Exhaustion v. Non-Exhaustion — Deciphering the Federal Circuit's Lexmark Decision and Its Implication on Technology Transactions

On February 12, 2016, the United States Court of Appeals for the Federal Circuit issued its en banc (where a case is heard before all the judges of a court) decision Lexmark International, Inc. v. Impression Products, Inc., which confirmed that, despite recent decisions of the United States Supreme Court supporting exhaustion of intellectual property rights after the initial sale, the Federal Circuit’s patent exhaustion jurisprudence enumerated in its prior rulings, remains good law. This long-awaited decision has a significant impact on licensees and licensors and acquirers and sellers of intellectual property rights and creates traps for the unwary when structuring and negotiating technology transactions. This article intends to reconcile the holdings of the Lexmark decision and prior Supreme Court cases, taking into account the overarching legislative framework, and provide guidance on how to draft license, distribution, services or sales agreements to avoid unintended exhaustion or non-exhaustion of involved intellectual property rights.