Patent Exhaustion

Exhaustion DOES cover

• Reselling the specific item purchased
• Using the item for any purpose, anywhere
• Repairing worn-out components of the item
• Refurbishing and reselling the item
• Reimporting items sold abroad by the patent owner (post-Impression)
• Items sold by authorized licensees (Quanta)

Exhaustion does NOT cover

• Making new patented items (reconstruction, not repair)
• Unauthorized sales by licensees acting outside their license
• Items made without any authorized sale in the chain
• New uses of a composition that practices an unexhausted patent
• Contract law obligations accepted at point of sale (still enforceable)
• Copyright, DMCA, or other IP rights in the product (separate from patent)

What is patent exhaustion?

Patent exhaustion is the legal doctrine that once a patent owner (or an authorized licensee) makes the first authorized sale of a patented item, the patent rights in that specific item are exhausted. After the authorized sale, the buyer can use, resell, repair, or modify the item without infringing the patent. The patent owner cannot use patent law to control what happens to the item after that first sale. The doctrine exists because the patent owner has already received their reward — the sale price — and allowing continued control would let them monopolize all downstream markets. Exhaustion is automatic — it arises from the authorized sale itself, not from any agreement or license.

What did Impression Products v. Lexmark hold?

Impression Products, Inc. v. Lexmark International, Inc. (Supreme Court 2017) is the landmark modern patent exhaustion case. Lexmark made printer cartridges and sold them under two programs: (1) standard cartridges (full price), and (2) 'Return Program' cartridges (discounted, with a restriction prohibiting reuse or resale). Impression Products refurbished and resold used Lexmark cartridges — including Return Program cartridges imported from overseas. Lexmark sued for patent infringement. The Supreme Court held: First, exhaustion is automatic and cannot be overridden by contractual restrictions on the sold article — when Lexmark sold the Return Program cartridges, its patent rights in those specific cartridges were exhausted regardless of the restriction. Lexmark could sue under contract law but not patent law. Second, foreign authorized sales exhaust US patent rights — Impression's reimportation of cartridges that Lexmark sold abroad did not infringe Lexmark's US patents. Both holdings were unanimous and overruled prior Federal Circuit precedents.

Does patent exhaustion apply to authorized sales by licensees?

Yes — patent exhaustion applies to authorized sales by licensees as well as by the patent owner directly. If the patent owner licenses a manufacturer to make and sell the patented product, an authorized sale by that licensee exhausts the patent owner's rights in the item sold. Quanta Computer, Inc. v. LG Electronics, Inc. (Supreme Court 2008) confirmed this: LG licensed Intel to make chipsets, and Intel's authorized sale of chipsets to Quanta exhausted LG's patent rights in those chipsets, even though Quanta used the chipsets in combinations that practiced other LG patents. The key is 'authorized' — sales by licensees who exceed their license scope are not authorized and do not exhaust the patent. Exhaustion also applies to method patents: if an authorized sale of a product fully practiced or enabled the claimed method, the sale can exhaust method patent rights (Quanta).

What is the difference between patent exhaustion and repair vs reconstruction?

Patent exhaustion allows downstream use and resale of exhausted items, but it does not allow third parties to make new patented items using exhausted components. The repair vs reconstruction doctrine draws this line: authorized repair of an exhausted item (replacing worn-out components, refurbishing) is permitted. But reconstruction — essentially making a new patented item — is not. The key factors are: (1) the importance of the replaced component to the patented invention, (2) how often repair vs replacement occurs, (3) the cost of the component relative to the whole article, and (4) the nature of the component and whether it was designed to be replaced. Refilling a patented printer cartridge with ink (after Impression Products) is repair. But manufacturing a new patented cartridge from scratch using only a worn-out housing would be reconstruction.

Can a patent owner ever restrict what a buyer does with a patented product?

After Impression Products, the patent owner cannot use patent infringement law to enforce post-sale restrictions on an item it (or an authorized licensee) has sold — the patent rights are exhausted. However, the patent owner can still: (1) Sue for breach of contract if the buyer violated a contractual restriction (e.g., a resale restriction accepted by the buyer at point of sale). This requires privity of contract and is not a patent claim. (2) Use license restrictions on the manufacturer licensee — requiring that the licensee sell only to specific customers, or only in specific geographies, or only for specific uses. These restrictions define whether a downstream sale is 'authorized.' If the licensee sells outside its license scope, the sale is not authorized, exhaustion does not apply, and the patent owner may have claims against the unauthorized seller. (3) Use other IP — copyright (software on the device), DMCA (anti-circumvention), and contract (click-through EULAs) to impose post-sale restrictions that patent law can no longer support.