Litigation and Rulings
Since Medipart and hospitals dealing with it were defying Mallinckrodt's “Single use only” label and adversely affecting its business, Mallinckrodt sued the recycler for patent infringement. Medipart then moved to dismiss the patent infringement claim because of the exhaustion doctrine; the district court agreed and granted summary judgment.
Mallinckrodt appealed and the Federal Circuit reversed. It held that, despite the breadth of the language of the Supreme Court’s decisions on exhaustion, the apparently absolute rule against post-sale restrictions on patentees' customers should apply only to price-fixes and tie-ins. In cases not involving price-fixes or tie-ins, such as this one, patentees were free to limit their customer's use of products as long as the restrictions did not so greatly hinder competition as to amount to an antitrust violation.
The reasoning of the Mallinckrodt court proceeds along the following lines:
- Most or many of the Supreme Court's line of exhaustion doctrine cases involved price-fixing or tie-ins.
- Therefore, they could have been decided on the legal theory that price-fixes and tie-ins are illegal per se.
- Any sweeping language by the Supreme Court about property rights, and about post-sale restrictions on customers’ use of patented products not being patent infringement, is mere obiter dictum that may properly be disregarded in cases not involving price-fixes or tie-ins.
The ruling in Mallinckrodt had two principal prongs, both of which figured in subsequent Federal Circuit decisions. First, the main holding was that patent owners could sell patented goods with a restrictive notice and thereby restrict the disposition of the goods by the purchasers, with the sole exception of price-fixing and tie-in restrictions. Thus, the Mallinckrodt court had said that, “nless the condition violates some other law or policy (in the patent field, notably the misuse or antitrust law),” patentees enjoyed freedom of contract to impose post-sale restrictions on customers under a rule of reason. “The appropriate criterion” for determining the limits of this freedom to impose restrictions, according to the Federal Circuit, “is whether restriction is reasonably within the patent grant, or whether the patentee has ventured beyond the patent grant and into behavior having an anticompetitive effect not justifiable under the rule of reason.”
The second prong concerned patent misuse. According to the court, the legal tests for post-sale restrictions and for misuse were alike, outside the tie-in and price fixing area: “To sustain a misuse defense involving a licensing arrangement not held to have been per se anticompetitive by the Supreme Court, a factual determination must reveal that the overall effect of the license tends to restrain competition unlawfully in an appropriately defined relevant market.”
Other Federal Circuit decisions have followed the ruling of the Mallinckrodt misuse prong.
Read more about this topic: Mallinckrodt, Inc. V. Medipart, Inc.