Summary of Arument
Up until the decision of the Federal Circuit in Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), the preponderant weight of judicial authority in the United States, including of this Court, was in favor of international exhaustion of patent rights. The decision of the Federal Circuit for which certiorari has been granted, Lexmark International, Inc. v. Impression Products, Inc., 816 F.3d 721 (Fed. Cir. 2016), affirms its Jazz Photo decision, and it would continue enabling post-sale restrictions based on patents. This Amicus urges the Court to overrule the Federal Circuit on both aspects of that decision.
This means adopting a rule of international exhaustion of patent rights for the United States consistent with pre-Jazz Photo jurisprudence, and prohibiting post-sale restrictions based on patent.
A fundamental flaw in the approach of the Federal Circuit involves its reasoning that a rule of territoriality of patent rights precludes U.S. courts from taking into account activities of U.S. patent owners outside the United States. The international agreements governing the international patent system do not prescribe such a rule of territoriality. By recognizing that first sales under the authority of U.S. patent owners outside the United States exhaust U.S. patent rights, this Court would not in any sense be subjecting U.S. patent owners to application of foreign law, and would not be impinging on the authority of foreign sovereigns.
The rule of independence of patents prescribed by the Paris Convention for the Protection of Industrial Property provides that acts taken by patent authorities in one country do not affect patent rights in other Paris countries. Recognition by this Supreme Court that first sales in foreign countries exhaust U.S. patent rights would not affect patents granted outside the United States. The World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights permits the United States to adopt international exhaustion of patents. Contrary to the view of the Federal Circuit, three trade agreements entered into by the United States that address first sales outside the United States at most require this country to provide the means to enforce contracts limiting imports. Adoption by this Court of a rule of international patent exhaustion would not contravene any such agreement.
This Amicus supports the general case for international exhaustion of patent rights and elimination of
patent-based post-sale restrictions. This Amicus has expertise in the global regulation of pharmaceutical
products, including with respect to patents and other forms of intellectual property, and much of this brief addresses the exhaustion issue with respect to patented pharmaceuticals.
By allowing parallel importation of U.S.-patented pharmaceutical products, this Court would enable price competition from imported FDA-approved products manufactured outside the United States with the consent of their U.S. patent owners. The introduction of parallel import products is likely to have a modest downward pricing effect. The United States is a large pharmaceutical market, and the supply of U.S. patented pharmaceuticals from abroad is, and will remain, limited. The fact that parallel imported pharmaceutical products are likely to have a modest effect on U.S. prices is not reason to preclude them. Parallel imports may be one useful and important step toward moderating patented pharmaceutical prices in the United States.
The United States should continue to encourage low-priced supply of U.S.-patented pharmaceutical products to low income countries. Suppliers of such products may restrict exports from low income countries by contract, and such contractual provisions should be enforceable, including in the United States. Governments in low income countries may adopt legislation to limit exports of products supplied under discounted pricing programs consistently with WTO rules. If necessary, the United States could also limit imports from designated low income countries, or imports previously supplied under designated programs, under WTO rules. The United States should not forgo the benefits of a rule of international exhaustion of patent rights for the limited purpose of enabling price discrimination with respect to one specific category of products.