Supreme Court Bars Patent Holders from Blocking Resales (Audio)

are Robin Feldman. She is the director of the Institute for Innovation Law at you See Hastings Law School. She filed a brief that urged the court to reach the result that it did. And Gregory Dolan, he's co director of the Center for Medicine and Law at the University of Baltimore. He filed a brief urging the court to rule the other way. Thanks to both of you for

joining us. Greg, Before we get into all the important legal questions in this case, can you just explain to us who was involved in the case and what the dispute between the two companies was. Sure um um the case to come and it's both involved in making printer cartridges. UH. The plaintiff lex Mark. They make printer cartridges that many people using their printers to um print documents and um

as many people know. These cartridges have ink or other materials that me and eventually cards just run out and they can be You can either replace the whole cartridge or you can refill the old one and um you know, reuse it. And the issue in this case was whether or not um these cartriges could be refilled. Lex Mark had two ways of selling their initial cartridges. They either sold it to their customers at full price does and

then customers could do them what they wanted. They could throw them out, they could readfill whatever, or they sold them at a significant discount about discounts on a condition that they will not be resfiled, and then instead the cartridges spent cars will be sent back to lex Mark

UH impression products. They defended in this case until these old cartridges, both the ones that were sold in the United States and the ones that was all the broad whether or not they were under the first or second program, and refilled them and then sold them obviously for cheaper than the original manufacturer, and that was a dispute whether or not doing so violates lex marks, patents and Robin.

How did the Supreme Court come to its decision today is a big win for free enterprise, which is reflected in the language throughout the Supreme Court. Under patent exhaustion, when a product is sold, the patent right ends. In other words, if I buy a hammer, I should be able to hit any nail I want, or resell it to anyone I want. Anything else creates bottlenecks in the

flow of commerce, and it comes up the system. The Supreme Court decision spoke in terms of an auto repair shop in a way that should make sense to all consumers. If a car owner drives into the shop, the repair should be able to fix the car and not have to worry about invisible restrictions that might exist on each tiny component of the car. The Supreme Court said, patent system doesn't work that way. When you sell an item,

that's the end of the patent right. Greg. Based on the brief you file, I'm going to guess that you don't agree with that reasoning. If I'm I'm right, what what is the court said that's wrong? Well, I don't want to go too too far in my disagreement. I think Robin is right in part in a sense that there's certainly a huge value and there's certainly this badground notion.

Once you sell your patented product, that product should be able to move in a stream of commerce downstream, and I shouldn't have to you know what, I buy use cars. That case, maybe I shouldn't have to go and try to figure out whether each and every one of those components, you know, what is the patent status. That makes sense,

and so I agree with Robin on this point. The issue though, is whether or not it also makes sense to have these kind of dual tracks, meaning that the people who bought the car ship with sign you can discount whether or not it makes sense to offer the same product at multiple price levels in exchange for transferring

different set of rights. And for some people it makes sense to pay a full price uh and get the right not just to use, but to resell, but for others makes sense to pay less but not necessarily have a right to resell. And so since with the starting with the chronalogy, I would offer another one. It's the kind of difference between a buying of a car and then you can do with it whatever you want. You can gift it, you can keep it, you can crash it whatever you want to do with it, and lease

in a car where certainly can use it. But you don't have full and unrestricted price to resell. Yes, return it to the dealership once a time myself and I think that, and you pay different prices, and I think that's also a good way and a benefit to consumers. Do you have both options? We are talking about a new Supreme Court ruling that says that once a company that has a patent sells the product, the company has has used up its patent rights in that product and

can't event a product from being resold. That's just out today. Our guests are Robin Feldman of the University of California's Hastings Law School and Gregory Dowan of the University of Baltimore UM. Robin. A minute ago, greg was was essentially saying that this ruling will limit the flexibility that patent holding companies have. They won't be able to prevent provide consumers with the kinds of options that the that lex Mark, the printer cartridge company did in this case. What do

you think about that? So the Supreme Court essentially said you don't get the higher price option the higher price option is only when you are using patent rights when you're not supposed to that that's what you're not allowed to do. Uh. You mentioned earlier though, about a trend for this decision, and I completely agree. Today's decision is another loss for the Federal Circuit, which has become the

Supreme Court's favorite whipping boy. Way now, the third Federal Circuit case the Supreme Court has overturned this year, and they harshly vacated a fourth. That's a trend we've seen for quite some time. So over the last five years, the Supreme Court has reversed the Federal Circuit the time, and that does not include when the justices affirmed the result but rejected the logic. The Federal Circuit is batting about zero before the High Court, and I think the

message is clear the High Court. The Supreme Court believes that the Federal Circuit has been overreaching on behalf of patent holders and has been dialing back on those types of decisions. Gregory, excuse me, Let's go back to consumers for a moment. Because the companies make like for example, lex Mark, they make most of their money off the cartridge sales, so is there anything to stop them from just putting out one cartridge at a higher price. I

think that's exactly right. So I think I disagree with robbing against uh not you know somewhat. I don't think Supreme Courts said you don't get to charge the higher prices. I think Supreme Court said you can charge once. Uh. And the implication of that that you most companies like lux Mark will end up charging the higher prices. They will basically do away with the discount condition that people

return the cartridge. So instead people who you know, where they were willing to return the cartridge or not, not, everybody's gonna get charged the higher price. Uh. And ultimately, I think for people who used to pay the higher price anyways, I think there will be in difference for people who were very willing to pay the lower price in exchange for these restrictions, They're actually gonna be worse off.

And I think what making matters worse is that not only did Spring Courts say that this rule now applies within the United States, they also say that the same thing applies if the patentees of the product abroad, and that has some serious implications. So, for example, pharmaceuticals are all, there's very different prices in the United States and abroad,

especially if you think about third world countries. And if people now understand that there's other restrictions as to what you can and cannot import to United States, nothing to

do with patent law. But nonetheless, if people can buy drugs that are meant for third world countries for people who can't afford to pay a lot, and then paying those lower prices and instead bringing back to the United States and sell them here, ultimately perhaps American consumers might be better off because they pay lower prices, but that means that people in third world countries will very much be robbed of the opportunity to get access to drugs

at low cost because companies will no longer be able to place differentiate And I think that's a problem, Robin. Uh. Let's talk about that those international sales, because that was the subject of Justice Ginsburg's partial descent and and and part of the argument is, look, when you're when you're selling something abroad, you don't get the charge of that higher price. Uh, that that that that comes from that comes from having a patent on some things that you're

perhaps rising at a lower price. And then if somebody turns around and brings it back into the United States, that's really gonna undermine your sales without giving you any corresponding benefit to the pharmaceutical pricing areas when I've studied a lot and is very troubling. I'm I'm sure most of your listeners have had sticker shock going to buy medication for themselves or their relatives. With the prices of

drugs in this country have skyrocketed in recent years. That has been less true in the international market, so US customers are supporting super high prices here um and paying for lower prices abroad. Now, I'm not sure that the prediction that prices will rise internationally on pharmaceuticals will hold true because lots of other companies have different types of payer systems, and pharmaceutical companies don't have the ability to

charge those higher prices everywhere that they can here. I don't think we'll see that, but it would be interesting if the effect of the Supreme Court decision would be to see some discipline of price in this country as they have gone so high. And Gregory speaking about pharmaceutical products, is there more of a danger there with or is there more hesitance to reuse certain things like devices like

cardiac catheters or things like that. Well again, so pharmaceuticals there aren't interesting um interesting issue because in addition to of course the patent rules, there are other rules and other regimes that may preclude reimportation um. And there's of course into the backstop as you mentioned, that may be fear of using or reusing some devices like catheters or

pacemakers because of the potential for tort losses. But there are for example, uh, anti metrobiol drugs that are being sold to combat aids in sub Saharan Africa where people can't really afford to pay more a dollar a day or two dollars a day. Whereas but the way they're sold the reason they're also cheaply. There's Robin is right. The United States and Western world general, US a bit more, the rest of the Western world a bit less subsidizes those drugs by staying higher prices here. And if we

now are dealing with a doctor of international exhaustion. Uh and when everybody with our American consumer or a you know, some elite consumer can buy a drug that fill for two dollars, what's going to happen I think there's those two doctors are gonna get reported back into the United States. We're gonna have to leave it there, Greg, thank you, Greg Dolan, Robin Selman. Coming up, we're gonna talk about fiduciary duties by investment advisors. This is Bloomberg