Mallinckrodt, Inc. v. Medipart, Inc.

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Mallinckrodt, Inc. v. Medipart, Inc.
US-CourtOfAppeals-FederalCircuit-Seal.svg
Court United States Court of Appeals for the Federal Circuit
Decided September 24, 1992
Citation(s) 976 F.2d 700; 24 U.S.P.Q.2d 1173
Court membership
Judge(s) sitting Pauline Newman, Alan David Lourie, Raymond Charles Clevenger III
Case opinions
Majority Newman

Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), [1] is a decision of the United States Court of Appeals for the Federal Circuit, in which the court appeared to overrule or drastically limit many years of U.S. Supreme Court precedent affirming the patent exhaustion doctrine, for example in Bauer & Cie. v. O'Donnell . [2]

United States Court of Appeals for the Federal Circuit

The United States Court of Appeals for the Federal Circuit is a United States court of appeals headquartered in Washington, D.C. The court was created by Congress with passage of the Federal Courts Improvement Act of 1982, which merged the United States Court of Customs and Patent Appeals and the appellate division of the United States Court of Claims, making the judges of the former courts into circuit judges. The Federal Circuit is particularly known for its decisions on patent law, as it is the only appellate-level court with the jurisdiction to hear patent case appeals.

The exhaustion doctrine, also referred to as the first sale doctrine, is a U.S. common law patent doctrine that limits the extent to which patent holders can control an individual article of a patented product after a so-called authorized sale. Under the doctrine, once an authorized sale of a patented article occurs, the patent holder's exclusive rights to control the use and sale of that article are said to be "exhausted," and the purchaser is free to use or resell that article without further restraint from patent law. However, under the repair and reconstruction doctrine, the patent owner retains the right to exclude purchasers of the articles from making the patented invention anew, unless it is specifically authorized by the patentee to do so.

Bauer & Cie. v. O'Donnell, 229 U.S. 1 (1913), was a 1913 United States Supreme Court decision involving whether a purchaser of a patented product bearing a price–fixing notice incurs guilt of patent infringement by reselling the product at a price lower than that which the notice commands. A divided Court (5-4) held that it was not.

Contents

Drawing of patented device in Mallinckrodt case Mallinck.jpg
Drawing of patented device in Mallinckrodt case

Factual background

According to the opinions in the case, the plaintiff Mallinckrodt owned a patent on a device for dispensing a radioactive mist used in taking diagnostic lung X-rays, and for trapping the mist after use. Mallinckrodt sold the device to hospitals for about $40 or $50. Hospital personnel would load the device with a suitable radioactive fluid to perform a diagnostic procedure on a patient, use the device, and then discard it. Mallinckrodt labeled the devices it sold with the notice "Single use only." Because the device itself cost approximately $10 to make but was sold for four or five times that, most of the purchase price that hospitals paid Mallinckrodt apparently represented the value of the patent (or the patented technology). This fact apparently led the defendant Medipart to go into the recycling business, in which Mallinckrodt itself had no direct interest (it chose to sell only new devices). For a $20 recycling fee, Medipart would clean one of the devices for a hospital, replace some parts, subject the device to gamma radiation to kill germs, and return it to the hospital for reuse. The district court and court of appeals opinions do not support the claim that a health or safety problem existed. However, Mallinckrodt asserted to the court that "potential adverse consequences, such as infectious disease transmission" provided the reason for its imposing the restriction against reuse.

Litigation and rulings

Since Medipart and hospitals dealing with it were defying Mallinckrodt's "Single use only" label and adversely affecting its business, Mallinckrodt sued the recycler for patent infringement. Medipart then moved to dismiss the patent infringement claim because of the exhaustion doctrine; the district court agreed and granted summary judgment.

Mallinckrodt appealed and the Federal Circuit reversed. It held that, despite the breadth of the language of the Supreme Court's decisions on exhaustion, the apparently absolute rule against post-sale restrictions on patentees' customers should apply only to price-fixes and tie-ins. In cases not involving price-fixes or tie-ins, such as this one, patentees were free to limit their customer's use of products as long as the restrictions did not so greatly hinder competition as to amount to an antitrust violation.

The reasoning of the Mallinckrodt court proceeds along the following lines:

Obiter dictum is the Latin phrase meaning "by the way", that is, a remark in a judgment that is "said in passing". It is a concept derived from English common law, whereby a judgment comprises only two elements: ratio decidendi and obiter dicta. For the purposes of judicial precedent, ratio decidendi is binding, whereas obiter dicta are persuasive only.

The ruling in Mallinckrodt had two principal prongs, both of which figured in subsequent Federal Circuit decisions. First, the main holding was that patent owners could sell patented goods with a restrictive notice and thereby restrict the disposition of the goods by the purchasers, with the sole exception of price-fixing and tie-in restrictions. [3] Thus, the Mallinckrodt court had said that, "[u]nless the condition violates some other law or policy (in the patent field, notably the misuse or antitrust law)," patentees enjoyed freedom of contract to impose post-sale restrictions on customers under a rule of reason. "The appropriate criterion" for determining the limits of this freedom to impose restrictions, according to the Federal Circuit, "is whether [the patentee's or licensor's] restriction is reasonably within the patent grant, or whether the patentee has ventured beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason." [4]

Price fixing agreement over prices between participants on the same side in a market

Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

A tie-in work is a work of fiction or other product based on a media property such as a film, video game, television series, board game, web site, role-playing game or literary property. Tie-ins are authorized by the owners of the original property, and are a form of cross-promotion used primarily to generate additional income from that property and to promote its visibility.

The second prong concerned patent misuse. According to the court, the legal tests for post-sale restrictions and for misuse were alike, outside the tie-in and price fixing area: "To sustain a misuse defense involving a licensing arrangement not held to have been per se anticompetitive by the Supreme Court, a factual determination must reveal that the overall effect of the license tends to restrain competition unlawfully in an appropriately defined relevant market." [5]

Other Federal Circuit decisions have followed the ruling of the Mallinckrodt misuse prong. [6]

Impact

Until the Federal Circuit's Mallinckrodt decision, an unbroken line of Supreme Court and lower court precedents held that the patentee's patent right over a product that the patentee sold (or that a licensee authorised to make a sale sold) ended at the point of sale. [7] Accordingly, a customer did not commit patent infringement by disobeying a notice, contract, or other "remote control" limitation that the patentee sought to impose on the use of goods that it had sold to the customer. The Supreme Court's rationale in exhaustion doctrine cases was that the purchasers acquired an unlimited property right in the patented products, and that it was inconsistent with that property right for the patentee to control how the purchasers used or disposed of the products once they had become the property of the purchasers. The legal reasoning in all of these decisions begins with that principle, and the rest of the analysis consists of applying it to the particular facts. Until the 2008 Supreme Court decision in the Quanta case, however, the Federal Circuit's Mallinckrodt decision superseded the earlier line of exhaustion cases.

It has been observed that under the doctrine of the Mallinckrodt case, a patentee may sell its patented product with a legally effective notice prohibiting purchasers from engaging in any of the following conduct: [8]

The Federal Circuit's Mallinckrodt doctrine has not avoided criticism as allegedly stating legal rules that contradict Supreme Court decisions. Thus in 2007, the United States Solicitor General filed an amicus curiae brief in Quanta Computer, Inc. v. LG Electronics, Inc., [9] stating, as to the first prong, "The test adopted by the Federal Circuit in Mallinckrodt thus reflects a fundamental misunderstanding of the role and scope of the patent-exhaustion doctrine. ... The court of appeals' approach cannot be reconciled with those [Supreme Court] precedents," [10] and more generally that the Federal Circuit's Quanta opinion based on Mallinckrodt "rests on the same erroneous understanding of patent exhaustion that infuses the Federal Circuit's approach to this area of the law." [11]

The effect of Mallinckrodt may have been restricted by the Supreme Court's 2008 decision in Quanta Computer, Inc. v. LG Electronics, Inc., which broadly reaffirmed the exhaustion doctrine without mentioning Mallinckrodt. It is too early to state, however, what the impact of Quanta on the Mallinckrodt doctrine will be.

Continued viability questioned

In April 2015, the Federal Circuit sua sponte called for briefing and amicus curiae participation in an en banc consideration of whether Mallinckrodt should be overruled in light of the recent Supreme Court decision in the Quanta case. The court ordered:

In light of Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), should this court overrule Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992), to the extent it ruled that a sale of a patented article, when the sale is made under a restriction that is otherwise lawful and within the scope of the patent grant, does not give rise to patent exhaustion? [12]

The Federal Circuit then re-affirmed Mallinckrodt but on December 2, 2016, the Supreme Court granted certiorari. [13] The case was argued in 2017 and was decided in June 2017; the Supreme Court emphatically rejected enforcement of post-sale patent rights, thereby disapproving the decision in Mallinckrodt. [14]

Related Research Articles

In United States patent law, patent misuse is a patent holder's use of a patent to restrain trade beyond enforcing the exclusive rights that a lawfully obtained patent provides. If a court finds that a patent holder committed patent misuse, the court may rule that the patent holder has lost the right to enforce the patent. Patent misuse that restrains economic competition substantially can also violate United States antitrust law.

General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175 (1938), was a case that the Supreme Court of the United States decided in 1938. The decision upheld so-called field-of-use limitations in patent licenses: it held that the limitations were enforceable in a patent infringement suit in federal court against the licensee and those acting in concert with it—for example, a customer that knowingly buys a patented product from the licensee that is outside the scope of the license.

Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), is a decision of the United States Supreme Court in which the Court reaffirmed the validity of the patent exhaustion doctrine, and in doing so made uncertain the continuing precedential value of a line of decisions in the Federal Circuit that had sought to limit Supreme Court exhaustion doctrine decisions to their facts and to require a so-called "rule of reason" analysis of all post-sale restrictions other than tie-ins and price fixes. In the course of restating the patent exhaustion doctrine, the Court held that the exhaustion doctrine is triggered by, among other things, an authorized sale of a component when the only reasonable and intended use of the component is to practice the patent and the component substantially embodies the patented invention by embodying its essential features. The Court also overturned, in passing, the part of decision below that held that the exhaustion doctrine was limited to product claims and did not apply to method claims.

The exhausted combination doctrine, also referred to as the doctrine of theLincoln Engineeringcase, is the doctrine of U.S. patent law that when an inventor invents a new, unobvious device and seeks to patent not merely the new device but also the combination of the new device with a known, conventional device with which the new device cooperates in the conventional and predictable way in which devices of those types have previously cooperated, the combination is unpatentable as an "exhausted combination" or "old combination". The doctrine is also termed the doctrine of the Lincoln Engineering case because the United States Supreme Court explained the doctrine in its decision in Lincoln Engineering Co. v. Stewart-Warner Corp.

United States v. Univis Lens Co., 316 U.S. 241 (1942), is a decision of the United States Supreme Court explaining the exhaustion doctrine and applying it to find an antitrust violation because Univis's ownership of patents did not exclude its restrictive practices from the antitrust laws. The Univis case stands for the proposition that when an article sold by a patent holder or one whom it has authorized to sell it embodies the essential features of a patented invention, the effect of the sale is to terminate any right of the patent holder under patent law to control the purchaser's further disposition or use of the article itself and of articles into which it is incorporated as a component or precursor.

United States v. General Electric Co., 272 U.S. 476 (1926), is a decision of the United States Supreme Court holding that a patentee who has granted a single license to a competitor to manufacture the patented product may lawfully fix the price at which the licensee may sell the product.

A post-sale restraint, also termed a post-sale restriction, as those terms are used in United States patent law and antitrust law, is a limitation that operates after a sale of goods to a purchaser has occurred and purports to restrain, restrict, or limit the scope of the buyer's freedom to utilize, resell, or otherwise dispose of or take action regarding the sold goods. Such restraints have also been termed "equitable servitudes on chattels".

<i>Fujifilm Corp. v. Benun</i>

Fujifilm Corp v. Benun, 605 F.3d 1366 was a case in which the United States Court of Appeals for the Federal Circuit affirmed the judgment made by the United States District Court for the District of New Jersey that the defendants infringed patents owned by Fujifilm Corporation.

Bowman v. Monsanto Co., 569 U.S. 278 (2013), was a United States Supreme Court patent decision in which the Court unanimously affirmed the decision of the Federal Circuit that the patent exhaustion doctrine does not permit a farmer to plant and grow saved, patented seeds without the patent owner's permission. The case arose after Vernon Hugh Bowman, an Indiana farmer, bought transgenic soybean crop seeds from a local grain elevator for his second crop of the season. Monsanto originally sold the seed from which these soybeans were grown to farmers under a limited use license that prohibited the farmer-buyer from using the seeds for more than a single season or from saving any seed produced from the crop for replanting. The farmers sold their soybean crops to the local grain elevator, from which Bowman then bought them. After Bowman replanted the crop seeds for his second harvest, Monsanto filed a lawsuit claiming that he infringed on their patents by replanting soybeans without a license. In response, Bowman argued that Monsanto's claims were barred under the doctrine of patent exhaustion, because all future generations of soybeans were embodied in the first generation that was originally sold.

Adams v. Burke, 84 U.S. 453 (1873), was a United States Supreme Court case in which the Court first elaborated on the exhaustion doctrine. According to that doctrine, a so-called authorized sale of a patented product liberates the product from the patent monopoly. The product becomes the complete property of the purchaser and "passes without the monopoly." The property owner is then free to use or dispose of it as it may choose, free of any control by the patentee. Adams is a widely cited, leading case. A substantially identical doctrine applies in copyright law and is known as the "first sale doctrine".

Henry v. A.B. Dick Co., 224 U.S. 1 (1912), was a 1912 decision of the United States Supreme Court that upheld patent licensing restrictions such as tie-ins on the basis of the so-called inherency doctrine—the theory that it was the inherent right of a patent owner, because he could lawfully refuse to license his patent at all, to exercise the "lesser" right to license it on any terms and conditions he chose. In 1917, the Supreme Court overruled the A.B. Dick case in Motion Picture Patents Co. v. Universal Film Mfg. Co.,

<i>Button-Fastener case</i>

The Button-Fastener Case, Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., also known as the Peninsular Button-Fastener Case, was for a time a highly influential decision of the United States Court of Appeals for the Sixth Circuit. Many courts of appeals, and the United States Supreme Court in the A.B. Dick case adopted its "inherency doctrine"—"the argument that, since the patentee may withhold his patent altogether from public use, he must logically and necessarily be permitted to impose any conditions which he chooses upon any use which he may allow of it." In 1917, however, the Supreme Court expressly overruled the Button-Fastener Case and the A.B. Dick case, in the Motion Picture Patents case.

Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. ___ (2017), is a decision of the Supreme Court of the United States on the exhaustion doctrine in patent law in which the Court held that after the sale of a patented item, the patent holder cannot sue for patent infringement relating to further use of that item, even when in violation of a contract with a customer or imported from outside the United States. The case concerned a patent infringement lawsuit brought by Lexmark against Impression Products, Inc., which bought used ink cartridges, refilled them, replaced a microchip on the cartridge to circumvent a digital rights management scheme, and then resold them. Lexmark argued that as they own several patents related to the ink cartridges, Impression Products was violating their patent rights. The U.S. Supreme Court, reversing a 2016 decision of the Federal Circuit, held that the exhaustion doctrine prevented Lexmark's patent infringement lawsuit, although Lexmark could enforce restrictions on use or resale of its contracts with direct purchasers under regular contract law. Besides printer and ink manufacturers, the decision of the case could affect the markets of high tech consumer goods and prescription drugs.

Leitch Manufacturing Co. v. Barber Co., 302 U.S. 458 (1938), is a 1938 decision of the United States Supreme Court extending the tie-in patent misuse doctrine to cases in which the patentee does not use an explicit tie-in license but instead relies on grants of implied licenses to only those who buy a necessary supply from it.

<i>National Lockwasher Co. v. George K. Garrett Co.</i>

National Lockwasher Co. v. George K. Garrett Co., 137 F.2d 255, is one of the earliest or the earliest federal court decision to hold that it is patent misuse for a patentee to require licensees not to use a competitive technology. Such provisions are known as "tie-outs."

The reverse doctrine of equivalents is a legal doctrine of United States patent law, according to which a device that appears to literally infringe a patent claim, by including elements or limitations that correspond to each element or limitation of the patent claim, nonetheless does not infringe the patent, because the accused device operates on a different principle. That is, "it performs the same or a similar function in a substantially different way." It has been said that "the purpose of the ‘reverse’ doctrine is to prevent unwarranted extension of the claims beyond a fair scope of the patentee’s invention."

Rubber Co. v. Goodyear, 76 U.S. 788 (1869), is an early decision of the United States Supreme Court recognizing the right of a patent owner to license another person to practice the invention only in a limited field, and holding that such a licensee committed patent infringement when it made and sold products of the invention outside that field.

References

  1. ↑ Mallinckrodt, Inc. v. Medipart, Inc., 976F.2d700 (Fed. Cir.1992).
  2. ↑ Richard H. Stern, The Unobserved Demise of the Exhaustion Doctrine in US Patent Law: Mallinckrodt v. Medipart , 15 Eur. Intell. Prop. Rev. 460 (1993).
  3. ↑ Richard H. Stern, Quanta Computer Inc v LGE Electronics Inc—Comments on the Reaffirmance of the Exhaustion Doctrine in the United States , 111 Eur. Intell. Prop. Rev. 527 (2008).
  4. ↑ Mallinckrodt, 976 F.2d at 708.
  5. ↑ Mallinckrodt, 976 F.2d at 706 (quoting Windsurfing Int'l, Inc. v. AMF, Inc., 782 F.2d 995, 1001-02 (Fed. Cir. 1986)).
  6. ↑ See, e.g., U.S. Philips Corp. v. International Trade Com'n, 424 F.3d 1179, 1185 (Fed. Cir. 2005) ("If the particular licensing arrangement in question is not one of those specific practices that has been held to constitute per se misuse, it will be analyzed under the rule of reason. We have held that under the rule of reason, a practice is impermissible only if its effect is to restrain competition in a relevant market.") (citations omitted); Monsanto Co. v. McFarling, 363F.3d1336 , 1341(Fed. Cir.2004).
  7. ↑ See opinion of US Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc. , 553 U.S. 617 (2008) ("The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights to that item."). The Court's opinion summarizes 19th and 20th Century case law.
  8. ↑ SeeRichard H. Stern, Post-Sale Patent Restrictions After Mallinckrodt -- An Idea in Search of Definition , 5 Albany L.J. Sci. & Tech. 1 (1994).
  9. ↑ 128 S. Ct. 2109 (2008).
  10. ↑ Brief for United States as amicus curiae in Quanta, at 23; see also id. at 6 ("In recent years, the first-sale doctrine has evolved in the Federal Circuit in a manner that is at odds with this Court's precedents."); id. at 22 ("The Federal Circuit misreads Univis as standing only for the proposition that restrictions that have been found to be unlawful restraints on trade in the patent context, such as "price-fixing or tying" arrangements, cannot be enforced in a patent-infringement suit.").
  11. ↑ Id. at 30.
  12. ↑ Lexmark Int'l, Inc. v. Impression Prods., Inc. , 785F.3d565 (Fed. Cir.2015). The oral argument took place on Oct. 2, 2015.
  13. ↑ Impression Prods. v. Lexmark Int'l, Inc., 2016 U.S. LEXIS 7275.
  14. ↑ Impression Prods., Inc. v. Lexmark Int'l, Inc. , 581 U.S. 1523 (2017).
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