Mary Siceloff

In Lexmark International, Inc. v. Impression Products, Inc., No. 14-1617 (Fed. Cir. 2016), the U.S. Court of Appeals for the Federal Circuit decided en banc that a U.S. patent owner’s “first sale” of items in a foreign country does not exhaust the patent owner’s right to sue for patent infringement when those items are later imported into the U.S. In contrast, the Supreme Court in Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013) came to a different conclusion under copyright law, finding that the “first sale,” or exhaustion, doctrine allows the owner of a copy of a copyrighted work, which was lawfully made in a foreign country, to import and sell that copy in the United States without further permission from the copyright owner. But, as the Federal Circuit recognized, patent law and copyright law are not always aligned.

The Lexmark dispute arose in conjunction with Lexmark’s toner cartridges for its printers. Lexmark offers its customers the choice of buying a “Regular Cartridge” at full price with no restrictions on its re-use/resale or a discounted cartridge, subject to a single-use/no-resale restriction. Lexmark sold some of the cartridges in the United States and some abroad. Some of the foreign-sold cartridges and all of the U.S.-sold cartridges at issue were sold subject to an express single-use/no-resale restriction.

Lexmark sued Impression for patent infringement after Impression purchased two categories of recycled Lexmark cartridges for resale in the United States. The first category consists of cartridges that Lexmark originally sold abroad, some with and some without the single-use/no-resale restriction, and Impression later imported into the United States for resale. The second category consists of cartridges that Lexmark originally sold in the United States subject to the single-use/no-resale restriction and were later acquired and resold by Impression.

Relying on the doctrine of patent exhaustion, Impression denied liability arguing that Lexmark’s “first sale” had exhausted its U.S. patent rights in all of the cartridges, thus permitting Impression to sell and import them. The doctrine of patent exhaustion, also known as the “first sale” doctrine, addresses the situation where a patented article (or an article sufficiently embodying a patent) is sold by the patent owner or with the authorization of the patent owner. Such “first sales” exhaust the patent owner’s rights to control future sales and use of the patented article and confer on the buyer the authority to engage in certain acts, such as reselling the patented article.

The Lexmark case raised two patent exhaustion questions. First, in light of the Supreme Court’s Kirtsaeng decision regarding copyright exhaustion, does an authorized foreign sale exhaust U.S. patent rights? Second, are post-sale restrictions allowed, or does the Supreme Court’s ruling in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), preclude post-sale restrictions because all patent rights are exhausted by the “first sale”?

In light of these two recent Supreme Court decisions, the Federal Circuit heard Lexmark en banc to consider whether two of its prior holdings regarding patent exhaustion were still good law. In both instances, the Federal Circuit reaffirmed its prior rulings.

As to the first category of cartridges, the Court concluded, consistent with Jazz Photo Corp. v. International Trade Comm’n, 264 F.3d 1094 (Fed. Cir. 2001), U.S. patent rights are not waived, “either conclusively or presumptively, simply by virtue of a foreign sale, either made or authorized” by a U.S. patent owner. Distinguishing Kirtsaeng, the Court noted that unlike the Copyright Act, the Patent Act does not contain a congressionally prescribed exhaustion rule, much less a definition of infringement subservient to an exhaustion rule.

As to the second category of cartridges, the Court also concluded, consistent with Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), “a sale made under a clearly communicated, otherwise-lawful restriction as to post-sale use or resale does not confer on the buyer and a subsequent purchaser the ‘authority’ to engage in the use or resale that the restriction precludes.” In reaching its decision, the Court found that Quanta addressed a different issue.

Dissenting, Judge Dyk wrote that a foreign sale should exhaust U.S. patent rights absent an explicit reservation of those rights by the authorized seller. He further wrote that the majority’s opinion allowing post-sale restrictions, such as the single-use/no-resale restriction, cannot be reconciled with the exhaustion rule announced by the Supreme Court in Quanta.

There is little doubt that the Supreme Court will be asked to consider these patent exhaustion issues.

If you’ve ever applied for, or researched copyright law, you likely learned one thing above all else: it’s not a perpetual right. So, how, you might wonder, have companies like The Walt Disney Company managed to maintain copyrights on certain creations for almost 100 years? In the case of the Walt Disney Company, the answer is simple. It is powerful enough that it actually changed United States copyright law before its rights were going to expire.

When copyright law was first codified in the United States pursuant to the United States Copyright Act, the copyright duration was limited to 14 years. Today, copyrights can last over 100 years. That’s a huge change, and there are an overwhelming number of copyright experts that will tell you that it is all because of a mouse.

Now that may be a slight overstatement. The copyright duration changed some prior to the creation of Mickey Mouse. The Copyright Act of 1790 included a provision that provided for an additional 14-year term if the creator was alive. Of course, at that point, copyright protection only applied to select creations such as maps and books. But 41 years later, in 1831, the Act was amended to allow for an initial 28-year term, with eligibility for a 14-year extension. Thereafter, in 1909, the Act was changed again to allow for a 28-year renewal instead.

Then the mouse was born. In 1928, Walt Disney released the first Mickey Mouse cartoon: Steamboat Willie. At that point, the work was entitled to protection for 56 years (28 years for the initial term and the 28-year extension). Under the Copyright Act at the time, the copyright on Mickey Mouse should have expired in 1984. But before Disney’s mascot could be pushed into the public domain by operation of law, Disney embarked on a serious lobbying mission to get Congress to change the Copyright Act.

Disney’s lobbying paid off in 1976 when Congress passed legislation which changes the copyright scheme such that individual authors were granted protection for their life, plus an additional 50 years, and for works authored by a corporation, the legislation granted a retroactive extension for works published before the new system took effect. The result was that the maximum term for already-published works was extended from 56 years to 75 years, thereby extending Mickey Mouse’s protection out to 2003.

If the extensions ended there, then obviously Mickey Mouse would be in the public domain right now. But 5 years before Mickey Mouse’s copyright was set to expire, Congress changed the scheme again. In 1998, Congress passed the Sonny Bono Copyright Term Extension Act of 1998, which lengthened copyrights for works created on or after January 1, 1978 to “life of the author plus 70 years,” and extends copyrights for corporate works to 95 years from the year of first publication, or 120 years from the year of creation, whichever expires first. Once again, Mickey Mouse’s copyright protection lived to fight another day. Now, Mickey’s copyright will not expire until 2023. But even that is only 7 years away. The question is: what will Disney do now? Disney would not possibly allow its most famous character to go into the public domain, would it?

Although no one can be certain, if the past is any indication of the future, we can expect that Disney will, assuming they have not already, ramp up the lobbying effort and try to get Congress to pass additional legislation to extend its Mickey Mouse copyright. Whether or not this happens, it is indisputable that Mickey Mouse’s effect on United States copyright law has been profound.

Two weeks ago, the Federal Circuit Court of Appeals limited the factors a district court may consider in determining the amount of attorneys’ fees to award in an “exceptional” patent infringement case. Lumen View Tech., LLC v. Findthebest.com, Inc. (January 22, 2016) 2016 U.S. App. LEXIS 1087.

Lumen was the exclusive licensee of a patent covering a method for facilitating bilateral and multilateral decisionmaking. The method required analyses of preference data from two groups of people. Findthebest.com (FTB) offered a website with a search feature called “AssistMe” that gave the user information on products and services related to the user’s specific input.

Lumen sued FTB in the Southern District of New York for patent infringement. FTB’s counsel told Lumen on several occasions that FTB’s search method did not use a bilateral or multilateral process. Lumen ignored FTB’s statements, and filed its infringement contentions before obtaining any discovery. FTB then filed a motion for judgment on the pleadings on the grounds that the patent was invalid under 35 U.S.C. §101 as directed to an unpatentable abstract idea. The district court ruled in favor of FTB and dismissed the case. FTB then filed a motion seeking a determination that the case was “exceptional” under 35 U.S.C. §285 and for recovery of its attorneys’ fees on that grounds.

The district court ruled that the case was exceptional and that FTB was entitled to fees. The court awarded FTB the lodestar amount with a multiplier of two, for a total of about $300,000. The court found that the multiplier was justified in order to deter Lumen from filing similar frivolous lawsuits in the future. The court said that the lodestar amount was too small, because the case had been resolved at an early stage, to be an effective deterrent, and so chose to use the multiplier of two.

On appeal, the Federal Circuit affirmed the district court’s exceptional case ruling. The determination of whether a case is “exceptional” is within the district court’s discretion. The test is the “totality of the circumstances” test set forth by the Supreme Court in Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749 (2014). The appellate court explained that a district court may find a case exceptional based on the strength of a party’s litigation position (considering the facts and the law) or on the unreasonableness of a party’s litigation conduct. The district court had based its finding on the fact that Lumen did not conduct any pre-filing investigation or infringement analysis, and that Lumen’s own claim construction required the use of preference data from multiple parties. The appellate court held that the district court had not abused its discretion in finding the case exceptional:

“The allegations of infringement were ill-supported, particularly in light of the parties’ communications and the proposed claim constructions, and thus the lawsuit appears to have been baseless. Claim construction was unnecessary before finding noninfringement in this case, especially because Lumen View conceded that the claims require preference data from multiple parties.”

As to the district court’s fee award, the Federal Circuit vacated the award and remanded the case. Lumen had argued on appeal that the district court had impermissibly based its enhancement of the lodestar on the need for deterrence, a factor that was already considered in the finding of an exceptional case.

The appellate court explained that the district court has the discretion to decide the amount of reasonable attorneys’ fees to be awarded under §285. In certain cases, the court may enhance the lodestar amount to consider factors that are not covered by the lodestar. For example, the lodestar may be enhanced when the attorney’s time or hourly rate does not reflect the “true market value” of the work performed because the attorney was particularly specialized or because extraordinary litigation expenses were incurred. Factors that are unrelated to the performance of the prevailing party’s counsel, however, are not appropriate in enhancing the lodestar.

In this case, the appellate court held found that the district court had not justified its decision to enhance the lodestar two-fold. According to the court, deterrence cannot be considered in deciding the amount of attorneys’ fees to be awarded under §285. The court vacated the fee award and remanded the case to the district court for further consideration of the amount to be awarded.