Time to review your import-export strategy in light of the Trans-Pacific Partnership trade agreement (TPP), changes in IP protection and patent exhaustion cases in the U.S. Supreme Court.
On Oct. 5, 2015, an agreement was reached by the 12 member countries on the TPP, which, among many other things, seeks to standardize how intellectual property is treated among the member countries. It contains approximately 2,000 pages in 30 chapters and addresses a broad array of issues.
The TPP is likely to have an “up-down” vote in 2016, most likely after the 2016 election. Because the TPP seeks to promote international trade and standardize intellectual property protection, we should see an increase of intellectual property protection issues at the international level.
As we look to 2016, we expect international trade, especially exports, to expand as companies seek new markets as the world flattens. Exporting could be greatly affected by the TPP and a recent development in patent exhaustion. It is unclear how cases like Lexmark International Inc. v. Impression Products Inc., which concerns patent exhaustion, will intertwine with the TPP.
Patent exhaustion provides that when the patent owner or licensee makes the first unrestricted sale of a patented product, the patent rights are exhausted and the patent owner’s control over that particular item ends.
Case study: LG and Intel
LG Electronics owned three patents covering computer systems, including components and methods. LG licensed its patents to Intel. Under the license, Intel was allowed to manufacture and sell microprocessors and chipsets covered by the LG patents.
Quanta, a computer manufacturer, purchased microprocessors from Intel and combined the Intel products with non-Intel components to make computers that infringed LG’s patents. LG sued Quanta for patent infringement, but the district court held that the license from LG to Intel exhausted LG’s rights to sue Intel’s customers. Notably, LG attempted to restrict the doctrine of patent exhaustion with a license, but the Supreme Court did not find this attempt successful.
Case study: Jazz Photo
Historically, patent exhaustion is geographically based, in that lawful sales of patented goods outside the United States did not give rise to patent exhaustion inside the United States.
Jazz Photo was purchasing used disposable cameras that were already sold and once used, “repaired” them and sold them into the United States. Several original camera manufacturers sued Jazz Photo for patent infringement. The Federal Circuit held that the “law is well settled that an authorized sale of a patented product places that product beyond the reach of the patent.” Importantly, the Federal Circuit stated that to “invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent.” [Boesch v. Graff, 133 U.S. 697, 701-703 (1890) (a lawful foreign purchase does not obviate the need for license from the United States patentee before importation into and sale in the United States).]
Therefore, cameras sold in the United States were immune from patent infringement, but cameras sold in foreign markets and imported were not.
Oral arguments for this case were heard Oct. 2, 2015. Unless the case is settled, it is expected that one of the parties will appeal to the United States Supreme Court. If Jazz Photo is overturned, foreign activity may in fact exhaust United States patent rights. IF this occurs, the intellectual property protection as effected by the TPP could results in patent rights being extinguished in the United States by overseas activities.
Changes coming from overseas
Changes are not just coming from implementing TPP and recent IP cases, such as Jazz Photo and Lexmark International Inc., but also from legal activity in other countries. The differences of “foreign patent exhaustion” can be significant.
For example, in Germany, patent rights are exhausted if the patented product is marketed by the patentee (or a third party with the consent of the patentee), not just sold. Further, German patent rights are only completely exhausted if the license grants complete rights. If the license only grants component manufacturing rights, the patent rights are only exhausted in part.
Patent exhaustion is inextricably intertwined with licensing of intellectual property. Given the changes that are occurring with patent exhaustion, companies that are involved with importing or exporting their goods should review their intellectual property and licensing arrangements as it pertains to imports and exports.
We know that with our network of foreign associates and our international intellectual property practice, this task should not be limited to United States law, but be performed in a much more global reach.
