to readily consider copyright cases and patent cases interchangeably, noting that the protections afforded by copyright law and patent law are different. See Bobbs-Merrill, 210 U.S. at 346, 28 S.Ct. 722.³ Moreover, the Federal Circuit has acknowledged that the patent exhaustion doctrine does not squarely align with first sale provision of the Copyright Act, even though they are similar doctrines. Fuji Photo Film Co., Ltd. v. Int’l Trade Comm’n, 474 F.3d 1281, 1294 (Fed.Cir.2007) (acknowledging that patent rights are exhausted through a first sale in the United States whereas “[a] different rule applies in the copyright context”). In that respect, the law weighs against finding that Kirtsaeng overturned Jazz Photo sub silentio.

Other factors also weigh against a finding that Kirtsaeng overturned Jazz Photo. The decision in Kirtsaeng is rooted in statutory and legislative interpretation of section 109(a) of the Copyright Act. 17 U.S.C. § 109(a). Noticeably absent from patent law is a codification of the exhaustion doctrine. Rather, the patent exhaustion doctrine, including its territoriality requirement, is grounded in judicial precedent. See Jazz Photo, 264 F.3d at 1105. As such, unlike in Kirtsaeng, there is no statutory provision or legislative history of the exhaustion doctrine that favors a non-geographical interpretation. Thus, the core statutory text that weighed in favor of a non-geographical interpretation is non-existent in the context of patent law.

The lack of a codified patent exhaustion doctrine means that there may be more leeway for understanding and interpreting the doctrine. While Lord Coke’s policy provides a natural starting place since that policy undergirds the patent exhaustion doctrine, it is not the only factor to be considered. See LifeScan Scotland, 734 F.3d at 1376 (recognizing that the same policy underlying the first sale doctrine also undergirds the doctrine of patent exhaustion) (citing Straus v. Victor Talking Mach. Co., 243 U.S. 490, 500-01, 37 S.Ct. 412, 61 L.Ed. 866 (1917)). Importantly, the patent exhaustion doctrine’s history differs from the history of the first sale doctrine addressed in Kirtsaeng. In Kirt-saeng, the Supreme Court considered what common law of the first sale doctrine existed prior to the codification of the doctrine in the Copyright Act of 1909, which subsequently was superseded by the Copyright Act of 1976. Kirtsaeng, 133 S.Ct. at 1363. In doing so, it looked to the last Supreme Court decision prior to the 1909 codification to determine if it indicated any intent to impose a geographical restriction. Id. at 1353. Finding no geographical restriction in that Supreme Court precedent, the Supreme Court concluded that the common law principles set forth by Lord Coke still were followed at the time of codification and had never been modified by Congress. Id. at 1363. Since the doctrine of patent exhaustion is not codified, the same reasons for considering and applying Lord Coke’s principles are not present.

In contrast to the first sale doctrine, the patent exhaustion doctrine has evolved through Supreme Court and lower court decisions, and it remains premised upon those decisions. In particular, Jazz Photo, 264 F.3d 1094, is a decision that interprets the prior Supreme Court precedent on patent exhaustion to determine how it applies in the context of first sales abroad. The Supreme Court in Kirtsaeng did not specifically consider the evolution of a common law principle through Supreme Court decisions on patent exhaustion and the subsequent interpretations thereof. It also did not foreclose the possibility that the first sale principles articulated by Lord Coke could be and were modified by the Supreme Court and lower courts in the patent context. See Kirtsaeng, 133 S.Ct. at 1353 (considering whether a geographical distinction could be found in the Supreme Court case that first applied the first sale provision one year prior to its codification).

Moreover, Kirtsaeng suggests that Lord Coke’s principles should not be applied in a vacuum. Rather, it is necessary to consider the context, history and practical considerations to determine the proper application of the patent exhaustion doctrine to first sales abroad. See Kirtsaeng, 133 S.Ct. at 1358. Part of that context and history is Jazz Photo and its progeny, the Supreme Court precedent on which Jazz Photo relies, other judicial decisions concerning the patent exhaustion doctrine, and the practical patent-specific implications of a territoriality requirement for patent exhaustion. Those particular considerations were not addressed in Kirt-saeng nor were they thoroughly explained or analyzed by Impression Products.

While the Federal Circuit’s recent decision in LifeScan, 734 F.3d 1361, may provide guidance as to how the Federal Circuit may apply Kirtsaeng upon reconsideration of Jazz Photo, it does not conclusively demonstrate that Jazz Photo is no longer good law. LifeScan did not concern the territoriality requirement of patent exhaustion. See LifeScan, 734 F.3d 1361. Instead, it raised a matter of first impression for the Federal Circuit— whether patent exhaustion applied to a product distributed for free. Id. at 1374. Since there was no Supreme Court guidance directly on point, the Federal Circuit looked to prior Supreme Court precedent on the patent exhaustion doctrine in reaching its decision. Id. at 1373-76 (citing Bowman v. Monsanto Co., — U.S. -, 133 S.Ct. 1761, 1766, 185 L.Ed.2d 931 (2013); United States v. Univis Lens Co., 316 U.S. 241, 62 S.Ct. 1088, 86 L.Ed. 1408 (1942); Adams v. Burke, 84 U.S. (17 Wall.) 453, 21 L.Ed. 700 (1873); Bloomer v. McQuewan, 55 U.S. (14 How.) 539, 14 L.Ed. 532 (1852)). After determining that the Supreme Court had never limited the patent exhaustion doctrine to sales only, it then looked to the holding in Kirtsaeng merely to reinforce its conclusion that the doctrine was not so limited, even though Kirtsaeng was not controlling on issues of patent law. Id. at 1375-76. In particular, the Federal Circuit recognized that Lord Coke’s principles undergird the patent exhaustion doctrine and do not draw any distinction between gifts and sales. Id. at 1376. Therefore, considering the totality of the circumstances, the Federal Circuit determined a patentee cannot “circumvent the application of patent exhaustion principles by distributing a product embodying a patent for free.” Id. at 1376-77.

Here, in contrast to LifeScan, the Federal Circuit has determined in Jazz Photo that Supreme Court precedent supports a territoriality requirement for patent exhaustion. Thus, Lord Coke’s principles are not as easily relied upon as they are in regards to the matter before the Federal Circuit in LifeScan. While it is possible that upon revisiting Jazz Photo and its cursory reasoning, the Federal Circuit will now give more weight to Lord Coke’s policy and the reasoning set forth in Kirt-saeng, it is not a foregone conclusion that the policy or the reasoning will be strictly applied. This Court adheres to the view that copyright law and patent law are not identical and offer different protections. Thus, it would be amiss to overlook the distinctions by adopting Impression Products’ position that Lord Coke’s principles, as applied to the Copyright Act’s first sale provision, conclusively demonstrate that Kirtsaeng overrules Jazz Photo sub silen-tio.

Reinforcing this Court’s reluctance to apply Kirtsaeng to patent law is the Supreme Court’s denial of certiorari in a case that raised the precise issue currently before this Court. Ninestar Technology Co., Ltd. v. International Trade Commission, 667 F.3d 1373 (Fed.Cir.2012), cert. denied, — U.S. -, 133 S.Ct. 1656, 185 L.Ed.2d 616 (U.S.2013).⁴ That denial of certiorari was issued on the same day the Supreme Court remanded two others copyright cases to be considered in light of its decision in Kirtsaeng. See Kumar v. Pearson Educ., Inc., — U.S. -, 133 S.Ct. 1631, 185 L.Ed.2d 614 (2013); Liu v. Pearson Educ. Inc., — U.S. -, 133 S.Ct. 1630, 185 L.Ed.2d 613 (2013). That denial of certiorari, while not conclusive, certainly suggests that Jazz Photo remains for now the controlling case on whether patent rights are exhausted by a first authorized sale abroad.

In so ruling, however, the Court does not intend to determine that Jazz Photo ultimately should stand in light of Kirtsaeng. The Court is cognizant that many of the reasons for rejecting a territoriality requirement for copyright law may apply equally to patent law. Nevertheless, given the complete lack of consideration of the context, history and practical implications of international patent exhaustion in Kirt-saeng, the Court concludes that the Supreme Court did not intend to implicitly overrule Jazz Photo and that Jazz Photo remains controlling precedent on patent exhaustion abroad.

IY. CONCLUSION

Accordingly, Impression Products’ Motion to Dismiss (Doc. 335) is DENIED.

IT IS SO ORDERED.

1 . Plaintiff Lexmark International, Inc. subsequently filed a motion for'leave to file a surre-ply (Doc. 378), which Defendant Impression Products, Inc. opposed (Doc. 379). That motion for leave has been denied.

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, 28 S.Ct. 722. There, the copyright owner relied on prior patent cases as supporting a right to impose conditions on sale. Id. at 342, 28 S.Ct. 722. The Supreme Court recognized that there were differences in the extent of protections granted by copyright law and patent law. Id. at 346, 28 S.Ct. 722. 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.

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.