Patent Exhaustion Policy Tradeoffs in the Impression v. Lexmark Oral Argument

Rather than grappling with the hard economic policy issues that patent exhaustion presents, the Justices were surprisingly quiet during Tuesday's oral argument in Impression v. Lexmark. I've previously discussed the Federal Circuit decision in this case, and Ronald Mann has a preview and recap of the argument, so I'll just add a couple of additional thoughts on the policy tradeoffs:

Daniel Hemel and I have explained how a ruling for Impression would likely hurt consumers in poor countries in a Columbia Law Review Sidebar piece last year and in a Wall Street Journal op-ed on Monday, and our longer Minnesota Law Review article explains why a U.S. rule of international patent exhaustion would undermine the ability of other countries to experiment with alternatives to the patent system for allocating access to knowledge goods. The only acknowledgement of this concern during argument seemed to be when the advocate for Impression, Andrew Pincus, implied that pharmaceutical parallel imports would not be a problem because "the FDA has full authority to prevent imports under 21 U.S.C. 381." But as Daniel and I note in our Columbia piece, this statute is far from a substitute for U.S. patent rights—it depends on discretionary government enforcement (which might not be particularly vigorous when U.S. policymakers are concerned about health care costs), it is subject to a personal use exemption, it only prohibits re-importation (not importation of drugs manufactured abroad), and it only affects prescription drugs (not trade in other patented products including medical devices or low-cost laptops).

So what were the Justices concerned about? The only policy consequence they asked about was the argument of pro-exhaustion parties that the current system generates needless complexity. Chief Justice Roberts asked about the "products with literally thousands of different patents" such that "it just gets too complicated," Justice Sotomayor questioned whether "having different rules with respect to copyright and patents … will complicate the checking," and Justice Breyer was concerned about needing "a sticker on every toy" to explain the relevant patent rights. But as Daniel and I have explained, "the cost of determining whether the patentee has reserved its U.S. patent rights does not seem particularly onerous in comparison with all the other information costs involved in verifying that a product is noninfringing." And none of the amici have been able to quantify—or even point to good examples of—severe information-cost externalities related to the current patent exhaustion laws. Justice Alito asked counsel for Impression whether the current rule has "caused a lot of problems," and he didn't get any concrete examples.

Given the relatively cold bench, it is difficult to predict where the Court will end up. Justice Breyer, Justice Sotomayor, and Chief Justice Roberts asked questions favoring Impression, but Justice Alito seemed to lean toward the status quo, and Justice Kennedy asked if the Court should be "cautious in extending" patent exhaustion because it is not codified. Justices Kagan and Thomas were silent. Ronald Mann thinks the Justices "are well aware of the major implications here and don’t see any obvious way to avoid doing something that will have real economic consequences"; I hope he's right that they have really had a chance to consider the inevitable tradeoffs at stake.