MSE Argues Kirtsaeng Decision Undercuts Lexmark’s Patent-Infringement Suit

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by Christina Bonadio, Executive Editor, Actionable Intelligence

Lexmark’s toner cartridge patent-infringement complaint currently before the U.S. District Court for the Southern of Ohio is one of the industry’s most significant lawsuits to date. This is not only because of the large number of remanufacturers and empties brokers implicated, but also because of Lexmark’s reliance on the controversial Jazz Photo ruling to prove patent infringement. Micro Solutions Enterprises (MSE) is one of a handful of firms that Lexmark is bringing before various district courts, seeking to enlist those courts’ help in compelling those firms to comply with the OEM’s subpoenas. Now, MSE is asking the U.S. District Court for the Central District of California to consider the Supreme Court’s recent decision in Kirtsaeng v. John Wiley & Sons when it makes its decision.

Lots of Firms May Be Named

Although the companies originally named as defendants in the district court litigation that Lexmark filed back in 2010 have long since settled with the OEM, Lexmark is looking to add “John Doe” defendants to the suit. The OEM has sent out a multitude of warning letters and subpoenas to remanufacturers and empties brokers, large and small, warning them that they must settle now or be named in the Ohio patent-infringement suit and seeking detailed information about their trade in Lexmark empties and remanufactured cartridges, including customer lists. While we cannot say for sure which firms will be on Lexmark’s list of John Doe defendants, based on the motions to compel various parties to comply with the OEM’s subpoenas, it seems that Lexmark is looking to implicate various Cartridge World franchises; Cardinal Cartridge; MSE; FBA Holding, which operates Core Recovery Company, Unitone Imaging Supply, Unitone Imaging Group, Martek Supply Source, Imcopex America, Velox Systems, and International Digital Solutions; and most recently PrinterEssentials.com (stay tuned for an upcoming Courthouse Briefing on PrinterEssentials.com). Undoubtedly, there are many others as well whose names have yet to be revealed in court dockets.

An Exhausting Topic: Patent Exhaustion

Lexmark’s threat to add empties brokers and remanufacturers to its patent-infringement complaint centers on the doctrine of patent exhaustion, also known as the first-sale doctrine. In Jazz Photo Corp. v. International Trade Commission, the U.S. Court of Appeals for the Federal Circuit, which holds nationwide jurisdiction on patent law, held that a product retains certain U.S. patent protections if the first sale of that product occurs outside of the United States. Basically, this means that if a patented cartridge is first sold outside the United States, the empty core cannot legally be remanufactured and offered for sale inside the United States. Lexmark is claiming that cores obtained by empties brokers such as Greentec International and then remanufactured by various firms were first sold outside the United States, and thus Lexmark’s patents have been infringed.

On March 19, the Supreme Court changed previous copyright law when it found in Kirtsaeng v. John Wiley & Sons that copyrights are exhausted on any authorized sale, wherever the sale is made (see “Seismic Shift Underway: Supreme Court Case Likely to Significantly Change Supplies Industry”). Many industry participants hope that patent law will similarly change. Some hopes hung on whether the Supreme Court might decide to hear Ninestar’s appeal of the International Trade Commission’s (ITC’s) fine, which asked the Court to determine, “Whether the initial authorized sale outside the United States of a patented item terminates all patent rights to that item,” or whether the Court might send that case back to the Federal Circuit to review in light of the Kirtsaeng decision. That did not happen; the Supreme Court denied Ninestar’s petition (see “Lady Has Sung for Ninestar: Supreme Court Won’t Review Appeals Court Decision on ITC Fine”). It may be that the Federal Circuit or the Supreme Court will ultimately decide to rectify the discrepancy in copyright and patent law, but, for now, it would seem that existing patent law has not changed.

MSE, however, is arguing that patent law should be changed in the wake of the Kirtsaeng decision. Lexmark’s motion to compel MSE to comply with its subpoena is currently before the U.S. District Court for the Central District of California (see “Lexmark Wins Contempt Order against Ink Technologies, Seeks to Compel MSE to Comply with Subpoena”). On March 20, just one day after the Supreme Court’s ruling, MSE lodged a copy of the Supreme Court’s opinion decision in Kirtsaeng v. John Wiley & Sons with the court, saying the decision “has direct bearing on the issues before this court, thereby vitiating the entire legal premise underling the patent infringement case in Ohio.”

The company also filed a supplemental memorandum on March 25, which argues that Lexmark’s Ohio lawsuit, upon which the motion to compel MSE to comply with Lexmark’s subpoena is premised, relies upon the ruling in Jazz Photo and that the Kirtsaeng decision “invalidates the Jazz Photo case.”

It is certainly very possible that the district court will say nothing at all about Jazz Photo and first-sale doctrine when it decides whether MSE should be forced to comply with Lexmark’s subpoena. But MSE is the first remanufacturer we have seen to argue that the Kirtsaeng decision should change U.S. patent law, and we suspect that MSE won’t be the last.

When Lexmark finally names its John Does in an amended complaint, there is little doubt that some of those named will be making arguments very similar to MSE’s in their answers to the complaint. Wouldn’t it be interesting if Lexmark’s patent-infringement complaint were to become the case that makes or breaks the territoriality requirements of Jazz Photo?

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