your argument next this morning case fifteen eleven eighty nine impression products versus lexmark international mr pinkus thank you mr chief justice and may please the court this case brings before the court two questions regarding the patent exhaustion doctrine also known as the first sale doctrine as this court said in bowman under that doctrine the initial authorized sale of a patented item terminates all patent rights to that i don't and by exhausting the patent is monopoly in that item the sale confers on the purchaser or any subsequent owner the right to use or sell the thing as he sees fit that principle goes back of course to the fifteenth century the common law refused to enforce restraints on illya nations of chattels based on the fundamental insight that you own the goods that you buy and you can should be able to do with them what you wish and that clouds over title hurt the market ability of goods and injure commerce and importantly in the patent context allowing these downstream restrictions to be forced would preempt secondary markets with which check the patent owners monopoly power let me begin with the first question which is whether the authorized sale of an article embodying the patent exhausts patent rights with respect to that article or whether the patent team may impose restrictions in forcible under the patent laws such as on resale repair or reels simply by stating such a restriction in the sales agreement the courts decided to write with that limitation is critical ri law enforce the bill under patent all week there's no question here that contract law with its limitations would allow the enforcement of those restrictions if they were a valid contract this is all about whether the patent law remedies apply specific so i think it was there is really no doubt that when congress an act of the law in one nine hundred fifty two it did so with that knowledge that there was the principle that i ever cited and the bowmen recitation is consistent with with many many decisions of this court dating back to the eight hundreds that say the same thing that when there is an authorized sale the patent rights are exhausted the court said in some cases the the article falls out of the patent laws and all that applies to state law  and most importantly the soul of the court sole decision upholding these sort of restrictions ab dick was expressed lee overruled a few years later in the motion picture patents case so we've not only have the courts consisted enunciation of the doctrine we have the believe was was codified initially although there have been some subsequent amendments that have done that other patent defenses there were there were years for example as the government points out in its brief between the eighteen the late eighteenth hundreds and one nine hundred fifty two there was no infringement wasn't x but explicitly referenced in the patent act but everyone knew that the common law rules the rules that have been developed under prior statutes continue to apply and that there was a remedy for infringement and what its contours were specified by by the court's prior decision so it's an area where there is a lot of the work has been done by adapting a incorporating these prior decisions of the federal circuit's rule on this is twenty five years old has it caused a lot of problems well the federal circuit's rule is old but it's subject to dispute both out commentators were skeptical that a could be reconciled with this court's rule so the practice it industry in this is discussed in the medical device with processors brief for example in the intel brief where counseling their clients not to abide by not to take action based on this counterintuitive that patent holders would pursue that if the court that's going to get every patent cases adopted a particular rule and they're just it would you advise your client well just disregard that well i think what we what what what people were advising their clients was don't impose restrictions based on the idea that they can be enforced because there's a good chance that they can't be in for so many restrictions were not being imposed a few were of course this is very similar to the situation the court confronted in curtseying where the court said there was a thirty year rule that hadn't been questioned at all by decisions of this court and the court said the fact that people hadn't acted obviously wasn't beyond anything that ever anyone has thought possible under this court's precedents let me briefly talk about the the lower court's decisions where it went to stray there were two basic justification one was statutory the federal circuit assumed that the exhaustion doctrine was grounded in the without authority clause in section two seventy one and that therefore congress had given the patentee veto over the scope of the exhaustion  exhaustion we think is best looked at in either of two ways either as a limit on the one fifty two a rights the rights to exclude that are set forth and what the court has indicated is that there are limits on the pad the scope of the patent is right to exclude also hundred fifty two act included in section two eighty two b one a section called defenses that set forth defenses that could be pled and one of those defenses was absent of liability for infringement there to an obvious incorporation preexisting exhaustion doctrine the federal circuit second rationale confused two concepts the ability of a patent teeth to set the terms for a first sale and the ability to impose post sale restrictions we think it's quite clear that just as a patentee can decide for itself who it will sell to it can impose as a condition of licensing manufacturing and sales by others those same restrictions it can restrict who the licensee can sell to justice who it can decide who to sell to but in either case whether the sale by the patentee or the sale by the licensee post sale restrictions are invalid as long as it's an authorized sale any sale by the patentee is of course authorized in the licensee context there's an additional inquiry did the licensee abide by the terms of the license if it did then the the sale is authorized and no post sale restrictions can be enforced  let me turn if i may to the second question the question of international exhaustion that this case raises we think that the starting point here rights to that item there's certainly nothing in the patent act that limits exhaustion to sales us panties within the united states it's somewhat surprising to me that none of the briefs in this case talk about our cases regarding extraterritoriality in recent years we've been we've said very that a statute does not apply outside the united states unless it says that it applies outside the united states i don't see why it should be the same for a common law rule like the rule here and if what's involved here is the application of u s patent law abroad where is the clear statement that the exhaustion rule applies outside the borders of the united states i don't see where that can be found your honor i don't think this is a question of extraterritorial application anything any more than the issue in curtseying was a question of extraterritorial application of the copyright act the question here is whether the patent t's act outside the united states have an impact on its ability to enforce its rights within the united states so that no one is saying that the the sales outside the united states are governed by the u s patent law they're obviously not just as the sales outside the united states under the copyright act are not covered by the copyright but the question here is whether if there is an authorized sale outside the united states authorized by the u s patent ti whether that should have the same exhaustion consequences as a sale within the united states and we think the rationale of curtseying and the broad rule that the court has enunciated dictate that the conclusion here should be yes the same exhaustion rule should apply  in fact it seems to us that the consequences that the court appointed to occurred saying not only do we have an anon ca should have a non geographic rule and the support of the common law non geographic rule that the court  identified in curtseying but the adverse consequences that the court pointed to or even more dramatic here because of the fact that patented articles are often combined other goods through a global supply chain and as a number of the briefs talk about just think about a situation where a phone is assembled in china with patented chips old from taiwan a screen from china and hundreds of other patented components from all over all of the sales of those  components consummated outside the united states the consequence there was that would be that if that final phone is sold into the united states all of the sellers resellers and users of that phone would be subject to patent infringement liability if the us rights were not expressly licensed u s rights for sale not express the license for just one patent in that huge aeration of patents that were embodied in that object same for a car assembled in canada the cards the impled that the court used in its opinion in curtseying applies equally here an ignition from germany a brake system from the united states everything sold and put together outside the united states and then the car brought into the united exceptions and we have the additional problem in the patent context of patent assertion entities that the court has referred to that are the argument the other side which i think this is a more difficult part i absolutely see your point in both instances where the u n or the other side wins we're talking about something that happens where there is a lawsuit in the united states and there was a restriction that the patent he imposed he said anyone who buys my w cannot resell it to smith or jones or anyone who buys my widget if they resell it has to put a big red sign on it some kind of restriction if somebody fails to do that so they sue likely in the united states that in any case they're suing under american guess either way they're suing under american law and this person has violated the patent or he hasn't violated the american path and we start talking abroad you are quite right i think money for that first sale under let's say a german patent and they have not received any money on this american patent so they say well how could you be subjecting us to a rule that that for sale exhausted our right to money under the american patent when we never received any money under the american pop now what is so there's one thing one way and there's one important thing the other way so how do you react well my reaction is that in many of the contexts in which this issue arises it's really not quite right that the u s first of all just to to be sure we're on the same stage these are all sales that are authorized by the u s patent so at the end of the day the u s patent he has control over whether whether or not all sales were authorized in the one sale it was sold in bavaria under a german patent and not only was it authorized by the american but he said i love it and so what i want you to do is whenever you use it you put a big red sign with my name on it all right there's a condition and so the question here i think what your question goes to is do sales in foreign countries under different laws allow the u s patent d to recoup the value of his patent oh i'm saying do sales under foreign laws in foreign countries that's the question once there is been such a sale does the patentee still have the right under his american patent to restrict the use of that widget that particular widget bought by the buyer in theory and our submission is no i know your submission is no and i'm just trying to get your answer to their that whatever you think of the u s is a big difference here they haven't gotten any money back on that and that's why i was i was talking about their whether or not they had gotten the argument on the other side i think is we haven't gotten the value we would get if we sold our product into the u s so there are a couple of answers to that first of all in the global supply chain context which is where most of these situations arise the fact is the sales may take place of the components in a particular country but they're part of a huge supply chain that's flowing to produce finished goods that are then going to be distributed to a large number of companies companies that sell that either license their patents or sell components into that supply chain know full well that this is a global chain and that they're  getting value that's country specific they're getting a value that is essentially the average of the value in all the places where the patent is going to be used because that's what they should demand because that's in fact the market into which they're selling the end use product is a different situation there certainly are products just as the books in curtseying that are being sold into a particular market and i think there are a couple of answers to that one is a there are non pat constraints packaging labeling contract requirements that may the ability of those products to be transept into the united states be there are a lots of different things that go into  whether or not someone gets how much of value one gets in the copyright context for example although the legal rules may be more even the enforcement of copyright very principles varies dramatically in different markets as does the wealth in different markets and that affects how things can be sold and lastly as the court pointed out so i think there are constraints that protect the us patente and in being able to demand the value attributable to the u s pa but lastly as the court said in court saying price discrimination may not necessarily be something that's guaranteed under the patent laws at least as they are currently written congress could change that are i've heard read in re read that and the whole concept of the first sale doctrine in my mind is that the value is whatever you get for their product and whether you have a u s patent or german patton or whatever you're still getting value for that idea for that discovery for that whatever creative moment that you had that results in this final product so i'm not quite sure i understand the question of this you know you haven't received you for the german i agree with your honor i think you have received value and because we are hypothesising a situation where the u counter arguments policy questions here on both sides there are serious issues with this rule and its consequences how do you address all the negative consequences that your appears to be creating well i think the principal negative consequence that that my friends on the other side in the army key point to is this question of price discrimination and i think we've talked about that another issue that's raised in some of the briefs is safety food and drug drugs and medical devices as the briefs discuss the the f d a has full authority to prevent imports under twenty one u s c three eighty one of devices and to regulate reuses of devices and drugs so broad authority where there are those risks in the safety areas another argument that's made on the other side is that there will be a disruption of settled expectations for the reasons i don't think they are those expectations are legitimate but if they are because i don't think the rule has been settled on international  exhaustion but this court unless this court is going to not be able to overturn decisions of the federal circuit the fact that the federal circuit has decided something can't be sufficient to tie this court's hands in doing that if you look at the alice case for example that obviously tremendous implications for both for patent t's and for people who had entered into license agreements and were paying money for patents that turned out to be invalid but that was just a consequence court getting the law right so i don't think on the policy level there's a lot on their side and i think congress can address those issues if there are specific problems i'd like to reserve the balance of my time i may thank you counsel stuart mr chief justice and may it please the court i'd like to address the domestic exhaustion issue first and i'd like to begin by responding to justice kennedy's question about why hasn't the exhaustion doctrine  court's historic cases in the domestic exhaustion field have located the exhaustion principle in the language of the predecessors of what is now thirty five u s c one fifty four a one that is the provision of the patent act that says the patent owner has the right to exclude others from making using selling offering for sale or importing the patented invention and in addressing predecessor versions of that language this court said those exclusive ri in essence don't income plus the right to control resale or use of a lawfully sold article for example and power and see versus o'donnell the court said address the proper interpretation of the exclusive right to vend and it said the right to vend was exercised when the first authorized sale was made the right to vend does not encompass the right to set resale prices in motion picture patents the court said that its task was to determine the meaning of congress in an acting the predecessor version of one fifty for a one in order the other cases the court has referred to lawfully sold articles as being no longer under the protection of the act of congress or that the exhaustion rule that limits scope of the patent grant so it's true that the patent act doesn't contain an analog to seventeen u s c one hundred nine a which is the copyright act provision that specifically addresses the scope of exhaustion but the exhaustion doctrine has historically been understood by this court as a gloss on the exclusive rights conferred by one fifty for a one in its predecessors and unless congress wanted to change the exhaustion rule either to give get rid of it entirely or to congress should be understood to have manifested its intention that historic conceptions of domestic domestic exhaustion would continue to have sway now the second point i'd make about domestic exhaustion is that the court of appeals error in our view stemmed to a large extent from its misreading of general talking pictures general talking pictures dealt not with a and not with simply a restriction on the use that purchasers could make after an article had been lawfully sold it dealt with the conditions on which its patent to use licensee could sell the article in the first place and that the exhaustion doctrine is also often referred to colloquially as the first sale doctrine and i think that's a reason there's a reason for that it's that the presence or absence of exhaustion turns on whether there has been a lawful for sale and if the licensee departs from the instruction of the patentee and sells the article in a way that is not authorized there is no lawful for sale and therefore no patent exhaustion but once the article has been lawfully the sold any restrictions on resale or use that the patentee purports to impose downstream can be enforceable only under contract law or commercial law not under patent law and that brings me to my third point about domestic exhaustion which is one of the arguments on the other side is on the respondent side is that application of domestic exhaustion principles here would prevent parties from reaching agreements that might be economically advantageous to both of them and so the respondent says well if i have a particular buyer who only wants to use the cartridge wants and doesn't want to pay extra for the privilege of reusing it if he never intends to do that why should we be able to negotiate a deal under which i charge him less on in return for his commitment to only use it once and the answer is nothing in the exhaustion doctrine prevents parties from reaching those agreements and enforcing them as a matter of contract law if they are enforceable under the law of the relevant jurisdiction that the policy judgment that this court has historically attributed to congress is not a judgment that these sorts of restrictions are bad or should be unenforceable it's simply a judgment that possession of a patent does give the patentee any greater rights to make or enforce restrictions like this th a seller of similar on patented property would have under the rules of general contract law and so in several of the exhaustion decisions the court has distinguish between the limits on patent remedies and the alternative that might be available under what the court is often referred to as the general law the body of contract in commercial law that applies to all sellers as like to turn now if i may to the question of international exhaustion and the position of the united states on  to make clear the limits on the principle that we're advocating that is we're not advocating a rule under which simply by manufacturing and selling oversea is the patent he could impose continuing downstream restrictions on the use of the good ones that has been illegally imported and sold into the united states that is under our view if if lexmark had said we'll sell you these cartridges in canada and you are authorized to import them into the united states and sell them in the united states but they are still for one use only and you need to put labeling on the package warning your consumers one use only in our view that restriction would be no good because there would be authorized importation into the united states say authorized sale in the united states and at that point the courts domestic exhaustion cases would kick in and so the patent to use choice it on our view of international exhaustion is all or nothing he can say i don't consent to importation into the question i mean the cook had that very question in mind i think of the that one of the problems with the restraints and alienation of chattel is that the buyer may not know  and moreover it stops competition among buyers those that they see two things that have led that is a kind of underlying principle well what about it well as a way to put a sticker on every toy dizzee have to put a sticker out how would how does it work again as i say if what we're talking about is a sticker that warns if the product is sold in germany and the patentee wants to warn consumers and joe they can only use the product in the following way you can put the sticker on and whether it's in forcible and if so by what on our view by whether the patent he has explicitly reserved its right to exist and i mean you don't have to i don't understand where does the reserve this right it's a right that he wants to enforce against joe smith the consumer who bought from a german grocery store fourteen pattison bouncing fountain pans ok now that's who he wants to enforce it against that person who comes back from germany into the united states and that person i do not know what you're talking about you see don't worry there had to be an express reservation so the question i thought was where is it a sticker or not typically i think it would be it would be an expression reservation in the sense of a ban on  importation and so the express reservation would be communicated to the buyer you could additionally require that here and how would it be communicated to the buyer well that the initial buyer from the u enter into a contract with the us patent to you and presumably had no now then you agree or for that but that is very much contrary to what three hundred years of restraints on alienation had in mind one of the problems was that people who buy these things namely those who go into the grocery store or whatever don't know that they can't bring it back to the us or they don't know that they can't do this or they can't do that or have to have the red sun or whatever and you don't have an answer to that i take it well if you it first at a certain level anyone who by his patented products takes the chance that the person who sold those to him has no authority to do so or has  his authority and so if the patent these buyer the direct purchaser was told no importation and that business in germany then conveyed the goods to a consumer and failed to pass along to the consumer the restriction on importation then that that's not different in kind from the chance that the consumers take regularly that there is something wrong with the chain of patent title that the initial authorization was not good what is the basis for this compromise position is just the balancing of the policy considerations on both sides i mean it's partly policy based but it has to to the extent that there has been a rule in the lower courts this has been the rule for the last hundred years patent to use have the capacity with the government at least in one sense and that is that judge toronto's opinion for the federal circuit properly looked to the statute to find the origins and limits on the exhaustion doctrine the pad neck defines how patent rights can be acquired what they cover and how they're infringed and as to infringement the statute provides that infringement occurs when someone makes cells uses offers to sell or imports into this country and a patented article without authority from the pa owner now there's been a lot of talk about authorized sales exhausting patent rights but the you have to ask yourself an authorized sale of what when a patent he sells a product without saying anything about it normally the under the normal understanding as well you're selling everything you have but there is no there is no decision of this court that says that you have a patent he necessarily has to sell everything he has the going back as far as the mitchell case in the nineteenth century it's clear that there can be conditional transactions and conditional in the sense of restrictions on use the restriction there was a temporal one you can have this machine and you have the right to use it until the original patent term expires and then somebody else has the right and you're an infringer after that there was a mention of general talking pictures and i think that's a good starting off point there are different ways that pat convey their right there exclusivity rights or authority to do what they have the exclusive right to do and the two most prominent ways are of course licenses and sales now it's undisputed that when a patent he conveys patent rights without an associated product that isn't a licensing transaction the parties are free to agree to buy as much or as little of those rights as they want they can they can divide geographically they can divide it up by field of use that's general talking pictures they can divide it up temporarily that's michel but what one pad writes are conveyed with a product we're told the parties lose that freedom they have to it they have to sell all or nothing now the government adopts that position domestically but not on the hunt for foreign sales and i'll turn to that in a moment but i want to want to highlight why this matters at a policy level conditional or limited sales and licenses play an important role in furthering the patent act objectives of fostering innovation and disseminating innovations to the public and a good starting point for that is in january the department of justice and f t c issued new licensing guidelines and those guidelines say this field of use territorial and other limitations on intellectual property licenses may serve pro competitive ends by allowing the license or to exploit its property as efficiently and effectively as possible now the amiga give some examples of why this is so the law in economics professors for example give the example of a microchip that has a variety of potential uses that could be used in a powerful computer could be used in a video camera could be used  other other applications now the result most consistent with the goals of the patent act is for that new technology to be used wherever it's useful wherever it wouldn't increase consumer welfare but if you cannot have  use restrictions that are enforceable downstream that's not going to happen white wire is normal contract law in normal state want you know adequate for your purposes well here's why and actually i was just getting to that mr chief justice in the in the the micro chip example the if the logical or economically rational outcome if you can enforce these restrictions is to sell at a price that makes sense for the video camera maker at a higher price it'll make sense for the computer maker because they're using more of the capabilities of of the new technology but if you can't if your only remedy is contract and you can't enforce these limitations downstream well then what happens is  the video camera market of chips are going to be you know there's going to be an arbitrage and they're going to be flowing to the computer market why can't you enforce the contract downstream well because you don't have pretty justice prior that don't you require the person who sells it to just resell it with the requirement that they promise not to you know whatever it is wealth of the end and that's in effect what what happens here but then you're talking about down downstream who knows how it's hard to get away with that is the anti trust laws in the contract area and another reason is because lord cook said three hundred years ago you know it's get into a lot of trouble when you start trying to restrict this buyer who's got the widget and he would like to use it as he wishes now that's been a kind of basic legal principle for an awfully long con well let me let me comment on that because it's certainly true that that's what lord cook said in the seventeenth century but there are a couple of points i'd like to make about that one is what lord cook said in the quote that in the curtseying opinion for example is that when someone sells his whole interest he can impose a no restraints because his whole interest is out of him what we're talking about here is not selling your whole interest the whole interest is the reserved question i see your point there if you want to continue to make it from this go ahead good good finish because i don't i think i interrupted well that's your prerogative of course what we're talking about here of course is not selling the whole interest the whole interest in a patented article is both the title so to speak to the physical material and the bundle of rights that go with it the other thing i would say on the lord cook issue in the  hundred years of common log just prior is that the coming lot changed a lot after lord cook and curtseying the important issue was art was there a geographic restraint that congress should be assumed to have adopted or have rejected be the common law and that in the seventeenth century was fine for that purpose but as judged or antos opinion for the federal circuit points out as a number of the meet the point out common law evolved quite a bit after the seventeenth century both in this country and in england in particular with respect to restraints on alienation of chattel both patented and i'm patented there are there are quite i mean i agree that there are all kinds of exceptions that go back to your basic point underlying this of course any monopoli including a patent would love to be able to go to each buyer separately and extract from each buyer and use or the maximum amount he would pay for that particular item dentis would pay more for gold perhaps than someone who wants to use gold for some other thing ok they'd like that but by and large that's forbidden under many loans even though it does  slightly restricted output and it also means a lower profit for the monopolist or right now it's against that background that i think the law and economics professors who are telling you what is correct that and the argument that you're making has to be evaluated that's who i think on the first part of all this precedent is very hard for you to get around and i'm not talking about just lord cook i'm talking about the supreme court precedent well that and on the supreme court precedent let me go back to general talking pictures which i started to talk about it a few minutes ago it's clear that a patent owner can limit the licenses it grants for example there it was the the patent owner granted a license which basically said to the licensee you can have the whole market i'm reserving the commercial theatre market for myself and now the government's and impressions position is well as long as the license see soul to somebody who said he was going to use it in the home market that's an authorized sale and then if so if something if that person or somebody further down uses it in the commercial market that's that's not a problem but the question is you know and this goes back now to michel michel said nobody can convey more than they have that's why in michel the licensee could not convey the right to continue to use the pad machine after the expiration of that first period which is not a right that he had the same is true of the licensee and in a general talking picture scenario he could he could convey the right he could basically convey authority to use it in the home market and that's what the patent he was compensated for in that sale but he could not convey a right he didn't have which is to use it in the commercial market so that and that right was retained by the patent he was not compensated for it and yet supposedly because there was an authorized sale there's no infringement and that's that's why i say you have to ask an authorized sale of what it's the physical product along with the particular rights that me a cup that the p unwitting consumer who doesn't know that they're they're buying a product that you know that were perhaps some of this is lorie was withheld that's really that has an actually nothing to do with exhaustion doctrine one way or the other that is and i think mr stewart made the point that's really a consequence of strict liability for patent infringement any time anyone buys a product when you bias you buy a samsung smartphone to take a recent example you  know you are assuming maybe to the extent anybody outside of this room actually thinks about whether patent rights might or might not apply to an article maybe you're assuming that it's to the extent there are patents nobody you know everybody has authority to do what they're doing but it's only an assumption you have no reason to to know that you are not infringing a patent and frankly i think most consumers don't care because those claims are not brought against consumers and unlike the copyright area where there is at least the theoretical possibility of impression has no reason to think it started with lexmark so to the extent that they are exhaustion would enter into anybody's thinking they have no reason to think well i'm good because this there was a for sale of this cartridge by by it's got an impression stick around it and to the extent that to the extent they're thinking about it they should be thinking the same as anybody who buys a knockoff product thinks i may be infringing but it's cheap so i'm not going to worry about it so this is th e downstream concern i think it's not a practical concern because it doesn't happen the patent litigation is too expensive and most commercial enterprises don't want to want to go around suing consumers and it's not a function of exhaustion law in any event the risk is there and it's not avoidable the let me turn to the foreign issue and and here we agree with a lot of the premises of the government's argument and the government said one thing in their brief this is a page twenty seven of their brief and it's it's i think really sums it up it said the us penty is entitled to one premium for forces forfeiting his exclusive right under u s law to prevent the sale of his patented article in the united states and that's really been the premise of the exhaustion doctrine that the notion is that the authorized sale of a patented article putting to one side what authorized sale means lifts the legal restraints that otherwise would limit what the owner of the article could do with it causing the article to no longer be within the bounds of the patent monopoly phrase that we hear a lot in a lot of the cases and the proceeds of that sale are the panties reward for lifting those restraints that reasoning doesn't work for sales outside the united states the sale doesn't lift any legal restraints that otherwise would have limited what the buyer could do because the u s patent has no force overseas and it's not the article is not coming out from under the monopoly of the u s patent because it wasn't in it to begin with again because the u s patent has no force overseas and so that it's in that sense a just a sort of my are you asked about why isn't the patent he receiving his reward that's why because there are two disks if you're assuming patents into two countries first of all they may or may not cover exactly the same thing on like copyright there's a lot of variation but there are two bundles of rights and the panty is giving up one in germany i think was the example and being compensated for that but not giving up the other one because the other bundle of rights really has nothing to do with that transaction would about the argument on the other side about the complexity of the use of products with literally thousands of different patents and if you're allowed to impose restraints line it just gets too complicated in the consumer will be violating patents all the time without knowing it  mr chief justice i think first of all again to the extent we're talking about consumers it could become it's i made before i think apply no matter where the products started but there's this notion of concern about tracing the proven all these components it exists under under anybody's rule because under under the government's rule of course you do have to have an express reservation so you've got to figure out whether there was an express or a survey ship under impressions rule everything hinges on an authorized for sales somewhere of each and every one of these components it's an authorized a sale authorized by each and every one of these supposedly thousands of panties so if you are let's not use a consumer bill let's say you're  producer of some sort of a product that has all these components and you really are concerned about patent potential patent infringement liability well you have to go through this tracing exercise anyway and figure out whether you have to you know find out whether everybody was licensed or what the terms of the license might be or not there yet there are there mikee two things one they say look people have authorized dealers and anyone who's in business knows you want to be safe but from an authorized dealer that isn't a big problem on the other hand if you are a consumer or near to it is and i don't think i followed quite what you're saying if there is a first sale rule no you know for sale no problem your only problem is you bought it from a guy who didn't have a patent in the first place so book by a from g e or buy it from amazon or buy it from somebody you know you trust and that's the end of that but if there is no first sale there we are got to have the red sign gotta have can't sell it here can't sell it there can't sell it some other place who knows what because now now that's the kind of confusion and of course there is no sticker that's the kind of confusion that they're afraid of justice brier i don't i don't think that that is the real problem if you're but you're buying from an authorized dealer sure you know i buy an apple i phone from an apple store what i know is well apple's not going to sue me for infringing apple's patents and because i trust apple i trust that they've got an authority from the thousands of other folks but but it's only an assumption and so so you may have you may have some peace of mind but to truly have certainty you've got to do this this tracing exercise anyway and that and that actually brings up another point and this is the point the government made and this applies both to consumers and to commercial operators of course there are a lot of protections against this this concern about infringement liability the u c c to dash three one two basically is a war any time a merchant sell something he is warranting to his customers that it does it does not infringe so there is a warranty remedy there and also you know the authorized dealer presumably will stand behind that in addition as the court of appeals noted it and i should take a step back this case does not involve any unknowing parties the stipulated facts here are that every one of l  marks counter parties knew the terms and agreed to the terms in a valid and enforceable contract and that impression knew that these are cartridges were licensed for single use only and that that you said had already occurred so on the facts of this case you don't have that and as judge toronto noted for the federal circuit to the extent that you're worried about downstream in a so called innocent consumers or merchants you also have issues besides you see their bona fide purchaser doctrin copyright and patent and one point i would start with just a sort of my are is that the scope of copyright protection although the remedies may vary from country to country the scope of the protection is virtually identical to in all the countries of the berne convention which is virtually all of them that is it's you don't have to guess about what is or is not subject to the copyright you know patent protection is very different there are inventions software inventions for example can't be patented in some countries they can and others but the scope of patent protection is very different from country to country so the there are already a host of differences the duration of the copyright duration i that seventy years plus the the after the death of the author for example patent protection of course is much more limited in time it's also easier to identify because you have examination requirements you know registration requirements you don't have any of that with copyright so there already are a host of differences and in the marketplace that they're dealt with in the same way what we know from the immediately on both sides here particularly that the ones with the global supply chains intel and sandusk the impression side i b m and qualcomm on the on our side they do they get global licenses to protect their themselves their get their con or parties consumers that's the way it's done it's done that way for copyright it that way for patent and and i think i b m made this point particularly clear with respect to the international area qualcomm address both international and domestic you would be upsetting settled expectations particularly in the international area if you adopt either impressions rule of automatic mandatory exhaustion that you can't even contract out of or the government's rule that has the expression exhaustion requirement because i think i b m put it there are hundreds of thousands of contracts that have been entered into based on the federal circuit's ruling and j s photo which was which was unquestioned since two thousand and one and even intel and san disk say yes we are car contracts reflect this so i think this is a particular area to move cautiously because what you're talking about here are the you know international trade matters where the impression rule would essentially put the united states basically the united states would be saying unilaterally blanket international exhaustion is great let's do it do we care if other countries reciprocate apparently we don't because we're just willing to do it because we're good guys that's not the way international trade issues like that should be decided on the domestic side qualcomm and others make the case that in fact parties have been relying on this of the in the by a pharmaceutical and pharma briefs they point out that they rely on this in terms of providing research quantities of new compounds to universities and others there are there is that there can be a difference between the human and veterinarian markets for certain compounds and allowing conditional sales and conditional licenses it to be enforceable via patent law facilitates that sort of dispersion of the technology which in turn fosters innovation beyond that first level of innovation so i think  the this notion that nobody was was doing these sorts of things because they weren't sure this was the law it's not factually true we know that from the m e t and also as a matter of common sense you really i think if you're a patent owner and you really want to exploit your invention and you've got federal circuit precedent saying you can do it the fact that somebody the fact that maybe later down the road even if you thought there was some doubt that later down the road that this court might say well no you can't do that that's not going to dissuade you from doing it because it's not going to make it illegal it's just going to say well we thought it would work and it didn't work so this notion that nobody was doing this because of uncertainty about the federal circuit precedent in area i think is implausible now let me talk a little bit more about the government's position on expressing reservations of u s patent rights in the in the foreign area specific disruption of subtle expectations what that would do is it would basically insert u s patent law into every transaction involving any sort of product that might be covered by s patent rights under that express reservation rule if b m w a german company that has u s patents wants to sell a load of cars to a distributor in slovakia well they need to negotiate about and include in that contract up apparently a reservation of their u s rights because otherwise if those cars somehow make their way into the u s they're unprotected even if they wanted to sell one car to a buyer in munich they presumably would have to do that because otherwise that there they would be exposed if that car makes its way to the u s so that doesn't there's no reason why u s patent law or u s patent rights should even enter into the thinking of parties are entering into arrangements overseas with with no intention or expectation that they're going to find their way to the u s and that approach would also make the enforceability of u s patent rights dependent on  really on the whims of foreign governments and on the details of foreign law if the reservation of rights is a term of a foreign agreement and i think that's that's where mr stewart ended up just as prior in response to your questions well it's to govern by foreign law and for all we know it may or may not be enforceable as a matter of the law of that particular foreign country and we know that certain countries and india is an example that's been given will do things like impose mandatory licensing requirements on patent foreign patent owners or require that foreign companies partner with local companies it's if a new express reservation requirement is announced there's every reason to think that other countries may take steps that undermine or make it very difficult for us pantries to in fact protect their rights in this country so the and as i think some of the in the key point out if you are an announcement your rule sophisticated u companies to the extent they can consistent with with foreign law will reflexively probably included in their contracts leaving only unsophisticated smaller u s companies exposed the ones that perhaps don't have a expensive lawyers and detailed global sales operations let me finally turn to the good return to the question of why contract remedies aren't aren't suitable or an adequate and let me say first of all that in a couple of this court's cases and it goes back to keeler and hobby in the nineteenth century and then picked up in some other cases there is that the court makes the comment after finding that a particular was unrestricted korten says if the pantie wanted to protect its distributors because these those cases involved exclusive geographic distributors they could have done so by special contract but not as a matter of the inherent meaning and effect of the patent laws or words to that effect now i was just trying to explain the point there was not that you could only do it by contract and if you did it you would have only a contract remedy the point was that patent rights are conveyed by means of contract and that doesn't mean that if that contract is breached it's only a contract remedy a license agreement is a contract that conveys u s patent rights and as this court held in mitchell in general talking pictures and other cases of violation of a license term a contract term does give rise to an infringement remedy so they're not mutually exclusive and i don't think that's what the court meant in those passages i think what the court was saying is if you want to have restrictions you've got to make them express then they can be enforceable as a matter of law but in those cases there were no restrictions and now the besides that prove any problem with a contract remedy you also can't get an injunction and an injunction is particularly important when you're dealing with large scale infringers like infringement here that gathers up the the use cartridges remanufactured them and then sells them on a commercial scale a contract remedy first of all we don't wouldn't have a contract remedy against infringement we never had any contact with infringement  with i'm sorry with impression other than in this lawsuit and the so we don't have privy we're not going to go suing our individual customers not only is it bad business but it's not a particularly efficient use of resources the effect remedy of the remedy we got here as a foreign sole cartridges at least was an injunction and that's the kind of remedy a patent owner needs to protect its rights the court has no further questions thank you very much thank you counsel these kinds of restrictions because they've been up noxious from lord koch state to our to our own i want to talk about this this question of the risk to the downstream resellers and buyers because it's patent law there always is some risk that the initial sale won't be authorized but i think the difference between the two positions here is once there is an initial authorized sale that's the end of the inquiry under the test that that we propose under my friends test even if there is an authorized sale if there are these other restrictions they continue to flow down and therefore the group of downstream users and buyers who are subject to risk becomes much much greater on the question of patent and copyright i think the critical point here is not that the laws differ from place to place but with respect to an authorised first sale it would be very sensible to have the same rule apply for authorized sales authorized by the us rights holder overseas for both bad copyright because then there would be certainty that once there was an authorized sale both the pa n and the copyright rights were exhausted and so i think that's that with respect to to us rights and i think that's that's the critical point there and i think the other thing that's important to recogniz patents that is a difference is while lexmark is a is a well known company that has brand issues to contend with in terms of the suits it might bring against its customers and downstream users the court has recognized as i said before that in the patent context unlike and that's that's the evil that that we're worried about the court has no further questions thank you thank you counsel cases submitted