Wednesday, May 31, 2017

On Patents, Printers, and Consumer Behavior

Yesterday, the U.S. Supreme Court ruled on a very interesting case. Lexmark argued that 3rd parties refilling their ink cartridges was a patent violation. The Supreme Court took this case as an opportunity to further define patent exhaustion - the point at which a patent holder can longer control what happens to an individual instance of their patented product. According to the court, refilling ink cartridges is not a patent violation because once an individual purchases a product, what happens to it after is no longer in the patent holders control:
Lexmark’s rights to control the use of its patented refillable print cartridges would be “exhausted” when it sells those cartridges to retail buyers, even if Lexmark conditions the sale on the promise that the buyer will not refill the cartridge. That, at any rate, is the argument of Impression Products, which makes a business out of refilling Lexmark cartridges in violation of those agreements. Lexmark’s argument, by contrast, supported by a quarter-century of Federal Circuit precedent, is that modern commerce requires that innovators have the flexibility to devise contracting structures that segment the market into separate sectors, each of which gets a different price commensurate with the uses to which products will be put in that sector.

[T]he court concluded that “extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain.” The court pointedly noted that “increasingly complex supply chains [well might] magnify the problem,” offering a citation to an amicus brief suggesting that a “generic smartphone … could practice an estimated 250,000 patents.”
In a sense, the case is one about control - do companies have control over what happens to their products after someone has purchased them? Specifically, can companies control the behavior of consumers. You can understand where Lexmark is coming from: they're missing out on extra sales if people can simply buy their cartridge once and refill it. But printer cartridges can be expensive, so you can also understand the consumer's behavior here. This ruling will obviously have an impact on the behavior of companies as well as consumers. Third party companies are liable to test the boundaries of this ruling. And I would imagine Lexmark (and other companies manufacturing printers) are going to look for ways to redesign printer cartridges that can't be refilled.

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